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Figure 1: Amazon logo
The challenge of Amazon - (TP077721) WENDY KOH XIN HUI
Amazon is the largest online retailer in the world. Originally, Amazon started as an online bookselling company. Over the years, Amazon has evolved into an internet-based business enterprise that is largely focused on providing e-commerce, cloud computing, digital streaming, and artificial intelligence (AI) services. (Yasar,2022). It provides a range of products and inventories for the consumers to purchase. In today’s life, online retailers are becoming more and more and Amazon faces competitive challenges with other companies as well. Amazon has raised their primes membership fees and in response, a lot of people are cancelling their memberships and turning to other retail sources to shop for lower prices. There are competitive alternatives out there trying to lure customers away from Amazon including Walmart at $99, My Best Buy Total, and Capital One Bank Shopping. The Walmart shopping is a similar plan to Prime that promises fast delivery and other privileges and the Capital Bank shopping also offers a free plan that promises lower prices for the same products as it hopes to extend loans to customers if they make major purchases. (Loeb,2023)
The opportunity for Amazon
To ensure the growth of Amazon, Amazon tries to offer basic and premium tiers with varying costs and benefits for the customers. For example, prime members can enjoy speedy shipping, including access to Amazon Prime Video, Prime Music, Prime Music, etc. The additional incentives manage to improve the value proposition of Prime membership. Obviously, Amazon not only competes with other streaming services but also keeps its customers engaged within the Amazon ecosystem. This synergy of services within the Prime membership realm creates a ripple effect which makes it increasingly challenging for customers to consider switching to a competing platform. (D’souza,2024). Additionally, Amazon also adds exclusive product launches, early access to sales, and discounts on popular items to show and explain the reason for the price hikes. At the same time, it also will prove that the Price of Prime membership is higher as Amazon serves special offers to the members.
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According to McAfee (2021), fake reviews unconsciously permeated Amazon for a long time due to higher feedback can mean a higher ranking in user searches and more exposure to users. Therefore, some companies will use some innocuous techniques like Facebook groups to solicit positive reviews and email to users for getting 5-star review (McAfee, 2021). However, this already violates Amazon’s product review policies which stated that sellers can only request a review without mentioning their intention of getting good review. Hence, a question can be asked from here, how might we prevent sellers from manipulating product reviews?
To ensure that the products’ reviews are valid, Amazon has been using tools to combat this challenge. Amazon has used artificial intelligence to analyze the review whether it is genuine or fake (McCallum, 2023). This is because a huge amount fake reviews complimenting the products would have a probability that affect the decision of the buyer. So, Amazon has invested in machine learning that helps detect and analyze fake and fraudulent reviews (McCallum, 2023). Not only tracking and reviewing reviews, but the AI also looks for suspicious accounts that spread fraudulent reviews. This is to ensure that customers are viewing the valid, genuine and decisive reviews from the real users.
AMAZON - PUTERI HANNAH (TP077710)
A big well known company like Amazon faces its own challenges despite its massive success. One of the challenges faced by them is the high degree of competition that exists between the sellers on the platform. A large number of sellers are allowed to sell on Amazon because of its extremely low barrier of entry for sellers. There are approximately 1.9 million active sellers out there and majority of them are selling similar products which increases the competition among them. The excessive competition makes it harder to be discovered by customers where out of the 900,000 Amazon sellers registered in the United States, almost 38% of them are based in China where manufacturing goods is cheaper giving them an opportunity to penetrate the market with lower prices (Hopstack, 2024). In 2020, ⅔ of sellers on Amazon were interviewed in a survey and expressed concern and fear over the increased competition which led to steep declines in prizes.
Despite its challenges, Amazon always has an opportunity for even better growth in its business. As more people in emerging markets gain internet access and have more money to spend, Amazon's expansion into technology can help its current sellers reach a larger audience. By having this, many third-party sellers and independent partners who already use Amazon will be able to offer their products and services to many more customers (Gaille, 2021). Expanding into these new markets will attract new local sellers and partners to Amazon’s platform, where there will be more options of items sold. Overall, this growth will create more opportunities for all sellers involved, allowing them to expand their businesses and increase their sales.
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Challenge
Amazon owns the world's biggest e-commerce platform, which offers millions of products from vendors around the world. Thus, one of the major challenges that Amazon faces is the effectiveness of inventory management. There are more than 12 million products stored in various fulfilment centres globally, so accurately predicting customer demand and maintaining the optimal inventory level is crucial. In 2022, Amazon's global inventory was valued at $34.405 billion, a 5.41% increase from the previous year, this proves that the complexity and scale exist in their inventory management issue (Gracia.M, 2023). This excessive inventory will lead to an increased cost, while out-of-stock will result in a loss of sales opportunities and customer dissatisfaction (Riaz, 2022).
Opportunity
This actually brings a new opportunity for Amazon which is Artificial Intelligence and Machine Learning Opportunity to solve the challenge. Amazon can utilise their extensive customer data, sales history and advanced analytical techniques to develop sophisticated demand forecasting models. By doing this, the product demand forecasting model will be more accurate when using the model, so that optimising Amazon’s inventory levels to greatly decrease excess inventory and minimise the risk of out-of-stock situations can be achieved. Besides, implementing AI-driven inventory management systems that monitor sales trends in real time, and provide inventory replenishment recommendations could enhance inventory flow, and maximise product availability. Furthermore, Amazon can use its vast logistics network and partnerships with third-party sellers to implement dynamic inventory positioning strategies, ensuring products are strategically stored near high-demand areas, thereby shortening lead times and improving overall operational efficiency (Alex, 2024).
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Amazon is under increasing inspection from regulators globally. Governments are investigating its business practices, including how it uses data from third-party sellers, its treatment of warehouse workers, and its competitive strategies. As a result, antitrust Investigations, labor practices, and data privacy are the major focus of these investigations. Amazon faces antitrust investigations in the U.S., Europe, and other regions (CNBC, 2023). These investigations focus on whether Amazon uses its dominant market position to choke competition and prioritize its own products over those of third-party sellers on its platform. The treatment of warehouse workers, especially concerning working conditions, pay, and benefits, has led to significant scrutiny and legal challenges (The Guardian, 2023). The high-profile unionization efforts highlight ongoing labor disputes. Concerns over how Amazon handles customer and seller data have also attracted regulatory attention (Forbes, 2023). This includes issues around data protection and privacy laws, such as GDPR in Europe.
On the other hand, significant opportunities exist in expanding its cloud computing services through AWS, penetrating new international markets, and diversifying into sectors like healthcare and media. Amazon Web Services (AWS) is a leading player in the cloud computing market, and its continuous innovation and expansion present significant growth opportunities. AWS has been at the forefront of integrating AI and machine learning into its services, providing businesses with advanced tools for data analytics, predictive modeling, and automation (TechCrunch, 2023). This positions AWS as a critical enabler of digital transformation for companies worldwide. Amazon’s diversification strategy includes expanding into various business segments beyond retail and cloud computing. Amazon’s entry into the healthcare sector, with initiatives like Amazon Pharmacy and the acquisition of PillPack, presents a substantial opportunity to disrupt traditional healthcare delivery and pharmacy services (Inc, 2024). Amazon Studios and Prime Video continue to grow, providing Amazon with a strong presence in the streaming market (Variety, 2023). Investments in original content and live sports broadcasting rights enhance its competitiveness against rivals like Netflix and Disney+.
References:
Yasar, K., (2022, June 8). Amazon. WhatIs.
https://www.techtarget.com/whatis/definition/Amazon/
Loeb, W. (2023, October 19). Amazon faces growing delivery competition and consumer
spending slowdown. Forbes.
https://www.forbes.com/sites/walterloeb/2023/10/18/amazon-faces-growing-delivery-competiti
n-and-consumer-spending-slowdown/?sh=c7dc74c5cc6b
D’souza, M. (2024, January 23). Unpacking Amazon’s Prime Strategy: How Prime membership
boosts loyalty and sales. Medium.
https://medium.com/@MaryDsa/unpacking-amazons-prime-strategy-how-prime-membe
ship-boosts-loyalty-and-sales-99b0bca7c3f0#:~:text=Amazon%20Prime%20Video%20a
d%20Prime,engaged%20within%20the%20Amazon%20ecosystem.
McAfee, E. (2021, July 14). Council Post: Why Amazon’s crackdown on fraudulent sellers is a win for everyone. Forbes. https://www.forbes.com/sites/forbesbusinesscouncil/2021/07/07/why-amazons-crackdown-on-fraudulent-sellers-is-a-win-for-everyone/?sh=7f6325939697
McCallum, S. (2023, June 12). Amazon cracks down on fake reviews with ai. BBC News. https://www.bbc.com/news/technology-65881800
Hopstack, T. (2024, April 18). Top 8 Amazon Challenges in 2024 & Their Solutions. Hopstack
Inc. https://www.hopstack.io/blog/challenges-faced-by-amazon-fba-sellers
Gaille, B. (2021, March 24). Amazon SWOT Analysis Matrix: Opportunities and weaknesses
BrandonGaille.com. BrandonGaille.com. https://brandongaille.com/amazon-swot-analysis/
Gracia.M. (2023, October 5). Mastering Q4: Inventory Management Strategies for Amazon Sellers. Zignify Global Product Sourcing.
https://zignify.net/mastering-q4-inventory-management-strategies-for-amazon-sellers/
Riaz, O. (2022, April 21). Amazon Inventory Management: Solutions to Common problems. Forbes. https://www.forbes.com/sites/forbesagencycouncil/2021/11/15/amazon-inventory-management-solutions-to-common-problems/?sh=666d94783925
Alex. (2024, May 17). Amazon Inventory Management Tips to boost your FBA business. Assureful - Intelligent Commercial General Liability Insurance. https://www.assureful.com/amazon-inventory-management/
CNBC. (2023). "Amazon Faces Growing Antitrust Scrutiny Around the World."
https://www.cnbc.com/2023/09/26/ftc-and-17-states-sue-amazon-on-antitrust-charges.html
The Guardian. (2023). "Amazon Labor Practices Under Scrutiny."
https://www.theguardian.com/technology/2024/apr/03/amazon-union-warehouse-california
Forbes. (2023). "Amazon's Data Privacy Challenges."
TechCrunch. (2023). "AWS Innovates with AI and Machine Learning."
https://techcrunch.com/2023/06/22/aws-launches-100m-program-to-fund-generative-ai-initiatives/
Inc. (2024). "Amazon’s Foray into Healthcare."
Variety. (2023). "Amazon Prime Video’s Growth Strategy."
https://variety.com/2023/streaming/global/amazon-prime-video-africa-strategy-1235512709/
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