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This 15 page Class Notes was uploaded by Anna Notetaker on Friday September 30, 2016. The Class Notes belongs to BUAD 4890 at Middle Tennessee State University taught by Richard Mpoyi in Fall 2016. Since its upload, it has received 13 views. For similar materials see Strategic Management in BUAD at Middle Tennessee State University.
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Date Created: 09/30/16
1 Amazon: Kindle Fire Lindsey Warren Anna Jacobs Daniel Stephens 2 Background…………………………………………………………………………………3 Discussion of Strategy…………………………………………………………………….4 Five Forces Model…………………………………………………………………………45 Driving Forces……………………………………………………………………………...56 Key Success Factors………………………………………………………………………67 SWOT Analysis…………………………………………………………………………….910 Analysis of Financials………………………………………………………………….....1011 Strategic Concerns………………………………………………………………………..1112 Recommendations…………………………………………………………………………1213 Works cited page……………………………………………………………………………14 3 Background: When you contemplate purchasing a product, your first thought as a consumer is what truly makes this product different when compared to the competition? Is it the sleek design or the stateoftheart technology? Often, consumers purchase products that are popular in the market regardless of the price. In the marketplace, we, as consumers, can see purchasing loyalty with a brandnamed products, like Apple and Sony. Soon, a change was going to transpire in the marketplace through a basic product with an advanced design that no one anticipated from a company known as Amazon. In 2007, Amazon introduced a product that was unlike any other on the market. This product was known as the Kindle. It was the first EReader that introduced an on board dictionary and Wikipedia along with memory for two hundred titles. An SD card can be added, which only gives the buyers more and more memory along with the Whispernet, which was the internal 3 GB storage. Amazon was innovated in this development by creating selfupdates through your Amazon account. Kindle stood out against the competition because it was a larger device with longer battery life, better screen resolution, and a lower discount price when compared to Sony or Barnes and Noble EReaders. As the years moved on for technology, Amazon kept their products innovated and in 2011, introduced a new and improved EReader known as the Kindle Fire. Before the introduction, Amazon did their research and brought the desires of the public to the product as well as the yearnings of the publishers in the company. The Kindle Fire had 8 GB storage and used your account on Amazon for Cloud Storage. Unlike the first Kindle, the Kindle Fire has a unique feature of WiFi connections and a screen of color. It soon created more of a differentiation in the market place by the set of the price. Amazon began selling the Kindle Fire for $199, which soon became known as the atcost and even a loss to the company. This amount allowed individuals to be owners for the first time to tablets as well as initial adopters of this product. This price also generated a turmoil in the sales of the Kindle Fire to many first buyers and even devoted customers of other technology products. Because of Amazon selling the Kindle Fire at such a low value, this strategy fashioned an enormous number of sales and a narrow profit that was certainly perilous. Soon, Amazon reaped the rewards of this risk and eventually beat the competition of other EReaders and tablets, even the Apple IPad. Amazon also transitioned their focus groups by concentrating on children and Higher Education. With children, games were established especially for the Kindle Fire 4 and was exclusively retailed by Amazon and in Higher Education, this opened new doors. The Kindle Fire allowed students as well as professors to have textbooks all on a small handheld device that fit effortlessly in a bag. Even though there was great modernization with Amazon and the establishment of Kindle Fire, complications began to develop. Soon, buyers criticized the Kindle Fire for performance because of the low battery life, lagging display or the screen and apps, as well as the small features on the device. Discussion of Strategy: Amazon presented Kindle Fire as a product that was sold to consumers atcost or below cost to produce. The Kindle Fire was introduced to the market at the sale’s price of $199, which was a refreshing change to the Apple iPad sale’s price of $499. This risk made by Amazon produced a narrow profit for the Kindle Fire, but also the hope of more volume sales of this new product. With this risk, Amazon had negative as well as positive results. In the Value Chain, Kindle Fire was produced at a minimum cost from raw materials to products in the consumers’ hands. This eliminated steps in the value chain when the price of materials was reduced. This action also made the Kindle Fire a benchmark. It stood out when compared to standards in the marketplace because of the greatly reduced product price. Now, negative factors came into play with the product. Amazon began to focus too much on the cost of the product and the details in the technology began to lag. Amazon also began to focus on volume sales of the Kindle Fire at the atcost or below cost value, which showed a great risk of not reaching a revenue. All in all, Amazon created a strategy that engrossed a Focus Low Cost strategy with the Kindle Fire. Five Forces Model Rivalry The rivals in our ereader industry would be our industry would be irex, Sony, Barnes & Noble, Google, and Hanlin. The rivals in our tablet industry would be Apple, Google, and Barnes & Noble. Because the ereader industry was relatively new when Amazon entered, the rivalry was not as intense. However, once Barnes & Noble entered the industry, the competition did intensify. Barnes & Noble was trying to “capitalize on Amazon’s success in ebooks.” They styled the Nook similarly to the Kindle and they undercut us by pricing the Nook at $259. We retaliated by pricing the Kindle at $259, ensuing a price war. Apple and Kindle would be big rivals in the tablet industry. Apple released their iPad in 2010 at $499. The iPad was a larger version of some of the other Apple products. They were innovative, releasing the iPad 2 just a year later. This product was very fast and very sought after. It was twice as fast as the original iPad, lighter, thinner, and featured a front and back facing camera. Apple was really doing well in this market, selling 55 million iPads since the release of the first 5 generation. We now began to worry that Apple may launch a “mini iPad” tablet to compete with our Kindle Fire tablet. (p. C16) Bargaining Power of Suppliers In the industry, we would not have the upper hand. The publishers have the upper hand. We initially did have some power, however, once Apple and other competitors entered into the ereader/tablet industry, we had to give the power we had back to the publishers. We had initially subsidized the cost of the etext, selling at $9.99, which was really good for us. We were able to announce this as part of our Kindle release, and it helped us sell out in the first three hours. However, this did not last. The reason the publishers have the upper hand is because we stand to lose much more than they do if we do not do business with them any longer. Bargaining power of Buyers We do not necessarily have the upper hand here either, however, losing one or two of our buyers will not kill us. However, it hurts us when we lose customers to competitors. If we lose customers to competitors, we lose market share. This is not good for us because we are not making that money anymore and our competitors are. However, this might not necessarily be the end of us, we can still be successful in the market. In summary, unless we lose a large portion of our customers to the competitor, we can likely still succeed. Threat of New Entrants In our industry, the barriers to entry were initially lower. When we entered the e reader industry the, market was only $3 million and less than 1 percent of all book sales in the U.S. This made it more appealing for Barnes & Noble to enter the industry when they did. They came in looking for a fight, by trying to capitalize on our success and styling the Nook similarly to the Kindle. They also undercut us, pricing the Nook at $299, and we retaliated by pricing the Kindle at the exact same price. Substitutes The substitutes that we are competing with in the ereader industry are books, personal computers, iPad, iPhone, and Android devices. The substitutes that we are competing with in the tablet industry would be personal computers, desktop computers, smartphones, and 2in1 computers. The substitutes do pose a threat to us because they can meet the needs of the customer on a different platform. Some of these products also have some different features that we do not offer on our Kindle or Kindle Fire. Driving Forces 6 Change Because the ecosystem and industry was evolving so quickly, we needed to be able to keep up. We adopted etextbooks, developed an app, and we entered into the tablet industry by launching the Kindle Fire. We noticed that as technology began to evolve more students were beginning to rely on it more as well. College textbooks were so heavy and clunky and they were priced so highly. Students were looking for an alternative and etextbooks were just what they needed. We also wanted to allow our consumers to read their etexts on a variety of products and this led to the development of our app. Once we noticed that the tablet was becoming very prominent in the technology industry we wanted to get in on that market share as well, so we developed the Kindle Fire. Competition We had many competitors in both the tablet and ereader industry, some of which were really beginning to surpass us in technology by offering feature that our tablet and ereader did not yet offer. The iPad had a front and back facing camera, many different apps, was very fast, and consumers are able to access features from their iPhone and iPad. Consumers of Android could also access features from their Android phone on their android tablet. For example, if a consumer connects their devices, Android or Apple, they can access the same applications and even their text message on either device. In our ereader industry, Barnes & Noble had developed the Nook. They immediately attacked the entire industry by pricing the Nook at $259, undercutting not only us, but many of the other competitors. We responded by pricing the Kindle at the same price. This led to a price war and eventually to us selling our products at cost. Focus Group The initial focus group that we targeted was the “reader” group. We wanted to make it more convenient for readers to access many different text options without having to carry several books, magazines, and newspapers. By entering into the e reader industry and developing the Kindle, we surpassed the firms already there. We did this by offering a product that was lighter and easier to use. However, once the technology began evolving and new platforms were being introduced, we knew we needed to enter into an industry that was growing in order to keep up. We entered into the tablet industry by launching the Kindle Fire. In doing this we had to broaden our focus group. We needed to know what consumers were looking for in tablets. We began looking at the children and mobile gamers, media junkies, and higher education markets. Money 7 While Apple was focused on making money, we were focused on producing a low cost device that met the same or similar needs. This resulted in a new risk for us, but we soon reaped the rewards in volume sales of the Kindle Fire. Our strategy was low cost; this connects back to our focus group driving force. One of our groups was higher education segment or students. Many students were looking at ways to save money and our product helped in more ways than one, by offering etextbooks and also by offering lower priced ereaders and tablets. Now students could purchase both their textbooks and their tablets for school, where these etextbooks could be accessed, through us at a lower cost than some of our competitors. Key Success Factors: Innovation Innovation in our industry is key. Some of the innovative steps we took within our firm were updating the operating features in the Kindle, producing a larger version of the product, and offering many different etexts and making the Kindle etext available on different platforms. The operating features we focused on updating and perfecting were page turn speed, screen resolution, battery life, and we reduced the weight. We also wanted to make sure that the Whispernet EVDO cell antenna was running well and not giving our customers trouble. We also considered the idea that many people, including students and business people, might like to be able to view larger etexts. We created the Kindle DX, with a 10” screen that was really great for reading larger documents such as textbooks. We also considered that our customers may like to read more than books. We offered subscriptions for different newspapers, magazines, and blogs one the Kindle. We also developed a Kindle Application that is accessible on different platforms, such as personal computers, smartphones, and tablets. This helps us to keep some of the market share that may be taken away when we lose customers to competitors or substitute products. Target Market Focusing on our target markets is another key success factor. The tablet industry is full of many different target markets. A few of these would be the media junkies, children and mobile gamers, and higher education. (p.C18a) While these are listed as our segments, they are also segments of our competitors as well. We were very attractive to consumers of media because we have a great selection and lower prices. (p.C18a) This segment is what we would classify as the “Media Junkie” segment. Media junkies are described to be “price conscious,” and we fit their “niche” as a lower priced product. (p.C18a) The next segment we were looking at were “children and mobile gamers.” Children growing up in the technology age are really immersed in all sorts of technology. However, there were no records of any sort of computers or other technology being created with children in mind. We knew that 8 almost 30 percent of the apps purchase on parents’ devices were done under the influence of their children. We also knew that 70 percent of homes in the United States owned tablets and that children were using them for playing games. (p.C18a) Another part of this segment was mobile gaming. Mobile gaming was growing at a really fast rate during this time and we wanted some of that market share as well. With our lower price and our durable screen, we were a great option for children and mobile gamers. However, our Kindle Fire tablet has a slower processor, a small screen, and our memory capacity was limited. This weakened our chances to gain more market share within this segment. (p.C18a) The last segment we focused on was the higher education segment. Digital textbooks were becoming really big within the etext industry and we had already dipped our toes into this area, however we wanted to become more involved in this area. We initially we released the Kindle DX, however it did not really make a big impact. Students had become so technology “dependent.” Textbooks were becoming more and more expensive, they are heavy, and bulky, and students needed alternatives. The e text market was a really great way for students to “lighten their load.” Barnes & Noble took advantage of this new opportunity and did well, and they were becoming more and more threatening to us. (p.C18a) Position Position of the firms and their products was another key success factor within the industry. “Product positioning is the process marketers use to determine how to best communicate their products' attributes to their target customers based on customer needs, competitive pressures, available communication channels and carefully crafted key messages.” (smallbusiness.chron.com) Looking at this from a broader stance, this is something all of the firms within the industry should have been focusing on, including us. By this point in both of the industries, there were many new competitors. One of our biggest competitors at this point was Apple. Apple was coming at us from both industries. Not only did they have a fantastic tablet, they were also attacking us in the ereader industry with their iBooks and Newsstand Apps. Another competitor we had to worry about was Barnes & Noble. We had entered the etextbook market by this point and B&N’s Nook was pushing their way into this market as well. How did we position ourselves against Apple? We decided to use the fact that the Kindle Fire was “more budget friendly.” The iPad, while very stylish, sleek, and desirable, was very expensive, running for nearly $500. We positioned ourselves against Apple as “the less expensive option,” which was one of our competencies. One of the headlines actually read, “Help! Santa can’t afford the iPad. Will the Kindle Fire do?” (p.C18b) The Nook, however, was similar to the Kindle Fire and they were closely related in their pricing strategies. B&N had also pursued the strategy to offer subsidies at the 9 point of sale for certain subscriptions that were purchased. (p.C18b) We knew we could do this as well, however we were hesitant about it because we did not want to appear that we were simply giving the Kindle away. (p.C18b) They way they differentiated themselves, on the user experience level, was also how they positioned against one another. B&N’s focus was to provide their own textbased content and allow 3 parties to deliver the rest. (p.C18b) We did this by offering the Silk web browser that would enhance the browsing experience and we offered cloudbased storage services. (p.C1 8b) We also decided to position the Kindle Fire against the Kindle ereader. The traditional ereader was still a really great product for “avid” readers. The product had great features such as page turn speed, screen resolution, the ability to purchase etext from the device itself, and a long battery life. However, our Kindle ereader did face some serious competition from the tablet market. Many consumers owned laptops and smartphones by this point and they were regarded in the market as first and second device. “The Kindle faced stiff competition from newer tablets to be customers’ ‘third device’.” (p.C18b) We began to wonder if the Kindle Fire would cut into our Kindle e reader business. This is simply because consumers might come to “consolidate” their devices into one, as long as it offered all of their needs. EBook Ecosystem The ecosystem of the industry was also a factor we needed to consider. The e book industry was relatively new when we entered and it was still developing. Some of the things that the entire industry had to face was getting access to books in the digitized form. “Book distributors began to develop entire ecosystems around the content, publication, and delivery of ebooks.” (p. C14) Firms in the industry had to begin creating relationships with publishers in order to gain access to the etexts that they were beginning to produce. As the industry began growing more, we took quite a hold by allowing Kindle users to access their etext through our app, available on devices of the competitors and substitutes. However, to protect ourselves, we made it difficult to access ebooks, purchased outside of the Kindle or Amazon, on our devices. Though we had some freedom with the pricing of the ebooks in the beginning, we did have to give some of the control back to the publishers when new firms entered into the industry. The ecosystem was evolving as the industry grew and we needed to be able to evolve and protect ourselves. SWOT Strengths 10 Amazon is the creator of the Kindle Fire and because of this the tablet allows consumers access to all Amazon products. Such as prime delivery and discounts, amazon video, and any other features or benefits that amazon offers. The Amazon Kindle went above and beyond and offers the app store that you would find on Apple products and they offer apps such as Netflix. The next strength they have is their Kindle Fire is attractively priced against their competitors. A new Kindle Fire ranges around $200. There top competitor the iPad is around $500, and the B&N Nook ranges around $300. The prices represent the standard 16 GB hard drive. The third strength that the Kindle Fire offers is discounted eBooks. Most of their eBooks range from $2.99$9.99. Some of their eBooks are even free with Amazon Prime. Kindle Fire’s fourth strength is they offer prime shipping with the product. Which means within 1 to 2 days you can receive your Kindle Fire, without having to pay the shipping cost. There fifth and final strength is every eBook bought on the Kindle Fire comes with and Audio Book as well. Weaknesses The Kindle Fire’s first weakness is they don’t offer all the features that some of their competitors offer. For example, the Kindle Fire does not have a Camera, Video, or iTunes. You can’t text or receive any messages on your Kindle Fire. Their next weakness is they have to compete against Apple products. The reason this is a weakness is because Apple releases new versions of their product every year. With that being said all of Apple products provide eBook Services. Their third weakness is their battery life is the worst against their competition. The Kindle Fire’s battery life is about 7 ½ hours, while the Nook’s battery life is around 9 hours and the iPad’s battery life is around 10 hours. Their fourth weakness is if you break your Kindle Fire you lose all of your content. If consumers have to purchase a new Kindle Fire they will have to purchase new eBooks. Their last weakness is they are selling the Kindle Fire at cost or just above it. We read somewhere that they only make $10 per sell of the Kindle Fire not including eBook purchases. Opportunities Amazon and the Kindle Fire are continuing to improve the quality of content. The first way they are accomplishing this is by acquiring the top newspapers companies across the country like New York Times, Washington Post, and Boston Globe. If consumers have an Amazon account, they are able to access their account from any device. Consumers can get their eBooks on their phone, computer, or any iPad they may already own. The Kindle Fire appeals to the environmentally friendly portion of the market, because they call themselves the Green Book. The reason for this is because 11 they don’t use any materials that make or acquire the books. Everything is electronic. The fourth opportunity is the market for tablet devices is not concentrated at all. Apple owns the most market share at 25%. Next comes Samsung at 13.7%. Then comes Amazon at 7.9%. This means the industry has a lot of room to grow. The last opportunity is the ability to expand the amount of accessible data available to users. The internet is becoming more filled with information every day. This means these tablets have the ability to expand the services they offer. Threats The first immediate threat to the Kindle Fire is the new technology that is coming out in the industry. The Kindle Fire is partnered with sprint’s wireless signal so at times the connection can be shady. The third threat is substitutable products. This includes the Black Berry playbook, Dell Streak, Nook, and iPad. The fourth threat is the number of complaints coming from consumers. Many consumers are finding that they are having privacy, security, and even size issues. Another threat would be the number of different device platforms that Apple and Android have. Amazon has the Kindle e reader and the Kindle Fire. They attempted to make a smartphone, however it did not succeed due to consumer complaints, similar to the ones of the Kindle Fire Tablet. Analysis of Financials: Amazon is one of the biggest companies in the world and they are becoming bigger every single year. When you look at their financial statements, they look impressive. In 2011 their total revenue was around $48,080,000, and by the end of 2015 their total revenue is around $107,006,000. That is over a 100% growth in five years. When you break it down by year it right around 20% growth each year. When you take a look at their gross profit margin you see steady growth as well. In 2011 they had a gross profit margin of 22%, and by the end of 2015 their gross profit margin grew to 33%. Improving 3% 4% every year. Their operating profit margin is not nearly as impressive. Their 2% growth in 2011 is the same in 2015. They actually took a little bit of a drop in years 2012, 2013, and 2014 but recovered in 2015. The concerning number is there net profit margin. Starting in 2011 through 2014 we see absolutely no growth in this area, however, there was finally a 1% growth in 2015. The reason this is so concerning is because the net profit margin is the percentage of revenue after all expenses, interest, taxes, and preferred stocks have been paid. Even though they seem to be making more money when you look at their revenue and other profit margin, but in reality they are just barley growing 12 When you look at their return on equity and return on assets, those numbers are not impressive either. When you look at their ROE in 2011 it was around 8%. That is not bad, however over the next couple of years it drastically drops. Even reaching 2% in 2014. Luckily they recovered to about 5% in 2015. Their ROA took the same road. In 2011 their ROA was about 3%. That number gradually dropped and in 2015 their ROA is 1% Strategic Concerns: One concern we have is the intensity of the competition between Amazon and Apple. Apple has been doing really well in the tablet industry. Their Apple iPad is very sought after, and still able to compete well with the Kindle Fire even though they are priced much higher. The iPad is described in the case as a “Swiss army knife,” in the tablet industry. The second concern we have is the lack of features on the Kindle Fire. The Kindle Fire lacks the software that is convenient for students, such as Microsoft Office. Third are the limited device platforms. Amazon only offers the Kindle ereader and Kindle Fire, though they did develop a smartphone at one point. This phone failed because of similar consumer complaints listed later. The phone was released in 2014 and used a “forked Android system,” however it was “married to the Amazon ecosystem.” The device did not offer Google Play, Google Maps, or Google Music. While it used the Android system, apparently it was an older version, which lacked the security provisions of the newer version. It also used the Silk web browser, which was slow, as we explain later, this is a concern with the tablet as well. (maeuseof.com) Fourth, Amazon’s revenue relies heavily on sales. Amazon has been selling their products at cost in order to stay competitive. Their strategy now is to sell heavily in order to make up for selling at cost. Last, consumers were beginning to complain. Many consumers had security complaints, in fact, one of the target markets, parents, who fall under the children and mobile gamers market, were not pleased that there were no parental controls. Apparently the device “allows for oneclick purchasing,” meaning children could buy anything on their parents’ device and the parents may not know about it until much later. There were also privacy complaints. Consumers were concerned that the “carousel” that is featured on the tablet homepage displayed their browser history along with downloaded apps. As we mentioned before the Silk web browser was a problem as well, because it was slow. The size and weight were issues as well. Consumers said that the tablet was small and heavy. It was smaller than the iPad and not easy to read on. Last, is the inability to customize the tablet. Consumers were not happy that they were unable to customize the Kindle Fire like Apple allows for the iPad. According to ibtimes.com, the Kindle Fire default backgrounds were not 13 changeable. It also runs on the Android system, and, like the Fire Phone, consumers were not able to use the Android market. (ibtimes.com) Recommendations: One of our recommendations to Amazon would be to develop a new device. We feel that while their first phone failed, it was because of the “marriage” to the Amazon ecosystem. If Amazon would develop their own system, similar the way Apple has their IOS system, that allows optional updates, we feel that the phone would do better. The reason that the first one failed is because it was not easy to use and understand. If Amazon did this they could connect the to the Kindle Fire, similarly to how Android and Apple tablets and phones can connect. Consumers would have access to their apps and text messaged on both devices. Developing a new device would broaden their device platform and help Amazon with their revenue reliance problem. If they are able to effectively and efficiently develop a device that runs smoothly, it would sell similarly to the way the first edition Kindle sold. The next recommendation that we have is for Amazon to align with Microsoft. This would give them the ability to allow consumers access to the software on their devices and would give them another advantage. This would help take solve some of the feature issues. This would also help with the revenue issue. This software is desirable to consumers, especially students. If this Amazon offered this device that allowed students access to etextbooks, which are less expensive, worked as their computer for school, and contained this access, students would find it to be a much more desirable option, as opposed to a PC. This could also take some market share away from Apple, in regards to their Mac book. Next we would suggest that Amazon go back to the drawing board to solve the issues that consumers were complaining about. Specifically, the security and privacy concerns. Amazon needs to ensure that their consumers’ information is safer by requiring a password before a purchase, similar to Apple. They also need to ensure that their consumers’ privacy is protected. They should have an option for the consumer to choose to display their web browsing history or downloaded apps on the carousel, this allows the user to display or not display the information, depending on what they want to keep private. This would help to solve some of the consumer complaints. Last they need to redesign the physical product. Amazon has had many complaints about how the product is hard to hold because of how small the tablet is. Amazon needs to make the screen bigger. The Kindle Fire has a screen size of 7.5 inches in height and 4.7 inches in width. Apples is around 9.4 inches in height and 6.67 14 inches in width. There screen size needs to become more like apples and get around 8.5 inches in heights and probably 6 inches in width. Works Cited Greenberg, Julia. "Kindle Fire Complaints: Top 11 Problems With Amazon's Tablet." International Business Times. N.p., 14 Dec. 2011. Web. 25 Sept. 2016. 15 Cawley, Christian. "5 Privacy Reasons Not To Buy An Amazon Smartphone."MakeUseOf. N.p., 5 Sept. 2014. Web. 25 Sept. 2016. "Amazon.com Inc. (AMZN) | Income Statement." Stock Analysis on Net. N.p., n.d. Web. 25 Sept. 2016.
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