In 1996, shortly after founding Amazon.com, CEO Jeff Bezos told his employees, When you are small, someone else that is bigger can always come along and take away what you have. Since then, the company has relentlessly pursued growth, aiming to become the global cost leader in customer-centric E-commerce across nearly all consumer merchandise lines. Amazon.com now offers over 230 million items for sale in Americaapproximately 30 times more than Walmartand its annual sales are greater than the next five largest e-retailers combined.

In scaling up, Amazon has achieved lower costs not only through economies of scale, but also by increasing its bargaining power over its supplies and distribution partners. With thousands of suppliers, Amazon.com is not reliant on any one relationship. Suppliers, however, have few other alternative e- retailers that can match Amazons reach and popularity. This gives Amazon bargaining power when negotiating revenue sharing and payment schedules. Amazon has even been able to negotiate for spaceinside suppliers warehouses, reducing its own inventory costs.

On the distribution side, Amazon has been developing its own capabilities to reduce reliance on third- party delivery services. Unlike most mega retailers, Amazons distribution operation was designed to send small orders to residential customers. Amazon.com attained proximity to its customers by building a substantial network of warehousing facilities and processing capability249 fulfillment and delivery stations globally. This wide footprint decreases the marginal cost of quick delivery, as well as Amazons reliance on cross-country delivery services. In addition, Amazon has adopted innovative delivery services to further lower costs and extend its reach. In India and the UK, for example, through Easy Ship Amazons crew picks up orders directly from sellers, eliminating the time and cost of sending goods to a warehouse and the need for more space.

Amazons size has also enabled it to spread the fixed costs of its massive up-front investment in automation across many units. Amazon.com was a pioneer of algorithms generating customized recommendations for customers. While developing these algorithms was resource-intensive, the costs of employing them are low. The more Amazon uses its automated sales tools to drive revenue, the more the up-front development cost is spread thin across total revenue. As a result, the company has lower capital intensity for each dollar of sales than other large retailers (like Walmart and Target). Other proprietary tools that increase the volume and speed of saleswithout increasing variable costsinclude Amazon.coms patented One Click Buy feature. All in all, these moves have been helping secure Amazons position as the low-cost provider in this industry.

1. Using relevant case facts, explain how Amazon was able to achieve low-cost advantage. In your response, please incorporate the Value Chain model. (assess on your understanding of the strategy, the value chain model, and how you applied the two concepts together).

2. As Amazon continues to pursue its low-cost strategy, what are your recommendations to defend against possible threats and pitfalls? (In your response, you are required to relate to course concepts and the case information)

Please answer correctly snd accurately.