Amazon UK – Product Development

US-listed online shopping giant Amazon, has now launched a new grocery section to their website. This is a great example of related-diversification, one of Ansoff’s Matrix’s strategies, which involves offering new products to new customers – current customers, however, are also likely to use the new service. Currently 22,000 different products are available online, which is more than ‘Ocado’ offer, and standard Amazon delivery charges or £49 for unlimited delivery per annum apply. Yet they face several difficulties that needed to be monitored and reviewed as part of their Marketing Plan.

Not only does Amazon face strong competition from Ocado, a rival online supermarket, the oligopoly-forming supermarkets of the U.K all offer their own online and delivery service. This is issue is moreover emphasised considering that Amazon can only offer deliveries within a working day, not within hours like rivals, which may be an issue when the Product sold is perishable; their distribution channels may need optimising. Also, there is an issue with branding. Although Amazon a diverse range of products, it may be hard for Amazon to associate themselves among consumers for food – there is a huge issue with trust and consumer relationships need to strengthened through effective PR. Thus, because their operations are heavily geared towards gifts and conventional goods, there is a high degree of risk associated with diversification; hence, an effective SWOT analysis is likely to form a vital element of their marketing plan.

However, Amazon do have several competitive advantages as a market-leader for online shopping, which leads to real advantages besides economies of scale. Customers may be attracted to Amazon, rather than competitors, for bulk-purchasing of specific products; niche’s can be found for customers quirky needs and non-perishable grocery goods like wine, for instance. Hence, their weaknesses – an inadequate distribution system – may become a strength because it is suited for bulk-buying. In addition to this, there is potential for cross-marketing of Amazon’s different shopping departments. This is what management are hoping for: customers who purchase a cookery book may now be encouraged at point of sale to buy any ingredients they are likely to need, thus boosting sales revenue. So, although Amazon are unlikely to alter the competitive structure of the market significantly and have little management experience, it is likely to provide yet another revenue stream – given that you can purchase almost anything online these days.

Overall, sales will be very slow and unlikely to pick-up significantly in the medium to short-term. But as technology becomes more and more accessible and integrated with day-to-day life, and if such change is anticipated and managed well, then in the very long-term sales will increase. Having said that, will it be Amazon’s sales increasing or the market size increasing? Competition is a major external influence on this strategy that may constrain success.

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