Marketing class paper

Analysis of DISCO CRAZY Inc.

1. What is your idea? (Briefly but very convincingly) PRODUCT STRATEGY

2. EXTERNAL ENVIROMENT OF AUTOMOTIVE INDUSTRY: 2.1. Industry Overview and Analysis

Toyota Motor Corporation competes in the automotive industry. The past five years were

tumultuous for automobile manufacturers. Skyrocketing fuel prices and growing environmental

concerns have shifted consumers’ preferences away from fuel-guzzling pickup trucks to smaller,

more fuel-efficient cars. Some automakers embraced the change by expanding their small-car

portfolios and diversifying into the production of hybrid electric motor vehicles. Other

automakers were more reluctant to shift their focus from big to small cars, expecting the price of

fuel to contract eventually, bringing consumers back to the big-car fold. When fuel prices did fall

during the second half of 2008, it was due to the US financial crisis ripping through the global

economy. This had a domino effect throughout the developed and emerging worlds, with many

Western nations following the United States into recession. Industry revenue fell about 15.4% in

2009. 2 Pent-up demands will aid industry revenue growth, estimated at 2.1% in 2013, thus

bringing overall revenue to an estimated $2.3 trillion. 3 Overall, the large declines followed by

recovery are expected to lend the industry average growth of 2.2% per year during the five years

to 2013. Throughout the past five years, growth in the BRIC countries supported production.

Rising income in these countries led to an increase in the demand for motor vehicles. Also,

Western automakers moved production facilities to BRIC countries to tap into these markets and

benefit from low-cost production. Over the next five years, the emerging economies will

continue their growth, and demand for motor vehicles in the Western world will recover.

Analysis of DISCO CRAZY Inc.

Industry revenue is forecast to grow an annualized 2.5% to total an estimated $2.6 trillion over

the five years to 2018. 4

2.2. Industry Life Cycle

This industry is in the mature stage of its life cycle.

2.3. Industry Demand Determinants

Worldwide automobile demand is tied to vehicle prices, per capita disposable income, fuel prices

and product innovation. On the supply end, vehicle prices stem from material and equipment

costs, with higher steel and plastic prices raising manufacturers’ purchasing costs and, ultimately,

retail prices. During the past five years, automakers have been plagued with high steel and

plastics prices, which have raised manufacturing costs and product prices. On the demand side,

per capita disposable incomes determine affordability for consumers. As incomes increase, the

propensity to purchase motor vehicles increases as they become more affordable. Incentives are

used to generate sales during periods of low economic growth. Over the past five years, there has

been a significant increase in the number of automobile financing companies being established in

the BRICs. This has resulted in the number and range of automobile loans increasing, which has

contributed to stronger industry demand. In the developed world, overall improved quality

among most manufacturers has caused buyers to feel freer to use price to differentiate similar

products. Consumers are increasingly better informed about a vehicle’s actual cost and less likely

to accept large annual price increases. In an era of low inflation, customers familiar with dealer

cost information from consumer publications and the internet have become more astute when

negotiating the purchase of a vehicle. In this way, consumer awareness and access to information

Analysis of DISCO CRAZY Inc.

can determine demand. Movements in fuel prices also generally influence the demand for

vehicles by type. During periods of high fuel prices, more fuel-efficient vehicles are in demand.

Over the past five years, the price of fuel has been rising, which has encouraged the adoption of

hybrid and other fuel-efficient models. For example, Japanese carmakers offering more fuel-

efficient vehicles took market share from manufacturers of large vehicles throughout the latter

half of the past decade. Last, product innovation can spur demand, especially with regard to more

fuel-efficient vehicles such as hybrids and electric models. The more fuel-efficient a model is,

the more

A. Industry
Environment

The industry environment deals with the factors and conditions that affect all participants in

an industrial market in a similar way and cannot readily be influenced by marketing. Here

Porter’s five forces have been used to see the overall competitive intensity and attractiveness

of online retailing industry.

Porter’s Forces

The five forces are used to analyze and measure the competitive intensity of a market. Such

research should show the overall attractiveness for the market in question.

1. Porter’s Five Forces analysis

The Threat of New Entrant can be properly evaluated if we are able to do a close

analysis of the entry barriers. The major entry barriers are as follows:

1. Capital Requirements ( ): The industry that is analyzed can be classified as e-

retailing, also known as e-tailing. The capital requirement to begin an e-retail business is

Analysis of DISCO CRAZY Inc.

low. Amazon was started in a garage with a minimum capital requirement. The

investment in e-retailing is much smaller compared to retailing industry in general.

2. Economies of Scale ( ): In this e-tailing business, developing a successful business

model entirely depends on economies of scale, which in return provides cost leadership.

The development process is very time-consuming as well as it needs numerous financial

investments. The entire success of Amazon is based on the economies of scale that was

built over a decade. Hence the economy of scale is a high priority need.

3. Access to distribution channels ( ): The access to distribution channel is very

important to maintain a free flow of products. Securing the spot with

Distributor/Reseller and Retailers is competitive and most of the company’s lock in with

their distributors to sell only their products. The diversity and lack of concentration

among the distributors and sellers make it moderately difficult to access the channels.

Therefore, for a new entrant, access to distribution channels is moderate.

4. Switching Costs ( ): Switching costs are usually low as there is little product

variability from one retailer to another. In case of e-retailing, the product variation is

minimal as they all acquire products from same manufacturers.

5. Product Differentiation ( ): Again, as retailers sell products from various

manufacturers, the product differentiation is nominal. Amazon sells products from

various brands and offers a wide variety of products which is what E-bay does as well,

so product differentiation is low.

6. Government Policy ( ): Government policies do affect industries but, in case of

retail industry the policies are much more relaxed and they have very minimal effect on

Analysis of DISCO CRAZY Inc.

the industry. For any new upcoming industries, the government is always on the lookout

to promote new business that can eventually enhance the GDP.

a) Threat of New Entrant ( )

Hence, summing up all the entry barriers, it can be concluded that the barriers are

not high and overall entry of a new company is possible. So the threat of new

entrant is high.

b) Bargaining Power of Suppliers ( )

The bargaining power of a supplier in a retailing or e-tailing is very less because

there are a huge set of suppliers from which these e-tailing business operate. Both

Amazon and E-bay have thousands of suppliers from whom they buy their products.

As the number of suppliers is so large, their power is diluted and less.

c) Bargaining Power of Buyers ( )

In this post-globalized world with smart phones and devices, the bargaining power

of a buyer is medium. There are thousands of buyers but still they can exert

pressure because of readily available information. This is observed in case of Best

Buy where they are always ready to match the price whenever a customer shows a

less price in any other store.

d) Threat of Substitutes ( )

The threat of substitutes is low because Amazon is into e-tailing business and there

are not much substitutes to a retail industry.

e) Rivalry among Existing Firms ( )

The rivalry among all e-tailing industry is very high as they always compete on

pricing. The entire e-tailing business is very price competitive. All customers are

Analysis of DISCO CRAZY Inc.

constantly motivated by various pricing strategies that these companies use. Hence

overall, the existing rivalry among all the firms is high.

Figure 1: Percentage of Customers who viewed discounted Books.

The above figure shows that the pricing and discounts have been a key area of

competition. It all started when Wal-Mart, determined to aggressively drive traffic and sales

in the holiday season, announced it would allow customers to preorder 10 of the most highly

anticipated books for $10 each. Within hours, Amazon matched this low price for all 10

titles. Not to be outdone, Wal-Mart lowered its price to $9; Amazon quickly followed suit.

The traffic to the product pages for the 10 bargain books jumped significantly after the initial

price cuts and continued to climb as prices fell. Hence, this showed direct evidence of the

high pricing competition that exists among these firms.

Overall Industry (Status: Unattractive)

Analysis of DISCO CRAZY Inc.

The overall industry can be classified as unattractive as there is a high rivalry among the

existing firms; the threat of a new entrant is high and the margin of profit is very low in retail

industry. Although the entry barriers are not that high but, as the overall picture is negative due

to all the aforementioned conditions, it is an unattractive business to enter for a new entrant.

3 INTERNAL ENVIRONMENT

a. Corporate
Structure

Amazon currently employs more than 88,400 people around the world. The employees

are working in the corporate offices, customer service centers, software development

centers and the fulfillment centers. The company has a total of seven segments. The

corporate structure is a flattened structure (also known as a functional structure) with a

CEO, CFO and the VP of continuous improvement.

b. Core
Competencies

The core competencies of Amazon Inc. are its Database management, Service

Innovation, Selection and Online Customer Experience.

Online Customer Experience

Online customer experience can be defined as an experience involving many facets of

online shopping, including website design, usability, and personalization, webpage load

times, customer support, payment acceptance and order fulfillment. Amazon’s online

customer experiences are enhanced by the participatory network. Primarily, the

participatory network serves as a foundation for many of the social aspects of the online

customer experience. Amazon’s online product reviews serve as the primary social aspect

of the online customer experience. The huge repository provides reviews which are one

Analysis of DISCO CRAZY Inc.

click away from the main product listing. After clicking on “more information” for a

specific product, the user can view product reviews from a vast diversity of reviewers,

thereby providing added value to the online customer experience. In addition, Amazon.com

allows any individual to register with the site and contribute their own reviews of both

products sold on the site and merchants who sell products through the Amazon.com

Marketplace. Upon reading the reviews, customers will note a rating which is placed

against each review so that customers can decide whether to read it. Moreover, registered

users can also provide additional rankings to the reviews depending on how useful s/he

finds the particular review to be. In this sense, Amazon offers consumers an opportunity to

participate in the reviewing process and contribute to the collective work of its online

community. Although reviewers, for the most part, receive no explicit value from

contributing reviews, the participatory nature of the reviewing process enhances the online

customer experience by providing the consumer with additional value in the sense of

community belonging. This is very hard to imitate as this entire process of development of

such a huge repository is a challenge in itself for other web based retailers.

Database management

Amazon employs a vast database containing statistics on customer navigation habits,

product interest, and other preferences. By tracking the interests of it users also participants

in the business model, Amazon is able to create custom recommendations to other

consumers who express interests in similar reading material, musical genre, or video titles.

When previewing a particular product, customers are presented with additional

recommendations, often in the form of a simple statement declaring that “customers who

bought x also bought y”. Clearly, effective recommendations encourage customers to

Analysis of DISCO CRAZY Inc.

browse additional material and buy more than what they had originally intended. In

addition to personalized recommendations, Amazon offers another operational aspect of the

online customer experience by allowing users to create individual “Wish Lists”, where

users can add Amazon products that they would like to acquire.

Selection

Amazon Inc. has Earth’s largest selection of goods. Amazon product lines include books,

music CDs, videotapes and DVDs, software, consumer electronics, kitchen items, tools,

lawn and garden items, toys & games, baby products, apparel, sporting goods, gourmet

food, jewelry, watches, health and personal-care items, beauty products, musical

instruments, clothing, industrial & scientific supplies, and groceries. The company relies

not only on an well-organized distribution channel in order to give have the widest

selection of products available, but also on an extensive array of relationships with

independent sellers who offer their own products on the Amazon website. By opening up

its market to external parties, Amazon inherits a sales presence in products that it would not

otherwise offer to customers. Furthermore, the Seller Marketplace increases Amazon’s

effective inventory without adding to inventory costs. An integral aspect to Amazon’s

product selection is that it is not solely determined by itself. Amazon Marketplace sellers,

third-party businesses who offer their products through the Amazon interface, also

contribute to the overall product selection. By integrating third-party sellers into its

business model, Amazon effectively increases its inventory of products while taking a

commission of their sales revenues.

Database management

Analysis of DISCO CRAZY Inc.

The most powerful competency that Amazon has is the unique and innovative way of using

the data that they collect from a huge customer base that they have access to. Amazon uses

various statistical tools to create customer specific retail curation. In 2012, Amazon

announced Amazon Glacier, a low-cost online storage web service that provides reliable

data archiving, storage, and backup. The core technology that keeps Amazon running is

Linux-based and the central data warehouse of Amazon is made of 28 Hewlett Packard

servers with four CPUs per node running Oracle database software. Amazon’s technology

architecture handles millions of back-end operations every day, as well as queries from

more than half a million third-party sellers.

c. SWOT analysis

Strengths

 Cost leadership strategy

 Economies of scope

 Economies of scale

 Superior quality services and products

 Strategic acquisitions

 Excellent customer base and loyalty

 Efficient distribution channel

Weakness

 Too much diversification leads to drop in performance.

 Negative growth in terms of profit.

 High Expenditure on administration

Opportunity

 Increase services and product portfolio through acquisitions

 Open more online stores in other countries

 Physical presence is needed now to enhance better merchandizing experience.

 Growth in developing economies.

Threats

 Rapid growth of its competitors.

 Legislation against tax avoidance.

 Growths of new business model that can out run this present model.

 Cyber security and increasing vulnerabilities.

 Strategic alliance and development of formidable force.

Analysis of DISCO CRAZY Inc.

1. Strengths

Low cost strategy: The goal of cost leadership strategy is to produce products and services with a

lower cost than the competitors do. The key to achieve this strategy are the economies of

scale. For Amazon to succeed with the cost leadership strategy it has to provide the widest

range of products to achieve the economies of scale and benefit from the low costs of

displaying those products on its online marketplace.

Economies of Scope: Amazon experiences economies of scope by using its superior IT skills to

offer the largest range of products online, instead of offering fewer products. It also uses

excess server capacity which originally was built to support online marketplace to provide

cloud computing services and leverages the already built-in technology to generate revenue.

Economies of scale: The incredible volume of merchandise offered and the relatively low

transaction costs relative to physical store is due to the economies of scale.

Superior quality services and product: Amazon delivers only the best quality services and

products. It is reliable, convenient, offers one of the lowest and fastest shipping, the lowest

price, and many free extra features with its services and has the extensive selection of goods.

Amazon has a brand reputation for great customer service.

Strategic acquisitions: Amazon has been successfully acquiring new firms to bring the new

products, services, capabilities, assets and skills to the company. Due to these strategic

acquisitions Amazon is now capable of offering cloud services, has developed its information

management (IM) and customer relationship management skills.

Analysis of DISCO CRAZY Inc.

Excellent customer base and loyalty: It is a pioneer in after sales service where it supported

return policies that just created the best possible customer satisfactions. The excellent return

policies and shipping arrangements makes it a great place to shop.

Efficient distribution channel: Amazon has a number of fulfillment warehouses in each market it

operates. The warehouses are geographically spread in each country so the goods could be

dispatched faster and with lower cost. It deploys latest technologies to streamline the entire

system.

2. 
Weaknesses

Too much diversification leads to drop in performance: In last quarter Amazon reported loss and

it is due to too much diversification. The overall loss is equivalent to 60 cents per Amazon

share. Amazon said that 37 cents of the loss was due to its stake in Living Social.

Negative growth in terms of profit: Many of the products the Amazon offers are sold at zero

margins to gain the market share and push the competition out of the market. In a short term,

it is a strong tactical move but in the long run it only hurts firm’s profits.

High Expenditure on administration: The increasing cost on the administrative department and

management is hurting Amazon badly in terms of profit making.

3. Opportunities

Increase services and product portfolio through acquisitions: The company has already acquired

many companies to successfully extend its products and services offering. The acquisitions

are helping it to increase its market share and grow rapidly.

Analysis of DISCO CRAZY Inc.

Open more online stores in other countries: To sustain current growth levels, Amazon could

open its online marketplaces in other large and growing economies in Asia and Europe. The

BRIC nations would be a place to aggressively increase its reach and presence.

Physical presence is needed now to enhance better merchandizing experience: Now it’s time for

Amazon to open some exclusive stores to promote and create awareness about its

merchandizing style. By opening some stores and providing shopping in those stores it can

merge its warehousing and retail facilities to cut costs.

4. 
Threats

Strategic alliances: Although Amazon is a massive online firm and can’t be easily surpassed by

small competitors but it faces serious challenges from strategic alliances. For example, the

strategic alliance between Apple and e-books content providers allowed the content providers

to demand that Amazon would sell e-books for higher price or that they will sell their e-books

through Apple store only.

Legislation against tax avoidance: There are growing concerns over how huge multinational

companies, such as Amazon, avoid paying taxes for the countries they operate in. Eventually,

governments will pass a legislation requiring that all companies would pay a fair share of

taxes. In this case, Amazon’s profits would be significantly affected.

Cyber security and increasing vulnerabilities: The enormous amount of customer data that

Amazon stores can be vulnerable to cybercrime and security issues. Amazon stores its online

shoppers’ personal information, such as bank account details, which is a target for online

thefts. The more online customers Amazon has, the more attractive as a target it becomes.

Analysis of DISCO CRAZY Inc.

Growths of new business model that can out run this present model: In the world of internet and

web based business model anything can change overnight. The entry barriers are very less

hence anyone with a new innovative business model can take on Amazon.

A. Review
of
Current
Mission
and
Objectives

Based on the analysis of the firm, it is clear that the mission statement “We seek to be Earth’s

most customer-centric company for four primary customer sets: consumers, sellers,

enterprises, and content creators.” is valid and powerful. The mission is very customer

focused and still shows the core competency of the company along with the value creating

philosophy.

I. 
Strategic
Alternatives

d. Alternative
Strategies (Please refer to TOWS matrix)

Internal Factors (IFAS) External Factors (EFAS)

Strengths S1 Well-designed out Supply Chain Model S2 Strong After Sales Support S3 Successful low price strategy S4 Strong Customer Database S5 High quality value-chain.

Weaknesses

W1 Poor Financial Records in recent years. W2 Misguided diversification strategy. W3 High expenditures in administration.

Opportunities O1 Expand into other countries outside the United States and Europe. Specially China and India O2 Focus on Older consumers as they are growing in number. O3 Investment into Technological aspects O4 Use of social media to increase the reach even more. O5 Coming up with better merchandizing ideas to provide better customer satisfaction.

SO Strategies

SO1 Use low price strategy to enter into Asian markets.

SO2 Use supply chain and strong after sales support to create new market to attract older generation. SO3 Use strong Customer Database to create new innovative merchandizing ideas

WO Strategies

WO1 Focus on older population and control diversification.

WO2 Invest into technological R&D and cut the administrative expenses.

WO3 Use Social Media to increase reach and increase profit

margins.

Analysis of DISCO CRAZY Inc.

to provide better customer satisfaction.

Threats

T1 Increased Rivalry T2 Threat of New Substitutes T3 Changing Market Dynamics T4 Economic Impact T5 Lawsuits

ST Strategies

ST1 Use low price strategy to prevent increase in price rivalry.

ST2 Use well designed supply chain to meet market dynamics.

ST3 Use the strong customer base and reach to tackle the threat of new entrants.

WT Strategies WT1 Improve the financials to thwart the new entrant.

WT2 Develop better management styles to cut the administrative

expenses and use that to adapt to

changing market dynamics.

SO Strategies

Amazon can leverage its cost leadership qualities and make in-roads into the Asian markets

specially China and India. It can further utilize its already developed supreme sales service to

attract older generation as they are growing in numbers and have a huge potential purchasing

power. Amazon needs to create even better customer loyalty programs and will have to

increase the quality of online experience even more by utilizing its vast customer data.

ST Strategies

Amazon can use low price strategy to thwart the price rivalry of the existing firms. It can use its

existing competitive pricing model and price dynamics to reduce and eliminate any

competitors. It will have to work out strategies such that it can streamline its supply chain

even more such that the convenience of shopping is increased and it can meet the changing

market dynamics.

WO Strategies

Analysis of DISCO CRAZY Inc.

R&D spending needs to be increased to minimize the risk of changing customer preferences.

Amazon needs to take into account the new market dynamics and customer preferences to

introduce new innovative products into the market. It will have to control its diversification

policies as it has crossed the optimum level of profit return and hence they are facing losses.

WT Strategies

Amazon will have to develop better management styles to cut the administrative expenses and

also will have to grow as a global force such that the firm can have advantage over

geographical, political/legal issues over economic crisis which can be reduced to some extent.

4. PROMOTIONAL STRATEGY

 What will be your advertising media/outlet?

 How much you want to spend on Promotional Cost?

 Why you think it’s the best promotional strategy?

CONCLUSION (Briefly)

Why your business will succeeded? (Based on all above mentioned strategies)

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