Using ALL Trevecca APA Modified Style Guide (see reading list) guidelines in the format, write a 1,000-1,500 word paper including the following headings and content:
Include at least two QCRs (Quotation, Citation, and Reference) – one from the Amazon case and one from What Management Is?
In 50-100 words, respond to at least two of your classmates. Include:
Post your paper by Day 5. Respond by Day 7.
Bezos founded Amazon after resigning from Wall Street investment back in the year 1994. The Seattle, Washington-based company ventured into the E-commerce business of selling books. Before Amazon ventures into selling books, the book retailing business was highly complicated and prone to stock and returned problems as it contained chains and independent booksellers. During this time, for the author’s book to reach the retailers, it had to go through agents, publishers, distributors, and wholesalers. The entry of Amazon into the book retailing business changed the lengthy process as it provided a secure, easy for the first time online buyer’s platform. According to research by Wells et al. (2018), in the year 1995, the company reached annual sales of $ 511,000. The rapid growth saw the company build a distribution center in Seattle (Pg. 2). In the year 1996, the company launched Amazon associates. Amazon’s marketing was 10% of the sales leading to the recording of $15.7 million sales and operating losses of $6.0 million.
Amazon’s growth and success were contributed by Amazon associates, such as American Online, Yahoo, and Netscape. Amazon moved beyond book retailing and acquired an internet movie database where information about movies and television shows could be accessed. The company engaged in more categories such as toys and electronics, video games and software, home improvement and tools, and furniture and kitchenware. The increased market share led to Amazon to operate physical distribution centers, which had a capacity of $10 billion worth of a sale.
Amazon sales continued to grow over the years, reaching $24.5 billion in 2009 and 34.2 billion in 2010. The company profits showed a significant rise over the years from 2015 to the first quarter of 2018, leading to higher share price heights. The growing profits made Amazon the second most valuable company in the world after Apple. The company experienced market capitalization of above $750 billion. However, despite the booming trend in sales of products by Amazon, the company has experienced challenges such as share price fall from $100 to $20after After Living.com closed its website, and other e-retailers demanded renegotiation of contracts in the year 2000. This occurrence led to Bezos’s loss of 80% of his net worth. The other challenge occurred after the United States president initiated an attack on Amazon through twitter, leading to a falling in the share price by 6%. This article addresses the value creation strategies that Amazon has set in place to ensure the customers’ success and satisfaction. Further, we get to observe and discuss the financial health of Amazon for the last three years.
Value Creation Strategies
Creating value is the core duty of management. According to Magretta, (2012), “the importance of value creation is that it highlights the move from managing the resources to managing the performance and outputs of an organization” (Pg. 2). According to customers, the value can take the form of tangible, intangible, or services provided. After going online in the year 1995, Amazon.com decided to provide customers with the most convenient way to buy books at a lower price compared to the physical stores. The expansion of Amazon to new categories of products had significantly created value for the customers. Amazon’s continued growth and investment in the distribution centers led to the company gaining strategic positions within the markets, thus gaining logistic powers. Millions of customers relied on Amazon’s wide variety of products and their ability to deliver to customers quickly after the order had been placed. According to Wells et al. (2018), Amazon’s growth and expansion resulted in customers’ ability to access products from the distribution centers and amazon Websites regardless of the customer location (Pg.6).
Through the Amazon marketplace services, the company has extended its logistics services to third-party sellers, allowing them to create value from the products’ sale. Value is created through the third party’s ability to purchase a percentage of each transaction. Research by Wells et al. (2018) indicates that “According to the Amazon survey, about 715 of the FBA (Fulfillment by Amazon) members showed that unit sales increased by more than 20% after they joined FBA” (Pg. 10). This led to a relatively large number of sellers on the Amazon marketplace, which accounted for about 30% of all units sold. In the year 2014, the figure rose to more than 40 percent of all units sold. In the year 2015, the sellers began accessing loans from Amazon to help them grow.
Thorough the Amazon prime, the value was created from customers upfront in exchange for a year’s worth of free two-day shipping together with other added benefits. With about 30 million subscribers, it is clear that the company showed customers the value it can create for them. Many customers were interested in paying membership fees by charging a membership fee as they gained by experiencing reduced sale of products if they were members. Reports indicate that Amazon prime members were provided with free access to the Kindle Owners Lending Library. In Amazon, prime members experience free services such as free video streaming and free delivery of products. By the end of 2017, the premium members were more than 100 million globally, and they managed to acquire almost 5 billion of products. This implies that the customers gained value through the acquiring amazon prime.
Current Financial Health
To accurately make observations and evaluate the financial health of Amazon, several financial metrics must be considered. According to research by Magretta, (2012) he implies that the best measure of the financial health of any organization can be obtained and evaluated by addressing the profitability (Pg. 6). The other financial health areas that need to be addressed include liquidity, solvency, and operating efficiency for 2015, 2016, and 2017.
Liquidity can be determined by addressing the current ratio and quick ratio.
The current ratio is the measure of the company’s ability to pay short-term obligations.
Current ratio = current assets / current liabilities
For 2015 = 36474/ 33899 = 1.08
For 2016 = 45781/43816 = 1.04
For 2017 = 60191/57883 =1.04
The quick ratio is the measure of the company’s short term liquidity.
Quick ratio = (Current assets – Inventory)/ Current liabilities.
For the year 2015 = (36474-10243)/33899 = 0.77
For the year 2016 = (45781-11461)/43816 =0.78
For the year 2017 = (60197-16047)/57883 =0.76
The current ratio for Amazon.com is slightly higher than the industry average; thus, it is accepted. Therefore it implies that the company is using its assets efficiently. The quick ratio of Amazon.com is below one, and it means that the company may be unable to pay its current liabilities in the short term. This implies that Amazon.com is unable to pay its short term liabilities.
The best metric to evaluate the profitability of a company is the net profit margin. This measure can be used to determine the health of an organization. Therefore, Amazon’s net profit margin is calculated by dividing the net income by revenue the multiplying by 100%.
Net profit margin = (Net income/ Revenue) * 100
For the year 2015 = (596/107006)* 100 =0.56%
For the year 2016 = (2371/135987) *100 =1.74%
For the year 2017 = (3033/177866) *100 =1.71%
The profitability of Amazon.com is seen to be high in the year 2015, with a percentage of 0.56%. The 2016 and 2017 net profitability ratio decreases to a value of 1.74% and 1.71%, respectively. This implies that Amazon’s current practices are working efficiently.
Magretta, J. (2012). What management is: How it works and why it’s everyone’s business. Profile Books.
Wells, J. R., Danskin, G., & Ellsworth, G. (2018). Amazon.com, 2018. Amazon.com, 2018, 40. Amazon-716402-PDF-ENG.PDF
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