Economics and Strategy: Amazon

Interest in the Internet and its use as a marketing tool has been increasing exponentially (Peterson, Balasubramanian, & Bronnenberg, 1997) and continues to grow with the advancement of computer technology. Many people shop online because it is more convenient and efficient allowing them increased time to shop and compare prices with the added advantage of product reviews being readily accessible, influencing the client choice via other buyer's opinions. As these cyber trends evolve both nationally and globally, we will see continued growth within the e-business industry.

The online shopping market is a highly dynamic environment requiring continual innovation to maintain a first mover advantage. To date Amazon has been successful with this strategy, maintaining a lead on its competitors becoming one of the most common purchase Internet engines available. As competitors follow the learning curve, competition increases. With increased competition, comes increased customer expectation. Due to the dynamic nature, Amazon needs to continually review its business model and determine methods of continual value creation. Possible opportunities will be investigated further.

Apparel Opportunity

Amazon has several possible options for future growth. The apparel industry is one of these potential strategies that Amazon is currently investigating, looking at potential methods of implementation as well as analyzing the challenges and the benefits of selling apparel. The apparel industry is estimated to be a 203 billion dollar industry with 3 percent (6.09 billion) being attributed to online sales. Potential growth in this online apparel market has been estimated to grow by 34 percent by 2007. If Amazon could secure 1 percent of this industry as it has at a minimum in other US market segments, this could have an associated potential revenue stream of 6.09 million dollars in the US alone.

The apparel industry to this point has been designed around brick style business strategies. Possible implementation strategies for Amazon to consider include on either end of the spectrum:

1) The standard operating procedure used in the past where a full range of products in disruption centers.

2) Manage web site, selection and negotiating partnerships with significant apparel companies who in turn provide full selection.

The benefit to operating on the basis of standard operating procedure is increased profit share, and a comprehensive knowledge of this style. The negatives are numerous. Due to the trendy nature of apparel there is a risk of holding inventory that is no longer in style and will be sold at a loss. However trends move globally and are often at time lags to one another offering opportunity to reduce some of this risk. Another negative is the increase in warehousing costs. Apparel is