The Value Chain

The concept of ‘Value Chain Anaylsis’ is described at length by Michael Porter (1985). He notes that every firm is a collection of activities that are performed to design, produce, market, deliver and support its products or services. He identifies specific, critical-leverage points where a firm can use information technology most effectively to enhance it’s competitive position (Laudon and Laudon , 2005). In his value chain model, ‘Primary Activities’ such as inbound logistics, operations, outbound logistics, sales and marketing and service, are seen as basic activities that add a margin of value to a firm’s products and service.

Since Amazon’s inception in 1995, they have used information technology to manage each stage of the value chain. Inbound logistics – including receiving, storing, inventory control – are managed by sophisticated technology such Transportation Optimization and Management Systems (TOMS). They, use a set of applications for accepting and validating customer orders, placing and tracking orders with suppliers and managing and assigning inventory to customer orders. In fact in 2007, Amazon’s systems have become so efficient in managing inventory that they generally collect from customers before their payments to suppliers come due (SEC   2007).

Amazon’s marketing strategy is designed to increase customer traffic to their websites, drive awareness of products and services, promote repeat purchases, develop incremental product and service revenue opportunities, and strengthen and broaden the brand name. (Amazon Annual Report 2007). Technology, again, is the conduit for their marketing strategy.

Amazon were the first to deliver personalized Web pages and services. For instance, their technology keeps track of user preferences for books and CD purchases etc, and can recommend titles purchased by other customers.

Their advertising consists primarily of online advertising, including through their Associates...