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History And Background Of Amazon Marketing Essay

2342 words (9 pages) Essay in Marketing

5/12/16 Marketing Reference this

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There are so many reasons for adopting mergers and acquisitions strategies in companies. However, in general, the main reason for takeovers is company is seeking improvement in its financial performance. “Mergers and acquisition take place when company takeover its potential competitors to reduce its competition and try to increase or gain market shares in the market. Another reason could be because of the company want to branch out its brand name either into related or unrelated area to increase its size. To gain another company’s resources, operation technology or its brand name so that it would be more secure when entering new markets or introduce new products, could be one of the reasons for adopting mergers and acquisitions in business” (O’Hara, 2012).

Kraft foods is the second largest food company after Nestle in the world and it produces chocolate, candy, biscuits, gum, coffee and powdered beverages. It is trying to become a world leader in snacking environment with good quality products. The significant acquisition and divestitures of this company are the purchase of Cadbury which is a British confectionary company on June 2010 and the sale of its frozen-pizza business to Nestle on March 2010 and the author will be going to present about why the company did acquisition and divestment.

First of all, according to the CEO of Kraft, the reason for Kraft buying Cadbury Company is to make it big its brand name into the foreign markets such as India and Brazil as the Cadbury has already had its brand image in those markets (Namazi, 2010). Furthermore, the intention of the acquisition of Cadbury was to present Kraft a strong presence in confectionary and chocolates business and to develop their snack products’ power across the globe and to expand its company portfolio.

Secondly, no doubt every business has to face competition in its respective area. Especially when it comes to foods company, there are so many rival companies either local companies or international companies that the company is going to face. Cadbury is a British iconic brand of confectionary and it probably would be rivals for Kraft foods too if Kraft wouldn’t decide to acquire. But as Kraft foods acquired the Cadbury, not only Kraft foods gain the place in confectionary products but also they enter the Euro markets and it has less competition in confectionary products area. After Kraft and Cadbury joined together, according to Jones (2010), Nestle, which is the world’s largest food group as well as always holds the first or second places in all food categories, falls to the third place in chocolate world after Mars-Wrigley and Kraft-Cadbury.

Last but not least, Ruddick (2010) states that another reason of acquiring Cadbury is Kraft foods is trying to grow its product broadly in market, expand its product range and to become world leading brands in sweets, chocolate and chewing gum. Cadbury itself has achieved a great product quality and brand image in chocolate world as well as Kraft foods itself has got its brand name in the snacking environment such as Ritz, Oreo cookies. With those products, Kraft foods has achieved fairly in people’s taste and already has a firm position in the biscuit market though it is still weak in chocolate field. However, with the Cadbury besides dominating the top positions in chocolate field is no longer a problem for Kraft and even this would make Kraft to become one of the leadership in chocolate brands.

However, there had been a divestment of one of its own pizza business to its rival Nestle Company just before Kraft foods acquired Cadbury on early 2010. In the financial news release of Kraft on Jan 2010, the company announced it agreed to sell its frozen pizza business to Nestle. The reason for this divestment is the company want to focus on the products which can take international markets place swiftly and effectively. Unlike confectionery products, frozen foods are not easy to deliver across the globe efficiently and it would delay the goal of Kraft which is to become the largest food company worldwide.

Andrejczak (2010) outlines that owing to a thought it could get a bit closer to purchasing Cadbury, the Kraft foods sold its frozen pizza business to its largest competitor, Nestle. Both in a sense to waste the NestlĂ©’s competition power in bidding the Cadbury and also in one that it could get money to raise for the Cadbury bid.

Birchall (2010) as well as in the Financial News release of Kraft mention that it is clear that Ms Rosenfeld, the CEO of Kraft, is keener to focus on confectionery products which have high profit margin and can be marketed globally rather than frozen pizza business which is limited global potential and Kraft is trying to boost its company profit and gain its brand name in everywhere. Thus, the company is prepared to get rid of its lower margin and low growth business to sharpen its products portfolio in emerging markets plus global markets. This is one of the reasons why Kraft sold its frozen pizza business to Nestle.

Amazon.com Inc

Amazon.com Inc is established on the World Wide Web in July 1995 and it is the largest electronic commerce company to date where customers can buy almost everything they can imagine online and the company is always trying to provide the lowest possible prices to its customers.

On March 2012, Kiva Systems Inc agreed to be acquired by Amazon.com Inc for $775 million in cash and it is the second biggest takeover of Amazon. Kiva Systems Inc. is the manufacturer of robots that move around warehouses, grabbing and moving shelves and crates full of products.

On the report of Barr (2012), it is cited that the reason of Amazon takeover Kiva is that the acquisition of Kiva took place when Amazon adds a lot of new distribution centres in recent years to service its rapidly growing business. Dave Clark, the vice president of Amazon of global customer fulfilment said in a statement that “Amazon has long used automation in its fulfilment centres, and Kiva’s technology is another way to improve productivity by bringing the products directly to employees to pick, pack and stow.” Therefore, Kiva warehousing technology is making retailers fulfil online orders quickly and with fewer workers.

The author also believes that the competition within rival companies is one of the motives for Amazon to buy Kiva systems. Kiva is an innovative product and since Amazon acquired Kiva, the company is supporting Kiva systems to get the best methods to provide a better service in coming years. To cope with its rival companies such as eBay or Apple which are largest companies in e-commerce fields, the company has to be more innovative in technology operation and always has to find an efficient system to delivering the products to its customers in much better way than its rivals. Kiva technology is helping not only to simplify the tasks but also reduce cost while maximising flexibility of the warehouses tasks from receiving orders to picking the products to shipping to stay ahead of its rivals.

Finally, another reason for buying Kiva is to reduce costs. According to Trefis Team (2012), Amazon’s earning with revenues was up 29% year after year, reaching to $12.83 billion in the second quarter of 2012 report of Amazon. Most of its revenue was coming from the increasing sales of general merchandise and electronics. It increased 34% in international markets and around 41% in the North American markets. On the other hand, the operating margins of Amazon were remarkably declined because of the margin pressures as it has been spending money on its expansion of fulfilment centres continuously in recent years to enable to carry on its rapid growth of business. Since the company is a retail business and furthermore it is growing rapidly, it needs a large amount of storing place to hold the different types of goods. It is not very easy task to do for labour in locating the goods in the warehouse and carry the correct goods swiftly and efficiently whereas the robots can easily identify the goods with bar codes. Thus, by using Kiva’s automated warehousing technology systems at the warehouses, things will get done faster than before and it will boost the speed of productivity which will lead to reduce the cost of company.

Another acquisition of Amazon that the author is going to present is Zappos. Zappos is online shoes and apparel retailer which has become a leader in online market giving the best possible service to its customers. Zappos agreed to be acquired by Amazon on July 2009. All the reasons, that are going to present about why Amazon acquired Zappos by the author, are referred to YouTube video from (07272009july, 2009) Jeff Bezos about Amazon and Zappos.

The reason why Amazon interested in Zappos is that Zappos is unique. Jeff Bezos said in the video that “Zappos has a unique culture that no one has and it is a very significant asset.” It has its own reputation, brand representation and its employees and it is the main reason for Zappos to maintain its brand since it has gained the customer trust and known as the customer based business. Amazon is customer based business and so does Zappos. As both businesses go to the same direction and focus on giving the best service to their customers, it is important for both companies to give customers a good representation of their products.

Jeff Bezos also said that Zappos is under the great hands of great leadership. It can be one of the reasons why Amazon acquired Zappos because it is not easy to find good leaders though it is easy to find an achieved business. An Achieve business cannot secure a good future but good leaders can promise a bright future. In this case, the author would say it is a bonus for Amazon since it acquired Zappos which is under the great leadership with a good brand image in its market area at present and with a lot of potential growth ahead in the future.

Another reason could be that not only Zappos has great leaders it is also connected to Amazon for being a customer obsessed company. In addition, there are even more amazing things. Because of the images of both Amazon and Zappos, it will affect greatly on Amazon which is also a customer based and at the same time Zappos image will also be greatly affected since Amazon is one of the most achieving online retailer businesses which means it has broad market. When Amazon merged with Zappos, they can approach customers from both sides which double the customer, make the companies to enter the market broadly and expand their existing business. As synergy which is two plus two equal five, both companies have good image and good service in their respective areas and thus, joining and participating companies together can enhance the value and brand of both companies in the market positions. Furthermore, both companies can share their strategies, technologies and operation experiences as the best as they could to achieve both brands’ reputation and services and even grow faster in the market.

Part 2: Key Opportunity

Kraft foods

Kraft sold its own frozen pizza business and made a far wider move in confectionery area by acquiring Cadbury. Both Kraft and Cadbury already have their own brands, values and customers in snacking markets. In addition, early this year, Kraft- Cadbury has established a new research and development centre in Birmingham. It is an opportunity to explore new product technology and new product development and best practices for its brands. Besides, there are plenty of things they can do together. They can share the ways they operate, create new ideas for product design and explore new tastes for its customers to gain customers’ attraction. Together they can make more innovative products not only to expand its products range but also to compete with its rivals. Therefore, they both have opportunities to enter new emerging markets together bringing new products and dominate the confectionery market in the upcoming years.

Amazon

As Amazon acquired Kiva robotic warehousing systems, there will be a great impact on labour in the future. Manual workers will be being replaced by robots which means, this will lead reduction in labour cost in coming years and thus, the annual labour costs for the company will decline in the upcoming future. Instead of labour costs, the company will only have to pay for the maintaining cost of the system. However, the initial planting cost for folding the system into Amazon will probably be quite a big cost for the company, even so Amazon has bought Kiva which means it buy its own product to enhance the system so there will be not much cost compared to buying external supplier.

According to Stynes (2011), $2.4 million was spent by Amazon in installing air conditioners in four of its warehouses due to the collapse of workers by high temperature in summer. In the warehouses that use Kiva system need only a few workers and Kiva robots don’t need the same level of climate control, meaning that Amazon can reduce its overhead cost. As not like human workers, Kiva robots can work without light (Madrigal, 2012) and this is another lightning overheard that Amazon can reduce and boost its profit margin. Nevertheless, if Amazon planned to replace the Kiva system once and for all, Amazon could face a pinch. Not only it is going to cost a big amount of initial cost but also the labour turnover cost. The biggest problem may be concerned with redundancy. Firing labour might combine and bring the Amazon a protest since it holds a considerable amount of labour. So the government will not stay still and the governmental involvement must be considered too.

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