Similar to Amazon, The Walt Disney Company and 3M are two examples of companies that have achieved success through diversification. Each case study focuses on the diversification strategy used by the company and why it was considered a success. Our research also covers three competitive strategies implemented by Amazon; the launch of Amazon Handmade to compete with Etsy, last-mile delivery to compete against Walmart, and the recently launched luxury stores to compete with high-end department stores.
SUCCESSFUL DIVERSIFICATION: CASE STUDIES
The Walt Disney Company
- According to an academic paper, the main strength of The Walt Disney Company was its diversification strategy. The company started as a movie production studio. After several years of success, it diversified into other industries such as amusement parks (Walt Disney World), television (Disney Channel), the digital industry (Interactive Division) in video games and websites, as well as consumer products for merchandising Disney characters and stories.
- As a movie production studio, Disney is considered a success as it is now considered as one of the “big six.” The company owns three of the biggest channels by audience size; ABC, ESPN, and Disney Channel and has positioned itself in the television industry. The paper also notes that Walt Disney World is also the indisputable leader in the amusement park industry.
- An article from the Market Realist states that brands are the core of The Disney Company’s growth strategy and that it is focused on strengthening its brands in international markets. The company also capitalizes on its earlier acquisitions such as Pixar, Lucasfilms, and Marvel and leverages their success across other business segments.
- According to Investopedia, Disney, with a market cap of $238.9 billion is considered as one of the most successful and powerful entertainment companies in the world. With the acquisition of 21st Century Fox in March 2019, Disney became the largest media powerhouse on the planet.
- 3M was established in 1902 as the Minnesota Mining and Manufacturing Company but started to diversify when it entered the tape market in the 1920s.
- The company’s strategy was to develop a niche product in a new market through closeness with the customer, and then diversify into related areas. 3M did best when it introduced radically innovative products into a niche market which it had already entered into.
- Investopedia states that Beyond Scotch Tape and the revolutionary Post-It Note, 3M manufactures almost 55,000 items across four business segments: Safety and Industrial, Transportation and Electronics, Healthcare, and Consumer Business. It further states that since the company is not dependent on one area, its product offering is resilient despite risks in other business segments.
- The company had invested more than $3.6 billion in R&D in 2018 and has reported $32.1 billion in revenue in 2019. 3M’s diversification strategy has proved to be a success even amidst the COVID-19 pandemic and as of May 2020, it has doubled its production of N95 respirators to 1.1 billion per year since January and plans to double its capacity again to 2 billion by 2021.
AMAZON’S COMPETITIVE STRATEGIES
1. Amazon Handmade
- Amazon’s announcement of the launch of its Handmade gift shop, an expansion of the company’s Handmade site which was started in 2015 had a direct impact on competitor Etsy. This news resulted in a 3% drop in the share prices of Etsy (with a market capitalization of $1.9 billion) during midday trading.
- Amazon Handmade sells products such as jewelry, stationery, and party supplies, etc, and has since expanded its operations into clothing, shoes, and pet supplies. The new gift shop targets the same buyers as Etsy; shoppers who tend to buy homemade gifts on special occasions such as weddings and Halloween.
- CNBC also notes that the new business represents Amazon’s efforts to focus on the “softer side” of retail. By entering into retail and crafts, the company seeks to establish itself as a marketplace for more personal items.
- Amazon sought to become a platform for everyone, including those that make their own products. It was clear that there was a demand for this market, which was proven by the popularity of Etsy.
- An article from Vox focuses on the impact Amazon’s Handmade had on Etsy and its business model. “The people who built Etsy dreamed of remaking commerce with their bare hands. Fifteen years later, its sellers are being asked to compete with Amazon.”
- In 2019, Etsy had announced that it is encouraging sellers to offer free shipping to its customers on all orders above $35, and those who did not would be deprioritized through the search algorithm. Etsy was forced to compete against Amazon’s low prices, speed, and convenience offered to customers. The seller transaction fee was also increased from 3.5%-5%.
- According to Jungle Scout, artisans (i.e sellers) have the option to use Amazon’s Fulfillment by Amazon (FBA) method, which requires shipping the products to Amazon’s warehouse. The items become Amazon Prime-eligible and the company handles shipments on behalf of the seller. The products can also be sold from the seller’s own location using Amazon’s Fulfilled by Merchant (FBM) method.
- The products are showcased on the Amazon’s Handmade marketplace under 14 categories. Similar to Etsy, sellers have their own custom storefront.
2. Last-Mile Delivery
- An article from Institutional Investor states that Amazon is “in the closing sprint alongside increasingly web-savvy brick-and-mortar rivals like Walmart and Target. The victor will be the firm that can most rapidly deliver online orders to customers’ homes, within a day or less.”
- The thousands of stores owned by Walmart and Target that were easily accessible to customers was a serious threat to Amazon. The company’s (last-mile) strategy was to build “more fulfillment centers in closer proximity to consumers; delivering the goods from those warehouses just a day after online purchase; and signing up more Prime members who were eligible for one-day delivery for an annual fee of $119.”
- The last-mile strategy also involved electric-powered delivery vans, drones, sidewalk robots and partnerships with third parties.
- According to Supply Game Changer, Amazon successfully set the benchmark for last-mile delivery by setting up massive distribution centers within a short distance in every major city in order to offer fast delivery for every product sold. Amazon Prime registered sellers received free one or two day delivery through Amazon’s fulfillment centers, while others were required to provide their own warehousing.
- This was part of a deliberate strategy to create a need in customers for fast delivery, and to establish its dominance in the market because very few competitors had the size and scale to meet these new expectations. Rivals such as Walmart and Target were faced with the challenge of competing with online marketplaces for third-party sellers that were much smaller than Amazon’s.
- While recent earnings of competitors such as Walmart have remained stable despite Amazon’s last-mile strategy, Retail Dive warns that the “failure to match Amazon’s initiatives with their own efforts — a network of company-owned delivery trucks or special deals with UPS, FedEX or USPS — will spell the end of a major retail-store competitive advantage of instant gratification.”
3. Luxury Stores
- In September 2020, Amazon announced the launch of its luxury stores featuring the iconic fashion brand Oscar de la Renta with the aim of providing a new shopping experience for customers along with established and emerging luxury fashion and beauty brands. In Style has reported that in addition to Oscar de la Renta, two other luxury retailers; Roland Mouret and La Perla have recently partnered with Amazon.
- Amazon’s luxury shopping experience is currently invitation based and only available for its US Prime members through the Amazon mobile app. The luxury stores combine innovative technology such as “View in 360,” which allows customers to visualize their outfit for a more engaging shopping experience, in addition to the convenience offered by Amazon.
- The partnering brands operate based on the “store within a store” concept where “brands independently make decisions regarding their inventory, selection, and pricing — and Amazon offers the merchandising tools for brands to create and personalize content in each of their unique brand voices.”
- According to Retail Wire, Amazon’s luxury stores was launched with the aim of attracting both established and startup brands “to serve as the luxury everything store for its Prime members” and to position itself as a key player in the luxury fashion, beauty, and accessories market.
- The article further states that this move could be particularly troubling for upscale department and specialty stores that had been struggling through the current pandemic.
- While there is insufficient information available (due to its recent launch) on the competitive position of Amazon Luxury stores, Fox Business has reported that the stores will operate with a business model similar to Farfetch, which provides its luxury retailers with complete control of the aesthetics of their stores.