When the management wants to examine its product portfolio and differentiate between cost-effective and unprofitable business units, BCG Matrix is a useful tool to carry out this analysis. The matrix comprises 4 quadrants, cash cows, stars, question marks and dogs. The identification of a product in relation to these categories is based on the market share and industry growth prospects. Amazon.com Inc. has been a part of the online market, using its website to access the customers across the globe. Currently, the company has divided its operations into three units; North America, International and Amazon Web Service (Amazon, 2016). The range of products and services offered by Amazon include merchandise as well as electronic, audio and other forms of content that is purchased from the vendors and provided to the buyers. The following analysis presents BCG Matrix of Amazon’s products.
Cash Cows
There are some product categories that bring in enough revenue for a business entity to regulate its operations of different business units. These products are labeled as a cash cow and the manager’s task is to take leverage of these products and utilize their high market share for gaining high revenues. The industry is mature enough to support the high sales and the high consumer demand further facilitates in positioning the product as a cash cow. There is limited chances of gaining any massive growth in future, however the current profitable position of the business unit communicates a positive outlook for the company. Amazon has generated a great deal of cash through the sale of its e-books, making them a cash cow for the company. The company has recognized the potential held by electronic books, and provided its readers with low cost options for people seeking books. Kindle has supported the company to use the e-books segment as a cash cow. Miller and Bosman (2011) have observed that the sale of e-books has significantly increased over the years, supported by the increasing number of users of Kindle. It has been further speculated that the number of e-book readers will increase in the coming years, making the e-books a high value item for Amazon. Another product that is cash cow for Amazon is its audio books which have also achieved significant sales. In addition, movie on demand has also generated high amount of cash and holds a significant market share in the industry. The example of IMDB is another case of cash cow as it helps the company to manage the sales of its movie DVDs, along with lending support to the movie on demand business.
Stars
The second category of products that is a part of the BCG Matrix is star or rising star, which holds a high market share. As the name reflects, these products are emerging as the leading revenue generator for an organization. They do not yield the same financial return as cash cows, but the future growth of these business units is promising, thus encouraging the management to continue with the investment in them. Even though these products require high investment, they are in a growing phase which suggests that these business units are likely to become cash cows once the industry has reached maturity. The electronic items being sold at Amazon are in demand, making this business unit a rising star for the company as the market share in this domain is also increasing with time. The industry for electronic items is growing, creating vast opportunities for further growth of Amazon. Grisworld (2016) has asserted that the financial performance of Amazon in consumer electronics category shows that it has achieved higher sales as compared to brick and mortar retailers such as Best Buy. This trend is further expected to increase due to increasing number of users of online shopping portals. In addition, the cloud computing segment has shown positive growth prospects in the future, hinting at the product to become a cash cow in future once a significant level of market share is established.
Question Marks
The next quadrant included in BCG Matrix is question marks. These products have the chances of growing into a profitable business, however the limited market share makes it impossible to use these business units as prime revenue generator. The industry is still in growth phase, which indicates that question marks may emerge as a rising star if the business is able to set the right direction for these products. Moreover, environmental conditions that promote growth of these items is also a key consideration in determining the future of question marks. The segment of video on demand had some issues such as poor connectivity which has limited the growth of this segment, making it a question mark. The business units of Zappos has faced similar issues of low growth and return on investment after Amazon’s acquisition of Zappos (Stone, 2009). For zappos and video on demand, the company will need to address the issues which have resulted in low market share as it would help the company to tap into the needs of the market and position these units as more profitable, taking benefit of the growing industry. There is a possibility that the video on demand and zappos may move out of the question mark category in future.
Dogs
The last category in BCG Matrix is used to identify those products that are not generating high sales and have not been able to establish a notable market share. The industry is slowly progressing with little scope of further development, further adding to the complexity of the external business environment. These products do not offer significant financial gain to the company, instead they consume cash investment. Due to this attribute, dogs are recognized as cash traps, since they are not expected to help the business through high ROI. For Amazon mp3 has not been able to provide the company with any solid financial gains, therefore it can be placed into the category of dogs. The mp3 business doesn’t have a high market share and the industry is also growing at a slow pace.
References
Amazon. (2016). Annual Report. Retrieved from http://phx.corporate-ir.net/phoenix.zhtml?c=97664&p=irol-reportsannual
Grisworld, A. (2016, June 21). Amazon will soon dethrone Best Buy as the top seller of consumer electronics. Quartz Media. Retrieved from https://qz.com/712709/amazon-will-soon-dethrone-best-buy-as-the-top-seller-of-consumer-electronics/
Miller, C. C & Bosman, J. (2011, May 19). E-Books Outsell Print Books at Amazon. The New York Times. Retrieved from http://www.nytimes.com/2011/05/20/technology/20amazon.html
Stone, B. (2009, July 22). Amazon’s Expanding With Deal for Zappos. The New York Times. Retrieved from http://www.nytimes.com/2009/07/23/technology/companies/23amazon.html?_r=0
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