Amazon Commits Rare Strategic Blunder Using Brilliant Tactic

Nigam Arora
Amazon Commits Rare Strategic Blunder Using Brilliant Tactic

Don't forget the difference between strategy and tactics since lots of people tend to confuse the two.  Strategy focuses on the entire forest and not an individual tree.  Tactics focus on individual trees.

Strategy is concerned with ‘what for,’ while tactics focus on 'how.'

A promotion from Amazon (AMZN) on December 10, 2011 gave customers 5% off (up to $5.00) on up to three qualifying items.  The location feature on smartphones makes it feasible to make discounts available only if the customer checks the price of the goods on the Price Check app while at a physical store carrying the goods.

Without spending a dime, Amazon gets price comparison data, turning customers into unpaid spies. As a tactic it is brilliant to let customers do the work.

A second brilliant aspect of this tactic is in keeping with the age old technique of giving people an incentive to use a new product, the Price Check app in this case.

It is a near certainty that Amazon will draw more volume as more people use the Price Check app.  Amazon is no longer a little fish whose actions go unnoticed, but it is behaving like one.  The strategy at Amazon is proceeding on the same line that has made it the largest online retailer starting from scratch not that long ago.

With the size and market power comes additional scrutiny and a need to change the strategy.  Just ask Bill Gates.  The strategies incorporating highly publicized aggressive tactics were no longer appropriate once Microsoft (MSFT) grew big, but Bill Gates did not know it.

This strategic blunder drew utmost ire from the competitors which in turn led to a government investigation.  The result was an intervention by the government that put shackles on Microsoft.

Some claim that this is the root cause for Microsoft lagging behind in search to Google (GOOG), in phones and tablets to Apple (AAPL), and in virtualization to VMWare (VMW), a majority of which is owned by EMC (EMC).

The point to the foregoing analogy is not that Amazon has become an near monopoly like Microsoft, but rather the fact that Amazon like Microsoft is in a vulnerable position.  The vulnerability, in part, arises from sales tax issues.

Headlines in most newspapers use the words such as ‘ire,’ ‘anger,' and ‘attack.’  Senator, Olympia Snowe (R-ME), has even chimed in calling the promotion a bridge too far.  Advocacy groups are calling the promotion an ‘attack on the Main Street.’   Momentum is gathering as I write this article.  #occupyamazon on Twitter is seeing lots of activity.  There is also a Facebook page called Occupy Amazon.

The strategic blunder is not the Price Check app, but the promotion giving discounts and the publicity accorded to the promotion.  In an election year Amazon is an easy target for politicians.  Considering the size of Amazon, giving it the advantage of not having to pay sales tax certainly is not fair and the ire from this strategic blunder may accelerate the demise of this advantage.  In the long-term, losing the goodwill of a large number of potential customers is a strategic blunder by any means.

The similarity of Occupy Amazon to Occupy Wall Street speaks to the strategic blunder especially considering that the movement claims to represent 99% of us.