Amazon's Simultaneous Differentiation & Cost Leadership

After reading Chapter 7 on Product Differentiation, what I thought was interesting was that Amazon has defied Porter by implementing both product differentiation and cost leadership successfully.  According to the textbook, Porter argued that firms attempting to implement both strategies end up not executing either well at all.  While the text goes on to explain that there are actually ways and advantages to implementing both strategies simultaneously, Amazon is a representation of just how this should look. 

It’s easy to understand how Amazon has implemented the cost leadership strategy.  They established themselves as the low cost leader from house hold items to luxury purchases.  They defined their success on providing products at the lowest cost available to consumers and undercutting their competition.  Plus, not only are they going to offer you the lowest price available, they’re also going to ship it to you for free.  Who wouldn’t join in on this strategy?  This strategy is the reason for traditional brick and mortar shopping to see a sharp decline and also the reason why previously successful retailers like Sears, JC Penney and others have collectively closed thousands of locations throughout the past few years. 

However, there’s more to Amazon’s strategy than just providing a product at the lowest cost.  Amazon differentiated themselves from other companies willing to imitate this cost leadership strategy.  They implemented features and attributes like the Prime membership and innovative technology while expanding into different product categories like Amazon Alexa and Amazon Prime Video to further invest themselves into their customers’ everyday lives.  Through this differentiation strategy, the customer’s switching costs began to increase only making them strengthen their relationship with Amazon even more.  With Amazon now a part of many aspects of the customers’ lives, it has made them much more than just a low cost product provider. 

While I understand Porter’s opinion that most companies will not be able to execute both product differentiation and cost leadership strategies well, I don’t think Amazon qualifies under “most companies.”  They have proven time and time again that they are the exception to the rule and their simultaneous execution of product differentiation and cost leadership is just one of many to be broken by Amazon.