Strategic Alliances

In 2013, Amazon entered into a strategic alliance with Proctor & Gamble. Strategic alliance is a cooperative strategy. It exists whenever two or more independent organizaions cooperate in the development, manufacture, or sale of products or services. So, both Amazon and P&G maintain their autonomy, but they still gain a new opportuntiy.

In this partnership, Amazon uses a portion of P&G's warehouses for packaging and distribution of only P&G products. As a result, Amazon gets quicker and cheaper distribution (that's one less trip the goods have to make) and Amazon can use their original warehouse space for higher-margin items (P&G focuses on consumer goods like diapers and toiletries). P&G benefits by cutting their transportation costs (again, that's one less trip the goods have to make), as well as having Amazon promote their products online (equaling higher sales).

Note that there are three diferent types of strategic alliances:

1. Nonequity
2. Equity
3. Joint venture

What Amazon and P&G agreed to would fall under a nonequity strategic alliance, as they did not take quity positions in each other; it is more of a contractual alliance, not a formal legal partnership, as the other types are.

By 2015, P&G ranks on the first page of results on Amazon.com for over 40% of its individual products, and close to a third of its products are among the top 50 in their category in the number of reviews per listing on Amazon.

It's important for both parties in a strategic alliance to feel like they are benefitting; when the relationship is one-sided or mis-balanced, trouble can ensure... And this includes all stakeholders involved, like suppliers and retailers.

Such is the case with Target. Their reactin to the Amazon/P&G strategic alliance was to, essentially, punish them. To Target, they perceived the strategic alliance as favoritism. So, in 2013, Target moved P&G's products to less-prominent spaces in stores and started working directly with other suppliers to boost their sales (versus P&G's).

If strategic alliances can be as beneficial to Amazon as it has been with P&G, we should keep an eye out for similar partnerships... and what suppliers and retailers have to say about them...

Sources:

• Gaining and Sustaining Competitive Advantage by Jay B. Barney [textbook]
• Amazon Makes Strategic Alliance with Procter & Gamble by evigo.com [http://evigo.com/6627-amazon-makes-strategic-alliance-with-procter-gamble/]
• P&G Gets Caught in Rivalry Between Amazon and Target by Jeremy Bowman [http://www.fool.com/investing/general/2015/03/06/pg-gets-caught-in-rivalry-between-amazon-and-targe.aspx]
• P&G’s Strategic Partnership with Alliance by bmcrosby [https://bmcrosby.wordpress.com/2012/04/13/pgs-strategic-partnership-with-alliance/]