The firm applies three types of competitive advantage in its operations i.e. cost leadership, differentiation (of product, image, service, sales, distribution and marketing) and lastly focus in cost and differentiation. (Palmer and Hardy, 2000)
Amazon examines activities performed in their organization and relates how each activity is connected to the other. These activities are the main sources of the advantage, they includes marketing, operation among others. By performing these strategic activities (a method commonly known as value chain) in a better and a cheaper way than its competitors the firm gains the competitive advantage.
Value chain helps Amazon to understand the existing probable sources of differentiation and the general behaviour of the existing costs. Activities affecting Amazon's buyer activities are the key determinants of differentiation results. Cumulative costs in the value chain are used in determining the overall difference between the producer cost and the buyer value of Amazon. The value chain clearly indicates that competitive advantage can emanate anywhere along the chain value.
According to porter (1998) competitive advantage entails managing firm's value chain as a system rather than a collection of separate parts. Amazon makes application to this by making a choice of performing activities in a way that is different from the rivals.