- Executive Summary
This document includes an analysis of the online retail giant company, Amazon. The report starts by giving a brief introduction of the company reflecting upon the activities and the industrial sector in which it operates. Amazon is the leading internet retail in the entire world. The company sells various products at markup prices. In addition, other than that, it has also pioneered various other retailing strategies paving a way for the creation of a very robust marketplace for both new and used goods.
The report continues by reflection on some key analytical observations with respect to the business model of Amazon. It starts by giving a detailed STEEP Analysis. The above analysis provides a precise analysis for the company with respect to all external factors affecting its business model. Ideally, the analysis reflects the social, environmental, political, economic, and technological factors.
The report also includes an analysis of the forces of business success. For the above analysis, the report applies the Porter’s Five Forces model. The above analytical technique gives an informed evaluation of all forces affecting the nature of Amazon’s business. The Porter’s Five Model analyzes Amazon’s competitive rivalry within its industry. It reflects upon the threat of new entry by new competitors as well as an entry of substitute products. Additionally, it highlights on the bargaining power of both the suppliers and the customers.
The report further reflects upon the SWOT analysis. The essence of the above analysis is providing a clear image of the crucial aspects that Amazon should consider enhancing its business performance. The SWOT analysis highlights the company’s strengths, opportunities, weaknesses, and threats. With all the above analyzed, the report finally includes some strategic recommendations aimed at providing a way forward for Amazon future business operations.
Amazon is the world’s leading online market retailer. It is a unique company with respect to both the scope and the size of the products it offers for sale and purchase online. Notably, Amazon started as an online bookseller and has diversified its portfolio over the years. In the current world, Amazon constitutes over 10% of all online commerce related transactions. During the early days of online retailing, Amazon had to go through various challenges related to society’s failure to embrace online retail purchases. The above changed, and many people embraced that kind of business as the technological dynamics and ease of internet accessibility increased the society’s confidence. However, the online retailing business always has some problems and challenges even in the current world. Amazon has grown all the way through the various changes and phases in the online retail business. As a result, it has been able to build a very strong brand. More so, it boasts of fundamental relationships with several other online and offline retailers established after it, a sophisticated e-commerce platform, as well as a broad and definite product distribution system.
Describing Amazon’s industry and business activities is only possible by the use of complementary tools – not traditional tools. The main challenge comes while trying to explain Amazon’s products or classifying its rivals. For instance, the company is at times compared to Yahoo and eBay although it is clearly visible that they vary a lot in the nature of their products and services. However, all that does not matter. What matters is that Amazon keeps growing and attracting more customers. The familiarity, the convenience, as well as other essential aspects attract more customers to Amazon in search of a variety of products ready which the company will ship right to the consumer at the most convenient and cost-efficient way possible.
- STEEP Analysis for Amazon
Also known as PESTLE, STEEP Analysis is a technique applied to the identification of trends in economic, social, political, environmental, and technological (Ryals 109). The STEEP Analysis for Amazon is as follows:
||Amazon should increase its online social working initiates
||Increasing the online social networking strategies helps the company to utilize all the new channels to its advantage
|The company should beware of financial and product risk decreasing the online shopping population
||Amazon should therefore consider reducing that risk so as to increase users
||The current world features a relatively huge increase in telecommunication technologies accessible through the internet
||There is a significant frequency increase with respect to accessibility of internet by online shoppers
|The current world features a rapid development of efficient and fast network services that improve the usability of all online applications
||The accessibility of highly media-rich contents becomes easily available for all online shoppers
||There is a lot of pollution awareness and global warming concerns and campaigns
||Amazon advocates and facilitates a lot of online shopping reducing car journeys
|The companies in today’s world must comply with the “green” ecosystem to attract more customers
||Amazon must change its business techniques and go “green” with its operations
||The UK and the US have higher cases of falling victims of high interest rates which reduces consumption
||Amazon should consider venturing in other economies such as China and India
|Internet retailing is increasing with the increase in computer technology. Much of the growth comes from the increase in online households especially in the developed and developing countries
||Such cases mean that the potential customers for Amazon are on the increase
||Most governments across various countries are promoting liberalization in the telecommunication industry which promotes e-commerce
||Promotion of e-commerce by governments means affordable internet and increase in internet users
|The governments in developing and developed countries are investing highly on ICT infrastructure
||The above facilitates the accessibility of internet in a faster and reliable manner across entire nations
- Porter’s Forces Analysis
The Porter’s Forces Analysis is an industrial technique used for the evaluation of an individual business with respect to competition. It is a tool that helps to illustrate a company’s competitive advantage in its respective industry. The analysis incorporates the use of five features that determine the above competitive advantage (Hill and Jones 42).
4.1 Threat of New Entrants
Amazon has its operations in industries with little or no entry barriers. The only requirement in venturing into successful online retail business is the initial capital. The industry does not call for some high-end skills or operation permits. The above is illustrated from the observation of the various online retailers of toys, apparel, and books. However, despite the fact that the entry barriers are slight, the concept of brand ubiquity gives Amazon a competitive advantage over every prospective and potential online retail market entrant. Furthermore, Amazon benefited from cheap financing opportunities that were widely available in the late 20th century and was able to build a huge distribution network by using a debt of over 1 billion dollars.
4.2 Bargaining Power of Buyers
According to the distinct business model by Amazon, the company deals with two kinds of customers. However, both groups have moderate bargaining power. The first group, which is the largest too, includes the consumers of the merchandise retailed by Amazon. It is relatively hard for this kind of buyers to come together and forward a bargain with Amazon, but it is very easy for them to choose other online shops over Amazon. The second group incorporates smaller retailers who hire Amazon online space to carry on with their online goods and services distribution. This kind of buyers have can quickly change between providers of online space. Therefore, they have the ability to discuss and demand proper operation terms with Amazon. The relationship between this group of buyers and Amazon must be mutually beneficial to both parties though.
4.3 Bargaining Power of Suppliers
There are very many products on sale in the Amazon online shops and marketplace. However, none of the products is manufactured by Amazon. The above means that Amazon depends upon the services of very many suppliers of all its goods in its catalog. As a group, all the suppliers of Amazon wield a relatively little bargaining power. Amazon’s suppliers take advantage of Amazon’s popularity and are, therefore, positive to sell their products on Amazon. At the moment, it is not possible for the providers to organize any kind of bargain of significant scale with Amazon. More so, the fact that the suppliers are from various industries and are not related at all makes organizing agreements even harder.
4.4 Threat of Substitutes
With the current trends in technological advancement and ease of internet access, online retailing is a frequent occurrence. Although Amazon is by far the leading online retailer, consumers have other retailing shops and service providing companies to use as alternatives. More so, even brick and motor stores also offer online services. With them, a customer may find product catalogs online and shop at home just like they would do with Amazon. As a result, they easily pass as a substitute for Amazon to the online shoppers.
4.5 Competitive Rivalry within its Market
Finally, the retail market is not limited to Amazon alone. The strategic decision makers in Amazon must bear in mind that Amazon’s business is in competition with national chains of retailers such as Wal-Mart, as well as smaller regional stores. National retail chains such as Wal-Mart have well-equipped distribution outlets in broad areas such as the entire of the Unite States and are a force to reckon with in terms of retail market share.
- SWOT Analysis
As highlighted in the Executive Summary, a SWOT Analysis provides the best insight with reference to a company’s performance in its respective industry (Qin 468). In the case of Amazon, the SWOT analysis can be illustrated as follows.
5.1 Strengths for Amazon
5.1.1 Cost Leadership Strategy
The above strategy aims at beating Amazon’s competitors with respect to the provision of services and products at lower prices. The advantages of economies of scale are the key factors necessary for achieving the above strategy. Amazon has an excellent cost leadership strategy. The company provides the industry’s widest product range, benefiting from a low cost of displaying the products it sells on its online market. Ideally, this has made it the largest online global retailer.
5.1.2 Products and Services of Superior Quality
It is in the company’s culture for Amazon to deliver products and services of the best quality. The users and customers of Amazon’s products and services describe it as convenient and reliable. In addition to the wide selection of services and goods selection, Amazon has a global reputation for the way the company offers an outstanding customer service.
5.1.3 Efficient Distribution and Logistics
Amazon owns a significantly optimal number of stocking warehouses. The establishment of the stores depends on the demand for goods in the various markets it operates. The most important thing is that the fulfillment warehouses are geographically situated so as to facilitate faster dispatch of goods at the lowest costs possible.
5.1.4 Economies of Scope
The above term refers to the savings originating from using the same technology and resources to produce two or more services and goods compared to creating each individually. As a result of using superior Information Technology skills, Amazon enjoys economies of scope as it offers a wide range of products in the online market.
5.2 Weakness for Amazon
5.2.1 The limitation to Online Presence Only
Unlike other retailers such as Target and Wal-Mart, Amazon does not have physical shops. In light of the above, people cannot see and buy instantly from Amazon.
5.2.2 Zero Margin Selling Strategies
As a strategy to push away the competition in its industrial sector, Amazon sells most of the products at zero margins. With respect to Amazon’s cost leadership strategy, the above is a strong short term tactical move. However, it ends up hurting the company’s profits in the long run. Competitors quickly adapt and pursue different strategies to gain their market share in the long run.
5.2.3 Negative Publicity
In the recent times, Amazon has been accused with various brand damaging negativities. There is criticism about the poor conditions for workers in its warehouses, the company’s price discrimination strategies, as well as its overly anti-competitive actions. In the United States and the United Kingdom, where the company gets most of its revenues, Amazon has been accused of avoiding tax.
5.3 Opportunities for Amazon
5.3.1 Physical Presence
Amazon has the ability to establish physical shops especially in the United States and the United Kingdom where most of its customers live. The company can build small warehouse stores that double as shops where customers come and make physical contact and purchases. Such a move could see the company’s brand improve significantly.
5.3.2 Opening More Online Stores in More Countries
In the recent times, Amazon has successfully acquired various smaller companies in the pursuit of extending its offering to services and products. As a way of sustaining and improving the company’s growth rate, Amazon could initiate more online marketplaces in Asia and other growing economies.
5.3.3 Online System of Payment
With its widespread acknowledgment, Amazon could easily extend its current payment system through the introduction PayPal like services. Such a service could be useful for on the go buyers who do not like giving bank and other personal information any time they make online payments. More so, Amazon could extend the services of the payment system for use by other online retailers at a small fee.
5.4.1 Tax Avoidance Legislation
In the current world, huge multinational companies face broad criticism with respect to how they continuously avoid their tax obligation. For instance, Amazon faces criticism due to tax avoidance in the United States and the United Kingdom. The governments will soon pass legislation amendments that will see to it that the multinationals pay their fair share of profits. Such a move will significantly affect Amazon’s profits.
5.4.2 Strategic Alliances
It is clear that Amazon is a massive online retailer with a very high competitive advantage over its small competitors. However, the small companies pose a serious threat in case they decide to form strategic alliances. With the presence of such strategic alliances, content providers could easily have the ability to compete with the bargaining power of Amazon.
5.4.3 Regional Online Retailers
The presence of regional online retailers in various countries could lead to outrivaling Amazon. The rationale for the above finds its basis in the fact that local retailers incur low costs in shipping. They are also able to deliver purchased goods faster due to home market advantage.
- Recommendations for Amazon
According to the latest reports, Amazon’s revenue rose by 22% that represented a quarterly revenue figure of 16 billion dollars. The above is an indication that the overall e-commerce industry is on the rise. As a result, Amazon has yet an excellent opportunity for development due to the fact that it still is the leader in the online retail, industrial sector. As a result, Amazon should implement a number of strategic options.
6.1 Taking Advantage of the Growing E-Commerce Market
The tremendous growth in internet and web-based technology has brought a lot of advantages in the e-commerce industrial sector (Wittekind 100). The above has promoted the entry of new online retailers to share the market with Amazon. However, Amazon still has an upper hand because it has a strong brand. The above means that the company can capitalize purely on business expansion as the new entrants concentrate in establishing and building their brands.
6.2 Invest More in Kindle
With more investors establishing online retailers in various countries, it is wise for Amazon to invest in other fields and use its strong brand while it lasts. As a result, Amazon should invest more in Kindle devices. The best thing about Kindle devices is that, unlike other products the company sells, the Kindle brand of products belongs to Amazon (Forbes 1). Investing more in Kindle will help Amazon to further its competitive advantage in another level in case its current market share in the retail business is reduced by the successful entry of new competitors in the near future.
6.3 Focus More on Margins vs. Cash Flow
The current diversification of Amazon’s product portfolio, coupled with the growth in e-commerce operations, means that revenues will continue to grow. However, Amazon should be keen to inspect other factors that could yield pressure on margin. Amazon is currently establishing same-day delivery fulfillment centers. Additionally, there is a growing competition in the provision of cloud services which makes Amazon spend towards the establishment of its own content library. All the above, although right moves are very cost intensive operations. Therefore, it is necessary for Amazon to ensure that even as it does all the above, the company should control the growth of its revenue and focus more on remaining profitable (Forbes 1).
Technological advancements have brought great opportunities in the e-commerce business sector. As a result, various new entrants have started showing interest and chances of thriving in and industry that experienced the domination by Amazon for quite an extended time. However, Amazon still exhibits a massive drive to succeed.
The company’s brand is far much respected to cause a tremendous concern over the new age market entrants. Amazon should just concentrate on the strengths and opportunities as illustrated in the SWOT Analysis (Ovidijus 1). Additionally, the incoming competition requires Amazon to ensure that its services are accessible to all customers accessing its online platform in whatever way. As a result, Amazon should make a commitment to stay commensurate with the growing technological advancement, for example, embracing the use of mobile applications available on smart phones operating in any operating systems.
With respect to current competitive pressures, Amazon’s management has the ability to edge out new entrants in the general market (Noren 1). Amazon should seek to establish cooperative partnerships like it did with Target and Borders. The above strategy is suitable for leveraging every player’s strengths while at the same time relatively increasing Amazon’s market share.
Amazon is capable of leveraging its competitive advantages in favor of superior services and low-prices. By the look of the current market structure, it will still stay on top in the online retail industry. In light of the above, if Amazon continues with the provision of best value services to its customers, it will keep enjoying growing profitability irrespective of the threat of new entrants.
Forbes. ‘How Amazon Plans On Driving Future Growth’. Forbes. N.p., 2013. Web. 27 Apr. 2015.
Hill, Charles W. L, and Gareth R Jones. Strategic Management Theory. Mason, OH: South-Western/Cengage Learning, 2010. Print.
Noren, Eric. ‘Digital Business Models: Analysis of the Amazon Business Model’.Digitalbusinessmodelguru.com. N.p., 2015. Web. 27 Apr. 2015.
Ovidijus, Jurevicius. ‘Amazon SWOT Analysis 2013 | Strategic Management Insight’.Strategicmanagementinsight.com. N.p., 2015. Web. 27 Apr. 2015.
Qin, Zheng. Introduction to E-Commerce. Berlin: Springer, 2009. Print.
Ryals, Lynette. Managing Customers Profitably. Chichester, England: John Wiley & Sons, 2008. Print.
Wittekind, Erika. Amazon.Com. North Mankato, Minnesota: ABDO Publishing Company, 2013. Print.
Before you go, you are invited to support a noble cause on IndieGoGo: