Business
Amazon
Introduction
Amazon.com Inc. continues to maintain its leading position for the online retail market because of its ability to integrate business challenges. The business challenges that Amazon faces arise from Porter’s five forces, STEEP and SWOT analysis factors of business operations. Despite that, Amazon operates as an e-commerce corporation with the online retail market, forces in the physical market structure also affect its performance because it also operates in consumer electronics and digital content distributions. The company, however, remains the largest actor in the e-commerce market (Greenspan, 2019). For Amazon to maintain its industry position in the long-term, it requires to conduct a regular evaluation of external forces in e-commerce and non-online markets that strengthen or weaken its ability to remain outstanding in the future.
Porter’s Five Forces for Amazon
Michael Porter identified five forces that form a competitive environment for a business and which can wipe a business’s profitability if not properly monitored (Dobbs, 2014). The scope of e-commerce business exposes the company (Amazon) to a variety of external forces. As a result, the company must devise mechanisms that keep it resilient in the strong market waves of the online retail industry. The forces include competitive rivalry, the bargaining power of customers/buyers, suppliers’ bargaining power, the threat of substitutes, and the threat to new entrants in the market (Greenspan, 2019).
Competitive rivalry: Strong competitive rivalry for Amazon comes from high aggressiveness of other firms, high availability of substitutes, and low switching costs. Amazon exercises direct competition against other retail giants in the industry, such as Wal-Mart. Wal-Mart currently has expanded its e-commerce websites to capture a broader market segment. The availability of strong substitute forces in the industry makes Amazon experience the force directly. The physical stores for Wal-Mart act as amazon’s substitute for online retail services (Zhu & Liu, 2018). The low switching costs of consumers based on external factors in the industry exert forces that prevent consumers from moving to substitutes.
Bargaining Power of Buyers: The high quality of information that consumers have regarding online markets is a strong force against Amazon’s ability to compete in the market. It enables consumers to find alternatives to the company’s retail services for the e-market. Buyers’ in the online retail industry have low switching costs, and this makes them quickly opt for other firms in place of Amazon (Zhu & Liu, 2018). The high availability of substitutes in the retail industry, such as Wal-Mart, further exerts a strong force against amazon because consumers may decide to purchase from Wal-Mart stores for the same services.
Bargaining Power of Suppliers: Amazon has a small population of suppliers, which tends to exert a strong force on its e-commerce dealings. For instance, when prices of equipment change from fewer suppliers of large equipment could directly affect the online operations of the company. There is a need for a moderate size of most manufacturers of equipment to reduce the amount of force against the company (Greenspan, 2019). The moderate significance of suppliers is, therefore, a key determinant of the online success for Amazon.
The threat of substitutes and threat to new entrants: The high availability of substitutes, low switching costs, and low costs of substitutes in the online retail industry pose strong forces for Amazon because consumers can easily opt to purchase from other retail outlets. Substitute monitoring should be a priority for amazon as far as long-term success is concerned. With many retailers increasing their online presence, new entrants pose threats to Amazon’s retail success (Greenspan, 2019). However, for new entrants to gain large economies of scale as Amazon, it may cost billions of dollars and a long time to build a strong brand that can compete with Amazon.
STEEP Analysis for Amazon
In terms of social impacts, increasing wealth disparity may pose a threat to Amazon’s future success. This means that when the gap between the rich and the poor is large, stagnation of income levels becomes high, leading to low purchasing powers. Increasing consumer habits, especially in developing countries, is, however, an opportunity for Amazon because many buyers increase revenue. The increase in online buying habits for consumers is also an opportunity for Amazon’s growth. Technology-wise, rapid growth in technology and IT resources is an opportunity for Amazon’s growth because its power lies in digital marketing practices for winning consumers (Zhu & Liu, 2018). However, when cybercrime activities increase, Amazon’s strategy becomes threatened by hackers and possible loss of online visibility. Economically, stable economies like the developed markets in Europe and the U.S are a great opportunity for Amazon’s success in the e-commerce industry. When disposable income in developing countries increases, Amazon stands to benefit highly from consumers in the regions. However, the possible economic recession in countries such as China may threaten Amazon’s stability (Wang & Ng, 2018).
From an environmental perspective, the rising interest in environmental matters is an opportunity for Amazon, where it can improve its environmental impact and through various programs. The need for sustainable development is also an essential factor for Amazon’s growth, where higher sustainability standards have the potential of improving Amazon’s brand image. Political stability in developed countries across the world provides a magnificent opportunity for Amazon to expand its operations. When the government pops in to support e-commerce activities, it offers an opportunity for Amazon’s growth. However, this aspect may also turn to a threat to Amazon because government support creates room for many other entrants and competitors to grasp the opportunity (Wang & Ng, 2018). The government’s efforts on cybersecurity significantly strengthen Amazon’s ability to take advantage of all online opportunities without fear of online fraudsters.
SWOT Analysis for Amazon
Amazon’s strong brand forms its first strength because the brand offers a vast selection of products for consumers. Amazon’s delivery networks are very efficient, which further strengthens its customer segment. The strength that comes with leveraging IT and ecommerce activities also make the company ahead of its competitors in the industry. In terms of weaknesses, Amazon is alleged to be experiencing mounting debts and tax avoidance, which may place it at loggerheads with authorities. Amazon has a history of product flops, which tends to cause inconsistency in its brands. Amazon’s weakness is also evident from its inability to deal with counterfeit products from china effectively (Zhu & Liu, 2018). The counterfeit mislead consumers, thereby reducing revenues and also takes away loyal consumers.
In terms of opportunities, Amazon has higher chances of growth because of its own and unique brand selling. The company also captures emerging markets successfully to win the new buyers in time. The company is also rolling its initiated payment gateways for consumers, thereby widening the scope of sales. Furthermore, Amazon continues to invest in brick and mortar stores, which increase its revenue margins significantly. Amazon, however, faces threats related to data scalability and security. This security problem is inevitable because of the digital market activities that the company uses. Competition from local players is also a significant threat for Amazon, and sometimes the struggle involves a lawsuit from rivalry, which tarnishes the reputation of the company (Zhu & Liu, 2018). There is also a minimal barrier to entry in the online retail market, and this circumstance tends to increase the number of competitors in the space.
Conclusion
Amazon should keep a steady watch on the forces that affect its performance and address and address the forces by initiative competitive advantage strategies against the forces. This approach may be achieved by Amazon’s continual boost to its brand image to make the brand relevant every other day, month, and year. The company should also counter threats that result from substitutes by initiating attractive services for its consumers. By initiating appropriate and effective strategies into Amazon’s online business structure, a stable balance will be attained in the market, and Amazon can control competitors’ forces or turn them into opportunities.
References
Dobbs, M. (2014). Guidelines for applying Porter’s five forces framework: a set of industry
analysis templates. Competitiveness Review, 24(1), 32-45.
Greenspan, R. (2019). Amazon.com Inc. PESTEL/PESTLE Analysis, Recommendations.
Retrieved from http://panmore.com/amazon-com-inc-pestel-pestle-analysis-recommendations
Wang, X., & Ng, C. T. (2018). New retail versus traditional retail in e-commerce: channel
establishment, price competition, and consumer recognition. Annals of Operations Research, 1-17.
Zhu, F., & Liu, Q. (2018). Competing with complementors: An empirical look at Amazon.
com. Strategic Management Journal, 39(10), 2618-2642.