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Introduction
Amazon is a leading global company in the online bookselling industry. The company has 32 million customers in approximately 150 countries. In addition, there are more than 900,000 sites and associate programmes that links users to Amazon.com (Johnson 2011). Amazon was founded as Amazon.com, Inc. by Jeff Bezos.
With its headquarters in Seattle, Washington, Amazon has enjoyed immense growth and at the moment, it is regarded as United States’ leading online retailer. As of January 2010, Amazon.com recorded internet sales revenue that was three times that of Staples, Inc., its runner up (Amazon.com 2010). Upon inception, Amazon.com operated as an online bookstore.
However, as time went by, Amazon deemed it necessary to diversify its operations. This is how then that the company got itself involved in the business of selling DVDs, video games, MP3 downloads, and CDs. Other products sold by Amazon include apparel, toys, electronics, food, furniture, and computer software. Amazon also offers international shipping for a number of its products to certain countries.
The paper presents a SWOT analysis of Amazon. In addition, a PEST analysis of the company is also provided, along with the Porter’s five forces as they impact on Amazon. Also, the Porter’s value chain of Amazon is addressed as well. The market served by Amazon and the potential challenges that could face the company in these markets is addressed as well.
SWOT Analysis
Strengths
Amazon still remains the leading global online retailer of various educative and entertaining media products and books. Two factors are responsible for the recognition of Amazon as a powerful brand across the globe (Barry 2011). Within a period of 10 years, the company had managed to amass a customer base of 30 million. Amazon pioneered e-commerce technologies (Hansell 2008).
The business strategy for Amazon benefits immensely from sound information technology and customer relationship management that the company practices (Briggs 2008).
Amazon utilizes data on the buyer behavior and this has enabled the company to provide them with specific items that they seek, on the basis of their preference. As a result, this has helped to increase customer loyalty (Halkias 2010). The product portfolio for Amazon is quite diverse and includes such products as CD/DVDs and books, among others.
Weaknesses
The brand image of Amazon is at risk in as far as the issue of product expansion is concerned. In this case, Amazon product portfolio now includes other products besides books. As the leading online retailer, an increase in products offering could in fact result in a weakened brand owing to possible confusion on the part of the consumers. It is important for online retailers to focus more on the issue of technology.
In this case, constant system maintenance is necessary so that there are no delays in the provision of customer service. Amazon relies heavily on external companies for the delivery of their products and there is a risk involved here as it could result in uncontained problems in as far as the issue of service delivery is concerned (Stone 2009). Eventually, this may lead to increased costs.
Opportunities
Amazon could consider entering into a partnership with the public sector. In this regard, Amazon stands to benefit from the services of public libraries so that potential users may benefit from catalog and search option services. This service could also cover the rare and antique books. Amazon may consider forging a relationship with book publishers in order to benefit from exclusive launch authors and exclusive offers.
As a result, this would translate into increased growth for the company owing to the tendency by consumers to read an author repeatedly. Amazon has the chance to invest more on the expectation of its customers and this shall enable the company to enhance their loyalty towards the company.
Amazon could vend its rich human resource expertise to a majority of the book stores. Amazon may forge a partnership with a majority of the retailing firms dealing in e-commerce
Threats
Competitors are quickly attracted to internet businesses and as such, it becomes rather hard to maintain differentiated products. This also means that differentiating the brand of a given company from that of the competition is also hard. Owing to the expansion of online business, competition is also expected to intensify There has been a rapid increase in the cost of transport owing to the sharp increase in the price of fuel.
This often has a direct impact on the overall price of the books sold by Amazon as they have to factor in the cost of transport as well, paid to the third party (The New York Times 2010). When considering expanding into other countries, Amazon has to take into account the customs and trends of the country of choice so as to understand the behavior of potential customers.
PEST Analysis
Political/Legal
Amazon is not a monopoly in the market of operation and with such other players as eBay, Yahoo! and Google, the company is faced with intense competition. Some foreign trade regulations could also hinder the quest by Amazon to expand to other countries.
For example, such countries as China are less tolerant to the concept of e-commerce and this may hinder the expansion of Amazon to the lucrative market (Brown 2008). Government policies and issues of taxation could also hamper the growth and expansion of Amazon
Economic Factors
The world is still reeling from the effects of the recent global financial crisis and as such, the GDP trend of most countries is still on the path to recovery. In addition, for a majority of the countries, the interest rates have gone up and this has had a negative impact on money supply.
In addition, the level of employment in most economies is has been on the increase in recent years and as such, this would mean that the disposable income of a majority of the members of the population is low. Consequently, they would not be in a position to partake in the purchase of the products and services that Amazon offers (Wallbank 2011). As a result, this translates into lost business for the company.
Socio-cultural factors
The level of education impacts greatly on the purchase behavior of consumers. For example, in the case of Amazon, in order for one to participate in the online transactions, there is need to be acquainted with what entails e-commerce transactions and as such, individuals with no background information on e-commerce may be discouraged from taking part.
In addition, population demographics also affect the marketing strategies of Amazon (Sage & Honan 2009). For example, an increase in the number of peoples within a specific target market that Amazon aims to reach translates into potential increase in sales revenues.
Lifestyle changes also affect the sales of products and services. In the case of Amazon, the company has to periodically uptake its technology in order to keep pace with the latest developments. This has seen the company move from its traditional business model of only selling hard copy books to the use of the Kindle technology, whereby using software, one can get to read the book in its softcopy (Steiner 2010).
Technological factors
Although there has been a dramatic improvement in internet systems and security, nonetheless, from a global perspective, technology distribution is faced with inequality and this has acted to undermine one of the technologically- focused companies as Amazon.
In the case of Amazon, business associated with the company and the customer as well needs to embrace technological education in order to augment socio-political and resolutions and internet penetration.
Porter’s Five Forces Analysis
Entry threat
Amazon is faced with a medium to low entry threat. As a pioneer in online book retailing, the company acts as a good example of what is likely to face any amateur firm in the industry.
Thanks to continuous service upgrade and the huge amount of capital that Amazon has invested over the past 8 years, the company now has an advantage in the market over other firms. Furthermore, Amazon has managed to forge alliances and acquisitions with other firms. Amazon has also been involved in endless innovation and technology developments (Steiner 2010).
Accordingly, in order to imitate Amazon, any rival company would be expected to build a strong relationship in the market and this might prove to be an uphill task because as a pioneer, Amazon has already achieved this.
On the other hand, Amazon is faced with the issue of moderate switching costs and this appears to offer respite to such niche players in the market as eBay. Amazon may also anticipate retaliation from such niche competitors as eBay.
Supplier power
Supplier power is low. Retailers are dwarfed by the industry firms. On the other hand, the presence of internet technology is an indication of untapped global exposure. As a result, firms dealing in E-commerce have remained loyal to their suppliers, and more so those with access to global marketable services/products.
Buyer power
Buyer power is low. Save for the B2B transactions both pure buyers and merchants that use this industry are geographically segregated and independent from one another. As a result, this means that they have an insignificant individual purchase.
Threat of substitutes
The threat of substitutes in the industry is low. On the other hand, customers’ online purchase decisions rely on convenient shopping at discounted options and prices. As such, they are characterized by expensive switching costs. Sometimes, customers have had to experience reduced purchasing ability of the needed items due to delay in decision making. Consequently, the threat of substitutes is an alternative worth of exploration.
Competitive Rivalry
Amazon is faced with medium to high competitive rivalry. Although the industry has many players, nonetheless, they could be classified as overly diversified (Yahoo!) and niche (eBay) competitors of Amazon, a diversified firm. Consequently, Priceline and Barneys are on a head-to-head competition and the two companies have established a strategic alliance with Amazon (Leeds 2008).
The industry is also faced with high storage and fixed costs because firms are required to undertake stock inventory at the various warehouses in order to facilitate the delivery of orders. In addition, there exists little product differentiation among competitors, meaning that the switching costs of customers are low.
Entry Barriers
The industry is characterized by low entry barriers. As such, small players are increasingly getting lured into the industry with a view to targeting a given niche in the market.
On the other hand, large entrants are more likely to engage in unsolicitated take-over bids for such diversified and established companies as Amazon. Alternatively, they may decide to forge partnership with such other partners firms as Google and Yahoo! in order to increase their market share.
Porter’s Value Chain Analysis
There is an apparent support of such primary activities of Amazon as the inbound logistics by secondary activities (for example, technological developments and selective procurement). This support is capable of filtering the service/product choice from the manufacturers/retailers so that the customers can have access to safe transactions (Steiner 2010).
Furthermore, Amazon enjoys firm infrastructure and as such, this enables the firm to compress its marketing and operational activities into a single commission-based scheme that can be accessed by all its 900,000 associate partners (Oswald 2008). Moreover, Amazon’s infrastructure has also enabled the company to reduce tax payments.
On the other hand, the outbound logistics of Amazon that are affiliated with its center at Delaware facilitates access to such markets as Japan and other countries in Asia and Europe as well. Consequently, the value chain makes it possible for Amazon to integrate the supportive and comparatively low-cost environment of its Seattle headquarters where the company’s developers are based.
At the same time, the value chain also enables Amazon to establish efficient procurement and storage of products. This is in addition to ensuring an efficient delivery of products (Porter 1985) by way of closing warehouses that have provide inefficient and at the same time, helping to open up new warehouses that adds value and are strategically located.
Amazon Products
The product line of Amazon include books, DVDs, music CDs, consumer electronics, videotapes, tools, toys & games, lawn, baby products, sporting goods, baby products, watches, beauty products, groceries, and clothing, among others (Smith 2011). Amazon Kindle is yet another product that the company helped to launch in November 2007. This product is in the form of an e-book reader.
With the e-book reader, a user is in a position to download the contents. This is made possible by a wireless network. In the case of the amazons Kindle, the wireless network in use is the Sprint Nextel EV-DO. As part of its product diversification, Amazon was involved in the launching of MP3 services. This was in January 2008. As a result, websites subsidiary to Amazon are now better able to access the MP3 service worldwide.
The newest product to be launched by Amazon is Amazon.com exclusives. The product is mainly in the form of a DVD and its availability is restricted to Amaon.com only. On the basis of the products offered by Amazon, the company targets diverse markets.
For example, in the case of its music CDs/DVDs, the company mainly targets teenagers and young adults below the age of 40 years, on the other hand, books sold by Amazon targets students, researchers, academic and research institutions, and libraries.
Changes and challenges facing markets served by Amazon
As an online retailer, Amazon is faced with a number of challenges in their quest to serve target markets without the usual conventional brick and mortar types of businesses.
For instance, in case there is a consumer who wish to buy a digital camera, unless the customer in question is very explicit about the nature and specifications of such a camera, the only option left is for you to go to a best buy store for example and sample various cameras in order to find out the exact features that you desire.
In the case of Amazon however, since the company is online, one does not have the privilege to sample the actual products (Malik 2008). As such, the main problem facing potential customers in the market is that a lot of the times, some of the items that would have otherwise been purchased from the company o not actually get to be purchased, owing to such technicalities.
In addition, the company has on certain occasions experienced a number of technical issues and this means that customers are not in a position to place their orders with the company. If this happens repeatedly, consumers are likely to lose their confidence with the company, and this means lost business for Amazon.
In recent years, Amazon has been under political and legal pressure not only from the conventional retailers, but also from state governments. This is because the company does not collect sales taxes in those regions where it lacks physical presence.
This may clearly hinder the quest for Amazon to expand into various markets because state government would not entertain an investor who is least concerned about the welfare of the surrounding physical environment. In the same way, the traditional retailers would clearly oppose the expansion strategies of Amazon into their neighborhood because this would afford the company an unfair advantage over them (Smith 2011).
Conclusion
Thanks to an increase in customer base and a powerful global brand, Amazon has enjoyed an unprecedented level of success in the online bookselling industry. However, the Amazon brand is faced with the risk of products expansion. However, Amazon enjoys a rich human resource expertise and the company could benefit from vending them to a majority of the bookstores.
Competitors are quickly attracted to internet business and for this reason customers may find it hard to differentiate the products offered to the market by Amazon, relative to those of the competitors. Amazon is faced with a medium to low entry threat and the supplier power in the industry is low. The buyer power is also low, along with the threat of substitutes.
On the other hand, entry barriers into the online bookselling industry are low. As an operator in the online bookselling industry, Amazon is faced with a number of challenges, such as technical issues.
This may prevent customers from placing orders with the company and consumers may lose confidence with the company. It is important therefore for Amazon to fully address all of these issues in order to remain competitive in the industry.
Reference List
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Briggs, B. 2008, ‘Amazon weaves fabric.com into its e-commerce quilt’, Internet Retailer. Web.
Brown, D. 2008, ‘Online giant Amazon.co.uk celebrates its 10th anniversary as shoppers use retailer website to buy goods. Web.
Halkias, M. 2010, ‘Texas bills Amazon for millions in sales taxes’, The Dallas Morning News.
Hansell, S. 2008, ‘Amazon sues New York State to void sales tax rules’, The New York Times, 1 May.
Johnson, B. 2011 ‘Retailers oppose Amazon sales tax pass’, The Tennessean.
Leeds, F. 2008 ’Amazon to sell Warner Music minus copy protection’, The New York Times.
Malik, O. 2008, ‘The growing ex-Amazon club and why it’s a good thing’, Gigaom. Web.
Oswald, D. 2008 ‘Borders returns to online sales, drops Amazon’, International Business Times. Web
Smith, R. 2011, Which stock falls first? Motley Fool, 18 January Steiner, I 2010, ‘Seller’s choice: merchants rate ecommerce marketplaces’. Web.
Steiner, I. 2010, Seller’s choice marketplace ratings:eBay’. Web.
Stone, B. 2009, ‘Amazon erases Orwell books from kindle’, The New York Times. Web.
Sage, A. & Honan E 2009, ‘NY Judge tosses amazon.com lawsuit over sales tax’, Reuters.
The New York Times 2010 ‘E-books top hardcovers at Amazon’, The New York Times.
Wallbank, P. 2011, ‘ Amazon’s fight with Illinois is a small of a bigger global battle between online retailers and tax authorities’, Business Insider.
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