Firm Analysis: Amazon
Amazon is a leading e-commerce company that was founded by Jeff Bezos. The company has had a high success rate that other companies in this industry look up to it. The company has successfully been able to ship its products to most countries relative to fellow e-commerce companies. The Porter’s five forces can be used as an effective analysis tool for Amazon. In the case of its supplier power, their bargaining power is medium-high. Amazon’s suppliers’ power can be referred as medium since most of the company’s inventory is obtained from suppliers across the United States and the world as well. Also, the company is a large buyer of its suppliers’ products with the aim of offering everything to every person. The company decides the products displayed on their website and they are able to use their influence on small suppliers. Also, suppliers of Amazon can be said to have a high bargaining power since the company cannot compete with its suppliers. The company’s success depends on the collaboration the company has with its online sellers and other partnerships with companies like Target and Office Depot (eBusiness, 2015).
The company’s buyers have a high bargaining power. The customers have the option of choosing whether to buy the services and products from other retail sites on the internet. Amazon, therefore, has to offer favourable prices that satisfy their customers in comparison with other retail sites. However, since the company does not have retail stores, their overhead costs are low and they can pass the saving to their customers. Also, the company is known for its high-end customer service tactics (eBusiness, 2015). They have implemented strategies that have led to a high-retainance of their customers compared to other retail sites in the world.
Amazon’s competitive rivalry is high. The company has a high number of competitors, especially since the company offers a wide range of products and services. Its competitors include and are not limited to internet retail sites like eBay. The company’s search engine competes with others like Google and Yahoo (eBusiness, 2015). Other indirect competitors of are Bestbuy.com and Walmart.com. However, research shows that the competition should not be a huge threat to Amazon’s success and growth level. The customer service ratings for the company are higher than other companies in the industry.
The threat of new entrants for Amazon is low. It is almost impossible for a new company to reach the success and magnitude of the status and inventory like that of Amazon. The company has been in the internet marketplace for more than two decades and it would be difficult for a start-up company to even acquire enough capital to equally compete with Amazon. The company offers their customers a high differentiation in products and services, enough to keep their customers loyal. For a start-up company to compete with Amazon, it would have to acquire the patented use of technology that other competitors in the industry do not have. The technology would equally have to revolutionise how customers conduct online shopping and would be appealing enough to retain them (eBusiness, 2015). Also, it would be difficult for a start-up company to gain the cost advantages, economies of scale, and other advantages associated with high-scale production. In addition, a company like Amazon has the ability to use technology and machinery like drone delivery system, which requires large investments. Such an investment is beyond the reach of small start-up companies. Finally, in terms of competing with lowering prices, a start-up company would not lower its prices like Amazon would with its economies of scale.
The threat of substitutes is high for Amazon. Most competing companies also have physical stores. There are many alternatives to the products and services provided by Amazon. There are other retailers for books, clothes, music, toys, and other products on Amazon. However, even though the products can be easily substituted, the websites and physical stores cannot offer the same customer service quality and convenience as Amazon.
The success of Amazon is closely tied to the strategies implemented by this company that have led to it being at the top of the e-commerce industry. The company has provided its customers with higher speeds in purchase, shopping convenience, variety in selection, reliability in fulfilling their orders, and the company’s competencies logistically. The company buys large volumes of products from the manufacturers and publishers and it, therefore, offers its customers a wide selection. It aims at shipping 95 percent of the products customers order on the same day they are ordered (Business Coach, n.d.). It invests heavily in the latest technologies like the drone-delivery system that enables them to fulfil their goal of delivering the same day orders are made. Also, the company has heavily invested in advertising and in promoting and building the brand’s equity.
In conclusion, the success of Amazon in this industry is undeniable. It is important for other companies in the industry or start-ups joining the industry to learn from the strategies implemented by Amazon. The management should consider investing more in technologies that make it remain at the top. It should focus on implementing strategies to solve problems that other companies in the industry would find impossible.
References
Business Coach. (n.d.) Amazon.com. Retrieved from http://www.1000ventures.com/business_guide/cs_biz_model_amazon.html
eBusiness. (2015). Week 6&7- Amazon and Porter’s 5 Forces. Retrieved from https://nikamalfard.wordpress.com/2011/04/22/week-67-amazon-and-porter%E2%80%99s-5-forces/
