Overview of Amazon’s history and business model
Established by Jeff Bezos in 1994, this e-commerce giant company had a humble start form the garage of the founder. The company is built on the basis of the vision of Jeff and under the visionary leadership and skillful understanding of the business environment the company has gained the place as one of the market leaders. Over the past decade with the advancement of technology and the decreased rate of internet the popularity of Amazon has increased and the company has grown exponentially. Amazon has not only grown in the website for e-commerce the company has also set up several e-business services like the cloud service and Amazon prime videos etc. The company follows a simple yet effect business model that is consumer centric, in several interviews Jeff has stated that whatever decisions and policies of the company are formulated are always cultivated around the interest of the end consumers. Amazon has pioneered and has set benchmark in several business steps and strategies that it has employed. To add to the achievements of the organisation Jeff has also been awarded the title of the world’s richest man in 2017. The brand value of Amazon is USD 355 billion. Amazon has channelized the resources in high quality customer service and technological advances have helped the company gain good reputation and goodwill among the stakeholder and the market. The rate of customer loyalty and repeat buyers of the company is also significantly high owing to the premium quality and ever developing consumer services (amazon.com 2017). The company has received a lot of criticism for not recognizing the responsibilities towards sustainable development. It is only in 2014 that Amazon shown evidences in recognizing the importance of sustainable development and the significance of people and planet along with economic growth of the company. Amazon operates in almost 140 countries around the world.
Business environment are the aspects of an organisation that impact the operations. Any organisation operates under two business environments internal and external. While the internal business environment is directly under the control of the organisation the external environment is not under the control of the company hence the company should analyze the players of the external environment and be ready to combat the changes and the challenges that the factors might pose to the operations of the business (Ho 2014). Analyzing the business environment can also open opportunities and scope. Some of the internal business environments are the stakeholders, resources, management etc. In order to analyze the macro business environment the external aspects have to be determined and analyzed in this case PEST is the best tool to give the analysis a holistic approach.
Analysis of the business environment using PEST analysis
Political: Amazon is a multinational company and in order to continue smooth operations of the business it has to comply with the rules, regulations and guidelines laid by the country of operation in terms of trade and business, law and order, political unrest etc. The political or administrative scenario of the country affects the business of an organisation. For example, if there is a political unrest in the country the sales and demand for most goods apart from necessary items fall, which is not good form a business perspective. China is recognized as a huge market and Amazon has been struggling to get a place in the market, this is mainly due to the administrative barriers. The infrastructures to support the services are also dependent on the administration such as the rate of internet connection, the availability of internet, communication laws and regulations etc (Gupta 2013).
Economic factors: The Company runs in the service sector and deals with the consumers directly the main economic factor that Amazon has to consider is the purchasing power of the people. Amazon has extended the operations in countries like India, Pakistan etc owing to the fact that the purchasing power of the people in these countries have grown exponentially. Other factors such as inflation, depression as well as market and trade cycles impact the operations of a business (Gupta 2013).
Social factors: The standard of living of the target market of Amazon has to be kept in mind by the company before expanding. As usage of internet connectivity is one of the biggest aspects of Amazon’s business prospect the idea and the knowledge regarding internet and its facilities should be present. The concept of e-commerce is also new and the acceptance of buying form a virtual world rather than a traditional retail store is difficult to imbibe by many potential consumers (Anton 2015).
Technological factors: Amazon is the pioneer of many ground breaking technical advances in the field of cloud computing, e-commerce etc. As the company is driven by innovation technical advancement and keeping at par with the technological upgrade in the market is necessary for the company.
Another important technological aspect that is implemented by Amazon is the level of security. The e-commerce is a sector that is already deemed to be less credible when it comes to payment and fund transfer. The company has to ensure that the payment methods and the modes are aligned with the security procedure of the country and the financial institutions operating in the country (Ho 2014).
Porter’s Five Forces Analysis for the e-commerce industry
In order to understand and analyze the position of a company in the market it is significant to analyze the industry in which the company operates. E-business or e-commerce is the industry that has been gaining popularity by the day. Along with advantages like eliminating the geographical barriers of business there are also significant limitations like security threats and authenticity. To analyze the industry in which Amazon operates Porter’s five forces framework is used. According to this theory, there are five aspects in the industry which may pose a threat to the growth and development of the company (Rothaermel 2015). These factors are the competition in the market, the power of suppliers, the negotiation power of the consumers, substitute products and the facility for new competition to enter the market. In the past decade this industry has gained popularity and several competitions have arrived yet Amazon is one of the leading companies (Anton 2015).
Threat of new entrants: Though the company has now developed a diversified service line the major focus is on the shopping website. The important entry barriers in the online retail industry are: the economy of scale and strong member in the market. It can be said that the threat to new entrants is low. It is a fact that many retail sellers have recognized the potential of online presence and have come up with their own websites and there are also new websites emerging but the competition to be at a level with Amazon is difficult.
Competitive rivalry: in the past decade the competition in the industry has increased significantly, on the other hand the retail stores are also willing to have an online presence to expand their geographical barrier. Alibaba and Ebay can be said to be the direct competitors. Hence it can be said that the competition in the market is intense (Dobbs 2014).
Bargaining power of the suppliers- in the supply chain of Amazon, the company has an upper hand as the switching cost of the suppliers are low owing to the scale of business and the success that Amazon have. The supply chain and the number of supplier of Amazon are large and should abide by the rules and guidelines laid by the company. Therefore it can be conferred that the bargaining power of the supplier is low.
Consumer’s bargaining power- it has already been stated that the competition in the market is intense hence the switching cost of the consumers is high. Amazon is a company that builds all the policies around the satisfaction of the consumers as they deem the consumers to be the most important stakeholder of the company (Rothaermel 2015).
SWOT analysis for Amazon
Threat of substitute: The service that is provided by Amazon is unique in the terms of the facilities and polices that are offered by the company to the consumers. But Amazon does not sell anything unique. Apart from some exclusive items most of the products that are listed in the site are also present in the offline. Stores like Walmart, target offer a substitute to the service as well. Therefore, the threat of substitute is high (Dobbs 2014).
The industry analysis shows that there is intense competition in the market although there is low threat form new entrant. Amazon’s founder and CEO Jeff has mentioned several times that the company focuses on the consumers more than the competition in the market for growth and expansion, over the years the company has gained competitive advantage owing to the evolving and improving customer services. The strategic position of the company will be understood better with the help of SWOT analysis. The strength and weakness of the company is determined by the internal forces of the company that impact the operations, whereas the opportunities and threats deal with the external aspects (Hill et al. 2014).
Strength: The biggest strength of the company is the goodwill and good reputation that the company has earned over the years. These reputations help the company gain trust and build value relations with the consumers who are deemed to be the most important stakeholders of the company.
The strategic management that the company has undertaken to gain competitive advantage has made Amazon the market leader. For the longest time the company focused on cost leadership as the main strategy for growth but later the company also implemented the strategy for diversification of service and product (Hollensen 2015).
Research and development in the field of Information technology has been another advantage of the company. The development is used by the company to gain maximum consumer satisfaction
The logistics and distribution systems of Amazon are impeccable and are perfect for the customer satisfaction strategy that the company follows (Hollensen 2015)..
Weakness: e-commerce website have a common weakness of being deemed to be unreliable, this notion has changed over the years due to the superior quality services.
The company has a varied product range which makes it loose its focus on the market in which it wants to deal.
The option of free delivery is lucrative for the customers but it also erodes the profit form the company (Hollensen 2015).
Though the company has high sales and high revenue, the premium customer services provided by the company leaves with a very thin profit margin.
There has been some serious product flops in the history of the company which has resulted in a loss situation (Bull et al. 2016).
Opportunities: the company has the opportunity to develop an in-house brand, the resource can be channelized to create and develop a line of their own, and this can be consumer goods, grocery items or any other market.
Amazon has operation in over 140 countries but that doesn’t limit the expansion opportunities that lie ahead. Acquisition and merger is also an option for expansion, Amazon has recently acquired wholes foods which is a chain of grocery stores. Similarly the company can expand in other industries as well (Hill et al. 2014).
Threats: The company has faced several criticisms for the absence of the sustainable growth structure. High delivery time and delivery charges are also sometimes the reason of threat for the company.
The direct threats of the company are Walmart, Alibaba and Ebay, these companies are also improving their strategies and becoming a major player in the market. There is also competition and threat from brands and website that operate in their home grounds (Bull et al. 2016).
The Ansoff matrix is a framework that is used by the management of a company to plan and strategies the future of the organisation. It shows the product and the market choices that the company has in order to draw a suitable analysis of the future. The framework helps the company to focus at the possibilities in order to decrease the gap in between the strategies and the objective of the organisation (Thijsen et al. 2014).
Amazon is an organisation that has focused on both market penetration as well as diversification as a part of growth and expansion. The company has gained competitive advantage in the market with the help of cost leadership technique. The objective of this plan is to increase the sales of the organisation. By offering the products at a low price and offering minimum or no delivery charge the company has gained popularity among the existing customers and has been successfully been able to attract more consumers. The company also uses tools like loyalty programs for the existing consumers to ensure constant transaction between the company and the consumers. Amazon has continuously improved and developed the service for providing the customers with premium quality service this has ensured repeat customers (Hollensen 2015).
Currently the company is focusing on diversification as well; this means that the product as well as the market is new for the products or services that are developed by the organization. Amazon web services, Amazon prime videos, Kindle e-book reader etc are some of the services and products that are offered by the company. Amazon has also acquired in Whole Foods which is a completely new product and a new market as well (cnbc.com 2017).
Post globalization corporate establishments and business organization small or big has increasingly recognized the importance of the responsibilities they have towards the environment and the society. In order to maintain the balance of nature the co-operation form big business houses are essential and it has been identified that more and more organizations are increasingly recognizing their responsibilities (Holden et al. 2017). Previously Amazon has received criticism for not focusing on the sustainable development of the business. But the company has been swift to change its course and adapt to the triple bottom line model of business where Plant and people are paid equal focus as the price. Kara Hartnett Hurst was appointed as the sustainability executive in 2014. The CEO of the company has a reputation of being visionary and farsighted but the company has lagged in the CSR rating and is still struggling to meet the competitors in this sector (amazon.com 2017).
The web services of the company are striving to make the process of the business environment friendly. The objective of the project is to gain 100% renewable energy usage for our global infrastructure footprint. By the end of 2016, AWS achieved 40% of the goal to renewable energy, and the idea is to achieve 50 percent by the end of 2017. The company also has solar farms and wind farms to generate renewable energy. There are ten projects that are expected to generate a total of 2.6 million megawatt hours of energy in a year (amazon.com 2017).
As an online retail business one of the major aspects of the company is packaging, Amazon has been involved in sustainable packaging system. This includes multi-waste reduction projects like Frustration-Free Packaging which ensures that the packages are not poorly packed yet they are easy to open. This initiative eliminates hard plastic clamshell cases and the plastic-coated wire which are non-biodegradable. According to the official website of Amazon, the company has been able to eliminated 181,000 tons of packaging material and avoided 307 million shipping boxes. 100% recyclable packaging is another initiative taken by the company which has not only reduces the wastes to a significant level, but has also reduced the operational cost (Holden et al. 2017).
In 2016 Amazon along with Microsoft, Google and Apple signed an agreement with the U.S. Environmental Protection Agency’s Clean Power Plan to continue the support of the cause.
The company also has social and environmental sustainable initiatives in the countries of operation as well. For example in India, Amazon had initiated a drive to distribute used books to children who are in need of financial aid to continue education. Across the global network Amazon has also set an object to supply solar energy systems at 50 buildings by 2020 (amazon.com 2017).
Though the company has established itself as a responsible entity in the sustain sector but the company is still lagging behind. The achievement of the incorporation is just 43 percent compared to the other companies who have similar revenues and scale of operation (Holden et al. 2017).
Conclusion
Amazon is in a continuous fight to overcome the barriers and provide the consumers with premium quality service. The growth and expansion opportunities of the company as analyzed in the SWOT are positive. There are many untapped scope and opportunities of the company in the global market. Jeff Bezos is a visionary leader and is a person who has been able to recognize an opportunity before anyone, though some of his policies and decisions have been criticized by experts, there has been a constant growth of the company in the past decade.
Reference list:
amazon.com. 2017. Sustainability. [online] Available at: https://www.amazon.com/p/feature/wnsdvqqghme982o [Accessed 11 Dec. 2017].
Anton, R., 2015. An Integrated Strategy Framework (ISF) for Combining Porter’s 5-Forces, Diamond, PESTEL, and SWOT Analysis..
Bull, J.W., Jobstvogt, N., Böhnke-Henrichs, A., Mascarenhas, A., Sitas, N., Baulcomb, C., Lambini, C.K., Rawlins, M., Baral, H., Zähringer, J. and Carter-Silk, E., 2016. Strengths, weaknesses, opportunities and threats: A SWOT analysis of the ecosystem services framework. Ecosystem services, 17, pp.99-111.
cnbc.com. 2017. Amazon’s booming online sales and Whole Foods acquisition make it a buy: Analysts. [online] Available at: https://www.cnbc.com/2017/10/24/amazons-booming-online-sales-and-whole-foods-acquisition-make-it-a-buy-analysts.html [Accessed 11 Dec. 2017].
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Gupta, A., 2013. Environmental and pest analysis: An approach to external business environment. Merit Research Journal of Art, Social Science and Humanities, 1(2), pp.13-17.
Hill, C.W., Jones, G.R. and Schilling, M.A., 2014. Strategic management: theory: an integrated approach. Cengage Learning.
Ho, J.K.K., 2014. Formulation of a systemic PEST analysis for strategic analysis. European academic research, 2(5), pp.6478-6492.
Holden, E., Linnerud, K. and Banister, D., 2017. The imperatives of sustainable development. Sustainable Development, 25(3), pp.213-226.
Hollensen, S., 2015. Marketing management: A relationship approach. Pearson Education.
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