External Analysis
General Environment
Economic
Since the start of 2008, the global economy has been in a recession. The World Bank reduced each
country’s expected GDP growth for the year of 2013. The low GDP growth and high unemployment
rate have reduced people’s wealth and purchasing power of goods. When the market tanked, many
people chose to migrate their shopping onto an online platform. In 2011, online sales actually
increased by 11 percent despite what people imagined. The reason this has 2 been occurring is that
many consumers are changing their spending habits toward finding “bargain goods”. Amazon has
been able to benefit from this greatly thanks to their ability to offer affordable goods quickly and
easily to the general public
Sociocultural
Online shopping has grown dramatically in popularity over recent years. E-commerce is convenient
since there are no geographic restrictions and consumers can have access to a selection of goods
wherever and whenever they want. Moreover, there is an unlimited selection of merchandise for
customers to review and compare. These advantages shift customers’ shopping behavior from retail
stores to online shopping. According to a survey of online shoppers: 48 percent of respondents
shopped online in the past 12 months, 66 percent preferred web retailers, and 73 percent
completed nearly half of their shopping online. The increasing popularity of online shopping is
providing a foundation for Amazon to exploit their core competencies.
Global
With the advances in modern tech support and web security, people are getting more and more
willing to make purchases online. As the economies of emerging markets are rising dramatically,
people in those countries with increasing purchasing power are spending more on online shopping.
Services such as Amazon are able to exploit this opportunity by offering consumers goods which are
not readily available in local markets. While firms expand internationally, it is critical to take into
account of the differences in consumer preferences.
Technological
The Internet is an excellent source of data that provides the most timely available information that
captures the shift in consumer preferences and trends. As technology has been rapidly advancing,
businesses have been influenced by technological innovations. For example, 3 online payment
methods such as online banking and PayPal create more convenience in purchase transactions,
which in turn enhances customers’ online shopping experience. Also, the invention of electronic
devices such as smartphones deliver easy and convenient transaction processes, further facilitating
online shopping. For instance, Amazon recently released a smartphone app for their Kindle services,
allowing users to conveniently access the online sales platform and review products before
purchasing. In the future, the use of 3D virtual technology to market products will also take online
shopping to new heights.
Political/Legal
In the modern day environment, firms must be cautious when they deal with international policies
on online distribution. In the U.S., electronic commerce firms are regulated by the Federal Trade
Commission, which regulates online advertising and the security of consumers’ personal
information. On the other hand, International Consumer Protection and Enforcement Network
(ICPEN) finds ways to tackle consumer problems involving cross-border transactions in both goods
and services. This helps to ensure participants equally benefit and reach mutual understanding.
Online retailers such as Amazon should be careful to disclose online sales taxes while advertising
products to other countries via online shopping platforms because different sales taxes can cause
confusion to customers.
Demographic
As the world’s population is aging rapidly, baby boomers are moving towards retirement so that they
will have weaker purchasing power. Thus, generation X and Y have become companies’ target
markets for product selling. These generations are technologically adept and tend to engage more in
online purchasing. Based on a survey, 62 percent of Generation Y liked to purchase things online, as
compared to 32 percent of those aged older than 50. Organizations 4 should also exploit
opportunities from emerging countries, such as China and India, which have large populations and
growing disposable income. Based on a global survey of online shoppers, people in China engaged in
online shopping 8.4 times more than those in any other markets on a monthly basis. Thanks to the
network of distribution services and the power of E-Commerce, Amazon is in a position to utilize its
core competencies in order to capture the global market.
Industry Analysis
Threat of New Entrants
The threat of new entrants is considered to be low. It is easy for companies to start-up in this
industry due to the relatively low capital investment costs. However, to achieve the position in the
industry that Amazon holds it would require huge investment in infrastructure and inventory. It is
also hard for new entrants to gain customer loyalty since the existing major competitors, such as
Amazon, have established a loyal customer base.
Bargaining Power of Suppliers
Suppliers have little bargaining power due to the substantial number of suppliers available and the
vast expanse of the online global distribution network. Many suppliers rely on key online retailers
such as Amazon to engage in bulk purchasing. Thus, online retailers can easily switch to another
supplier for lower price and better quality. Bargaining power of suppliers to Amazon is particularly
low since suppliers do not require payment until 35 days after the confirmation of sales.
Bargaining Power of Buyers
The bargaining power of buyers is high. Customers have the options to choose among numerous
online stores for the lowest price products and services due to the completely available 5
information online. The fact that Amazon is able to reduce their overhead costs by not having retail
locations allows them to achieve these low prices, enabling them to compete in the industry.
Threat of Substitute Products
The threat of substitutes for Amazon is high. The only unique characteristic Amazon has is the
patented technology (such as 1-Click Ordering), which differentiates them from other possible
substitutes. However, there are many alternatives providing the same products and services, which
could reduce Amazon’s competitive advantage. Therefore, Amazon does not have absolute
competitive advantage on their product offerings, but they definitely have the advantage when it
comes to the quality of customer service and convenience provided.
Rivalry Among Competing Firms
Rivalry among competing firms is high. There are a vast number of search engines on the Internet
which are able to influence customers decisions when searching for the best online retailer. There is
also an increasing number of dot-com retailers due to the relatively low start-up costs of the
business
Competitor Analysis
As the fastest-growing, multinational e-commerce retailer in America, Amazon has an international
presence over various categories and faces an intense competition. Based on the similarity in the
breadth of products, geographic market coverage, and scope of business, three major competitors
are identified: eBay, Barnes and Noble, and Wal-Mart. Wal-Mart, as the world’s largest retail chain,
utilizes a cost leadership strategy with low cost management in value chain to market its products at
the lowest price through both ecommerce and physical stores.
eBay, operating as the biggest online auction house and focusing as a service provider, employs
cost leadership strategy by solely operating e-commerce as an intermediary without holding any
inventories or physical infrastructures. It also applies a differentiation strategy by providing a variety
of products, high-quality service security, and E-commerce services.
Barnes and Noble, America’s largest book retailer operating both online and physical retail
businesses, competes intensively with Amazon for the market share in the book industry. It pursues
an integrated focused cost leadership/differentiation strategy to target price-sensitive consumers by
providing books not readily or commonly available at a less expensive price. The competitors’
analysis can be summarized as below:
1 Future objectives: Competitors want to compete for a good strategic position and become the
market leader in both e-commerce and physical commerce.
2 Current strategy: Competitors aim to increase profitability, gain market share, and provide a wide
variety of products to compete against Amazon through utilizing competitive pricing, cost
leadership, and differentiation strategies.
3 Assumptions: Competitors believe that the demand for online shopping will continue to grow as
consumers seek for more convenient and efficient ways of shopping.
4 Capabilities: Competitors offer similar products as Amazon either at a lower price or accompanied
with differentiated services. Some of them have an international presence with stable financial
performance, enabling them to form global strategic alliances to increase their market base of
customers.
