Introduction
Amazon is the leading online retail store in the United States of America. Headquartered in Seattle, Washington, this firm has experienced massive growth over the years to become one of the largest retail outlets in the global market. Its success in the local market has seen it expand its operations beyond the borders of the United States. The firm is now operating in the United Kingdom, Canada, France, Australia, Germany, Ireland, Italy, the Netherlands, Brazil, Spain, Japan, Mexico, China, and India (Filson, 2004).
It has used its unique marketing strategy that is successful in the United States to achieve success in the global market. The online market has remained unique in the international market. Unlike brick-and-mortar stores that heavily rely on beautiful displays to attract customers, online stores has to rely on the strength of their brands and trust they have developed in the market to attract their clients. This is more complex than when handling products in the physical stores because it will take time to strengthen an online brand and create loyalty with the customers. In this paper, the researcher will analyze Amazon’s external environment based on Porter’s Five Competitive Forces.
Major Parts of the Model Selected
The founder of Amazon, Jeff Bezos, developed a unique business model in 1994 that had never been witnessed before in the United States (Maxfield, 2008). He started an online retail store at a time when most Americans knew that the only way to shop was to visit the brick-and-mortar stores. He realized that internet was increasingly becoming popular among the American citizen. According to him, a time would come when most Americans would make all their shopping in an online market (Ding, 2008). His dream came true in 2015 when Amazon surpassed the world’s largest retailer, Wal-Mart, as the United States’ most valuable retailer. It is necessary to analyze external forces that acted in favor of this firm leading to such a massive success. Porter’s Five Competitive Forces Model will be used at this stage. The Five Forces model is shown in the figure below.
Bargaining power of suppliers
According to Blank (2015), the bargaining power of suppliers is one of the forces that may affect competitiveness of a firm. When the suppliers have a strong bargaining power, they can easily dictate terms of trade that are not favourable to the firm. Amazon has been keen on selecting its suppliers. In most of the cases, it has been treating its suppliers as business partners. The firm works together with its suppliers to achieve a common goal in the market. In fact, most of the products that this firm sells are stored at the suppliers’ warehouses, only picked when it is time to deliver them to the clients. This close partnership with the suppliers has enabled it to dictate terms of trade between it and the suppliers.
Bargaining power of the customers
The bargaining power of the customers is another factor that may affect competitiveness of a firm in the market. Amazon developed a business design that the American society had never witnessed before. It was thrilling that one could actually make an order while at home or in office and the order is delivered at the desired location. This was a service beyond the expectation of many. As such, the bargaining power was left with the firm other than being with the customers. For a long time, Amazon’s customers have felt that they have the moral authority to support this firm because it fits well in their tight schedules. In America today, it is common to find both parents in gainful employment. As they strive to achieve success in the corporate world, they lack time to go shopping as was the case before. They, therefore, find it more convenient to use services offered at this online store even if the price is a little higher than the market average. This is another factor that has contributed to the success of Amazon.
Threat of new entrants
According to Bollmann and Theuvsen (2008), when Amazon first developed this unique business model, many firms in the United States did not clearly understand the concept. Many entrepreneurs could not conceptualize a scenario where buyers could actually trust an online store at a time when the shopping experience at brick-and-mortar stores was gaining popularity. This meant that the threat of new entrant at that time was almost non-existence. After a few years, some new start-ups tried to emulate the model, but they were crushed during the dotcom bubble in 2001. This once again eliminated the threat of new entrants for several years. Currently, many online stores have sprung up in the United States, but they do not offer any substantial threat to this firm because it has already developed a formidable brand that is trusted by the global market. The impact of these new entrants is, therefore, inconsequential to the growth of Amazon as a global online store.
Threat of substitutes
In the modern market, many firms are faced with the threat of substitute products. As Blank (2015) says, the closer the substitute is to the products of a given firm, the greater the risk it poses to the survival of those particular products. Amazon is currently grappling with this threat that is directly as a result of emerging technologies. As Blank (2015) puts it, the technology that created Amazon is currently working against it in some areas. In the past, this firm made attractive sales of books to clients. However, this is slowly fading away as people embrace e-books. The e-books are seen as perfect replacement to the physical books found in the libraries. Most colleges are now digitizing their libraries and obtaining the e-books directly from the publishers instead of purchasing them from firms such as Amazon. This has hurt sales volume of this firm. However, the management has been successful in reinventing itself by now focusing on e-books. Amazon still remains the leading online store which sales e-books to clients in the market.
Industry’s level of competitive rivalry
The level of industry’s competitive rivalry is another issue of concern that a firm must be conscious about in the market. Amazon is operating in an online retail market that is increasingly becoming flooded. Many entrepreneurs have realized that online market holds the future to retail marketing. That is why many online stores have sprung up not only in the United States, but also in Europe and other parts of Asia. This is intensifying the level of competition in the global market. However, Amazon has managed to withstand this competition because of the strength of its brand. People trust Amazon and they believe it offers the best value as opposed to other existing firms.
Summary and Recommendations
Amazon’s success as an online retail store is majorly attributed to its unique business design that was developed at a time when shopping at brick-and-mortar stores was considered very popular in the United States. The founder of this firm envisaged a scenario where most Americans would be forced to rely on online shopping that they could make while in their offices or at home because of their limited time. This vision has come to pass, and the business has become one of the largest retailers in the world. The firm has been able to withstand massive competition in the market posed by emerging firms due to the strength of its brand. Inasmuch as this firm still remains very successful, it may be necessary for it to make some adjustments that will assure it of continuous prosperity in this market. The following recommendations should be taken into consideration:
- Amazon should be very keen when expanding to the global market, especially to countries with poor infrastructure as this may hinder its ability to achieve success.
- Amazon should develop a few brick-and-mortar stores within the United States to demonstrate the unique experience they can offer to the clients. Some people still visit these physical stores just because of the shopping experience. The firm should target such clients to ensure that the experience remains memorable.
- The management of this firm should maintain regular marketing research to understand the changing needs and preferences of customers in the market.
References
Blank, T. (2015). Faux Your Entertainment: Amazon.com Product Reviews as a Locus of Digital Performance. The Journal of American Folklore 128(509), 286-297.
Bollmann, C., & Theuvsen, L. (2008). Strategic management in turbulent markets: The case of the German and Croatian brewing industries. Journal for East European Management Studies 13(1), 63-88.
Chevalier, J., & Mayzlin, D. (2006). The Effect of Word of Mouth on Sales: Online Book Reviews. Journal of Marketing Research 43(3), 345-354.
Ding, M. (2008). Perfect 10 v. Amazon.com: A Step toward Copyright’s Tort Law Roots. Berkeley Technology Law Journal 23(1), 373-403.
Filson, D. (2004). The Impact of E‐Commerce Strategies on Firm Value: Lessons from Amazon.com and Its Early Competitors Free content. The Journal of Business 77(2), 135-154.
Maxfield, S. (2008). Reconciling Corporate Citizenship and Competitive Strategy: Insights from Economic Theory. Journal of Business Ethics 80(2), 367-377.