Introduction
Since 1995, Amazon has been a dominant player in the online retail market. Among its primary products and services include the sale and distribution of books, mp3s, and electronics. The company is mainly based in Washington USA and has a significant presence in other parts of the world. Part of Amazon’s success can be attributed to its unique vision, mission and the support of its primary stakeholders.
According to Byers (2006) Amazon’s vision is “to be earth’s most customer centric company; to build a place where people can come to find and discover anything they might want to buy online” (p. 3).
According to Amazon’s founder (Jeff Bezos), the company’s mission and vision statements have guided most of his managerial decisions and indeed, Byers (2006) agrees that part of the company’s success can be attributed to the company’s strong commitment towards realizing its visions.
Part of Amazon’s success can also been attributed to the seamless relationship between the company and its key stakeholders (some of the company’s key stakeholders include its customers, suppliers, financiers, media, community and employees) (Byers, 2006). The support from key stakeholders and the company’s commitment to its vision is responsible for Amazon’s success.
Five Forces of Competition
Amazon’s five forces of competition are mainly defined by the supplier power, buyer power, competitive rivalry, threat of substitution and the threat of new entry. Like other companies, Amazon is not immune to these forces. The supplier power affects Amazon’s activities in different ways. Advantageously, Amazon has used its influence in the retail market to maintain a good working relationship with its suppliers.
For example, the company only makes payments to its suppliers once purchase is done. Similarly, payments to suppliers are only effected about 35 days after the sale of the products (Bali, 2009). Even with such terms in effect, Amazon’s suppliers have still maintained a good working relationship with the company. This good working relationship has accounted for Amazon’s success.
Buyer Power
Buyer power also affects Amazon’s activities in different ways, but largely, the company has been able to use its low-pricing strategy to create a loyal customer pool. It is perceived that Amazon’s products are fairly priced, such that, when customers purchase their products from the company, they find it difficult to strike similar bargains from other companies.
Therefore, low prices have been Amazon’s selling point and consequently, the company has been able to make the buyer power work to its advantage (Bali, 2009).
Competitive Rivalry
Amazon has been a pioneer in its industry. Considering the fact that the company was among the first online retail stores in the market gives it a competitive advantage over its rivals. However, over the past decade, Amazon’s competitors have becomes increasingly fierce.
Now, Amazon is fighting with other retail giants like Wal-Mart and best buy for a share of the retail market. Even though these companies have their niche markets, the end to competition is yet to be realized. Nonetheless, the competitive rivalry among these retail giants has forced all these companies to price their goods fairly and improve their customer service offing (Bali, 2009, p. 135).
Threat of Substitution
Since the inception of Amazon, there has been little threat of substitution. This is because the company has been able to make a good name for itself and is now among the most trusted companies in the retail industry (Byers, 2006, p. 1).
Even though the threat of substitution is minimal, Amazon has been on the fore front in coming up with new products and services that rival others in the market so that it is not caught off-guard in future.
Threat of New Entry
Since Amazon operates in the online retail market, the threat of new entry is ever-present. Indeed, the virtual world has played host to some of the most successful corporate ventures (which started as only simple ideas).
Now, some of the biggest companies in the world such as face book and YouTube are raking in millions of dollars, purely based on simple business concepts. Therefore, the threat of new entry for Amazon is still possible. Here, there is little that the company can do except to manage such threats like competitive threats.
SWOT Analysis
This SWOT analysis seeks to analyze Amazon’s strengths, weaknesses, opportunities and threats. Usually, the SWOT analysis is used to analyze a company’s internal environment.
Strengths
Among the greatest strengths of Amazon is its strong brand recognition. As observed in earlier sections of this paper, Amazon has been able to cut a name for itself in the online retail market. This strength has increased customer trust in most of the company’s products.
For example, the launch of the kindle digital book reader was largely successful because of the company’s strong brand name. Amazon’s online business model is also a strong strength for the company because it has been able to generate revenues, while keeping the operating costs at a minimum (DePamphilis, 2010, p. 135).
Weaknesses
Amazon’s low-cost pricing strategy is perhaps the company’s main weakness. Even though this strategy is identified to constitute the company’s main selling point, it may act contrary to its expectations because customers can move to other companies that have a similar low-cost pricing model.
Opportunities
According to Amazon’s business model, it is crucial to highlight that immense opportunities exist in the company’s pre-ordering business model because the company can charge higher prices for products before their value depreciates (DePamphilis, 2010).
Threats
Among Amazon’s biggest threat is competition. So far, we have seen that other retail giants such as Wal-Mart and best buy are competing for the company’s market share.
However, there are other competitors in the online market such as Google and eBay who are competing for the same market share. The number of such companies is expected to increase and this trend is bound to pose a problem for the company (DePamphilis, 2010).
How Amazon can Capitalize on its Strengths and Opportunities while Minimizing its Weaknesses and Threats
Since Amazon has strong brand recognition, it is important for the company to take advantage of this strength to venture into new markets. Already, the company has a strong market presence in America and certain parts of Europe but this is not enough. It is important for the company to use its strong brand recognition to venture into new markets such as Australia, Asia and other parts of the world.
Researchers have affirmed that the best way to counter competitive pressures is to stay ahead of the competition. Through this understanding, it is important to note that the best way to stay ahead of competition is to always keep innovating and creating new products (DePamphilis, 2010). Through this strategy, Amazon can be sure to keep its competitors at bay.
To manage the threat of losing its market share from a weakness of its pricing model. Amazon can embark on a value addition process for its products. Preferably, it would be beneficial for the company to require its suppliers to engage in value-addition processes so that their products are of higher quality than their competitors.
The high level of quality should be unrivaled by the competition. Therefore, whenever customers are tempted to shift their loyalty to another company (that offers low-priced products), they will be discouraged to do so because they will also lose out on improved quality. Companies such as Apple Inc. have managed to implement such a strategy with tremendous success.
Strategies to Increase Company Competitiveness and Profitability
Already, Amazon has had a significant degree of success during its few years of operation. Indeed, the company is even among Forbes top 500 companies. However, there are still numerous ways that the company can improve its standing in the online retail field and emerge a dominant player in the coming years.
One primary basis for improving the company’s competitiveness is to counter the emerging competition in an unconventional and unexpected way.
As observed in earlier sections of this paper, recent years have been characterized by intense competition among all the players involved in the retail market. Amazon cannot limit the number of competitors that enter the market but it can improve its standing among existing competitors.
The best strategy for doing so is to merge with another dominant player in the market or buy-off smaller players in the industry to limit the severity of competitive forces existing in the industry (Coffey, 2012).
Even though the practicalities of implementing such a strategy may be difficult to conceptualize, there are a lot of benefits to be accrued from such a strategy. Amazon already has the financial power to implement such a strategy and already, the competitive space is becoming too crowded (especially with the entry of Google’s online retail store) (Coffey, 2012).
Through acquiring or merging with another company, Amazon can be able to create a controllable market situation where it calls the shots in the online retail market.
Coffey (2012) explains that there is so much power and influence derived from being a dominant player in the market and concisely, such a strategy is guaranteed to increase Amazon’s profitability. Mergers and acquisitions are important strategies that can also be used to solve some of the corporate governance issues (as explained below)
Corporate Governance Issues
This paper proposes that Amazon should expand its market from its primary sources to other continents across the globe. However, this strategy highlights one of Amazon’s main corporate governance issues.
Cultural and Ethical issues emanating from doing business in other countries and cultures defines this corporate governance issue. Amazon is not the only company that experiences this problem; other multinationals that operate in foreign borders also experience this challenge (although to varying degrees, depending on the type of business involved).
Pursuing mergers and acquisition strategies is a good strategy for Amazon to navigate the challenges of operating in a foreign market (Coffey, 2012, p. 56). These strategies will ensure that the company gets the best from the host’s retail market.
For example, if a foreign company were looking to venture into the American retail market, they would consider merging with Wal-Mart because it has a good retail outreach. Similarly, a company like Wal-Mart knows how to navigate the ethical hurdles that exists in America. If Amazon pursues such a strategy in its host markets, it would achieve a good success rate.
References
Bali, B. (2009). Knowledge Management Primer. London: Taylor & Francis.
Byers, A. (2006). Jeff Bezos: The Founder of Amazon.com. New York: The Rosen Publishing Group.
Coffey, J. (2012). Reaping the Benefits of Mergers and Acquisitions. New York: CRC Press.
DePamphilis, D. (2010). Mergers and Acquisitions Basics: All You Need To Know. London: Academic Press.