Strategic Management ??“ Amazon Case Study 2
1- Using the Porter Five Forces framework, identify key stakeholders in the online retailing industry and assess competition??™s intensity.
The power of buyers
Amazon sells directly to the final customers. Therefore, it does not face any competition from intermediate firms or have to deal with concentrated buyers who would try to bargain with them. Nonetheless, the buyers are the most important stakeholders of Amazon because its entire strategy is centered on consumer satisfaction. Creating additional value for the final customers is the primary objective. Therefore, the customers not only have a high interest in the company, they also have a significant amount of power over it.
One power factor is that the switching costs for customers are very low for many products sold by Amazon since they can also be found on other online retailing sites and even offline; customers can easily find substitutes for the Amazon products. This is why Amazon is constantly trying to appeal to the customers through innovation and services. For example, if a customer finds a cheaper price for a product elsewhere, Amazon will systematically lower the price for everyone.
The power of suppliers
Amazon depends on its suppliers to offer its products, and its products include basically everything. Amazon has relied on its suppliers??™ support to make timely deliveries of the products. However, this doesn??™t mean that suppliers have a significant power over Amazon. Indeed, as the example of drugstore.com demonstrates, Amazon will ???partner with you today, but compete against you tomorrow???. This shows that the cost of switching between suppliers is low for Amazon.
The Competitive Rivalry
There are many competitors but with different revenues so there is not a total equilibrium on the competitor balance. There is a low differentiation rate in the market because there are many competitors, small or big, that sell same products or substitutes for them. One significant direct competitor is E-bay, but there are also other traditional retailers. Wal-Mart is also becoming a direct competitor since they are turning to online retailing.
The threat of entry
Amazon poses threats to new entrants with its ???if you find a lower price elsewhere, we will lower the price for everyone??? policy. This policy is indicative of Amazon??™s competition strategy. The history and experience of Amazon and its competitors in this market pose another threat to new entrants.
The Threat of Substitutes
Some products that Amazon offers on line, such as e-books and software, can be substituted by off-line products proposed by traditional retailers, such as regular books and software packages.
2. What are Amazon??™s key strength and weaknesses What are the main opportunities and threats Amazon must face with
– Recognition ( one of the most recognized brand in the world).
-A large choice of products (?«? Anything with a capital A? ?»).
– Constant innovation.
-Development of high technology
– Low prices.
– Customer friendly ( Amazons records datas on customers)
– Services to help customers in their search such as A9.com Inc.
-Can switch easily of suppliers (?«? partner with you today but compete against you tomorrow? ?»).
-dependent on external delivery companies
-Focus on technology to ensure modern & efficient interface with customers require maintenance constantly (costly & riskly)
-Free shipping erodes profits
-Widen its selling activities (could damage its brand image and confuse its consumers)
-Must remain a strong innovator in an ever-increasing e-retailing market
-Increase in sales is not proportionally reflected in profits, which doesn??™t help to gain shareholders??™ confidence.
-Internet penetration is growing: increase of prospective customers.
-partnership with the public sector
-relationship with the publishers for exclusive offers
-promoting the customer??™s loyalty by maintaining the customer expectations
-partner with many e-com retailing firms
-vend its expertise to many store groups
-Further e-commerce expansion to every country of the world
-Expand automated distribution centers to increase efficiency & customer satisfaction
-E-commerce partnership with popular retailing companies such as Target, Toys R Us, and Macy??™s.
-Many traditional retailers are using internet to sell their products
-Is Wall Mart a threat?
3- What are the main competitive advantages Amazon??™s strategy is based on
The first competitive advantage, i.e. the value created by Amazon as perceived in the eyes of the customers, is that the company offers the biggest range of products at the cheapest price. Moreover, it provides a long list of online services which are useful to customers, and some services are only provided by Amazon, like ???Search inside the book???, which makes the company even more valuable to the buyers. Last of all, thanks to the important investments it makes on technology, Amazon has a good MIS (management information system). Its KMS (knowledge management system) provides a lot of customer information so it is able to specific and personalized recommendations to each customer. For example, if a customer purchased a book on Amazon written by a certain author, the next time he or she logs in, the program will show a real message from that author or suggest related other purchases that could be relevant to him/her.