Amazon is an undisputed market leader in online retail segment and cloud computing. On the other hand, the strengthening economies in America and Europe provide an opportunity for Amazon to grow. Further, Amazon has also expanded globally and now operates around the world through a combination of localized portals and globalized delivery and logistics platforms.The way in which Amazon has leveraged technology as a source of competit… The brand has exceeded the 100 million mark in terms of prime memberships globally. Developing countries are growing fast leading to an increasing purchasing power thus creating a valuable opportunity for Amazon and other online sellers. A VRIO analysis of Amazon helps explain how the business manages to grow and sustain its industry position. Being the world’s leading online retailer, Amazon derives its strengths primarily from a three-pronged strategic thrust on cost leadership, differentiation, and focus. Amit, R. & Zott, C., 2001, ‘ Value creation in e‐business.’ Strategic management journal, vol.22, no.7, pp.493-520. New entrants form a serious threat to an industry that is characterized by weak or few entry barriers. Enhancing Product Development– the goal of this strategic option is to ensure the company’s products are embraced in the market. Based on the conditions in the company’s internal and external environment, it is apparent the company needs to take some actions to safeguard future success. Examples include: Some of Amazon’s competitive advantages from a value chain perspective include: A firm utilizes its resources and capabilities to create a competitive advantage. Save my name, email, and website in this browser for the next time I comment. Pehrsson, A., 2009, ‘Barriers to entry and market strategy: a literature review and a proposed model.’ European Business Review, vol.21,no.1, pp.64-77. will change that.. These wars are a threat to profitability and threaten the seller’s ability to recover costs. Amazon.comInc.’s e-commerce success relies on the effective use of business strengths. Sustainable competitive advantage “VRIO framework is the tool used to analyze firm’s internal resources and capabilities to find out if they can be a source of sustained competitive advantage.” Technology Economies of scale Some of the major Amazon’s competitors include e-bay and Alibaba (Zhu & Kraemer 2005). & Walker, G., 2015. A superb delivery network is another Amazon’s internal strength. Bezos seems to understand that by staying innovative and collaborating with … The company’s pricing strategy should be revised to protect the company from the risks associated with small profit margins. 5.1 Industry Analysis of Amazon . These activities typically include: Support activities help to facilitate or assist the primary activities of producing product. According to Shankar & Bolton 2004, a company can only offer competitive prices when costs are minimized as no business is willing to make losses. Despite the title, the model is simple to understand and can be highly effective. The tastes and preferences of online shoppers keep changing necessitating online retailers to monitor these changes closely. Exploiting these markets would save the company from the risk associated with over reliance on developed markets. Pricing decisions should be influenced by the cost structure of the company’s business model. They introduce new capacities that erode the influence of the existing players. The five forces are threat of substitutes, ... technological and other aspects like the internal environmental factors and their impact on the organisation. Evidence shows that the number of online shoppers has been on the rise. The purpose of this article is to review Amazon’s strategy development model and the external assessment tools it used in helping it to formulate and select top strategies. See all formats and editions Hide other formats and editions. Financial resources enable a business to withstand environmental challenges emanation from a changing environment. Internal audits help an organization accomplish objectives by bringing a systematic, disciplined approach to evaluating and improving the effectiveness of risk … Product development starts with a careful analysis of the market needs with the aim of ensuring that the new products meet the specific market needs (Lilien, Morrison, Searls, Sonnack,&  Hippel 2002). On the other hand, the risk can lead to the company holding an obsolete stock that would lead to huge losses. Strengths in Amazon SWOT Analysis. Operating performance ratios describe the relationship between the Amazon.com Inc.’s level of operations and the assets needed to sustain operating activities. The fact that the company’s main customer base is in developed countries exposes it to the ramifications of an economic slowdown in these countries. Amazon Internal and External Analysis and Strategic Options Internal Analysis. Concentric diversification is another form of diversification that involves introducing new products aimed at maximizing the utilization of existing resources. Amazon has been offering competitive prices with the aim of increasing its market share. The production department should ensure the new product meets the highest quality standards while the finance department should confirm the commercial viability of the product. ? It shipped more than 5 … There are four types of diversification, and they are all relevant to Amazon. Most of the company’s customers are in developed countries, and the political stability experienced in these countries provides an opportunity to grow and avoid losses. Amazon is a great, leading-edge company that has successfully developed and implemented compelling strategies that we can learn from. Free delivery on millions of items with Prime. The increasing internet connectivity in developing countries provides an opportunity for growing sales in these countries. Their net sales continue to grow, their cost of goods decreases as a % of sales and their net income continues to increase. The political environment provides both opportunities and threats to the company. This disappointment emanated from introducing a product that is not in line with market expectations. In some countries like India, the company has been making losses, and this is raising the question of the sustainability of thin profit margin approach. Instead too many strategic planning exercises are nothing more than budget positioning exercises. They used the value chain model from Michael Porter‘s book, Competitive Advantage: Creating and Sustaining Superior Performance. The fact that attempts to introduce new versions of phones failed is a clear indication that Amazon’s hardware business segment is under threat. I write top quality articles, essays, dissertations, and thesis. Amazon also uses the CRM to gather market intelligence that is used as a basis for improving service delivery. A literature review on the antecedents of online trust.’ Computers in human behavior, vol.26, no.5, pp.857-869. In this marketing tutorial we will conduct Amazon swot analysis to find out how amazon became one of the world’s most valuable brand. There are two types of competitive advantage: Amazon successfully identified the right resources and developed its capabilities in key target areas. We share a link to Amazon’s strategic … Amazon.com maintains its prominent position in market by carefully analyzing and reviewing the SWOT analysis. Some of the strategic capabilities are under threat while others are immutable thus giving the company a sustainable competitive advantage. An outstanding customer relationships management system is one of the company’s main strategic capabilities. Madsen, T.L. The analysis should include be based on the “after” covid period, i.e. Horizontal diversification is one of the four types, and it involves introducing a new variety of product to the company’s products (Narasimhan & Kim 2002). These investments resulted in: Amazon’s investments are paying off. The diagram below is Henry Mintzberg‘s illustration of the model. Amazon.com - External and Internal Competitive Analysis Team-Written for Thunderbird School of Global Management Amazon.com, Inc. is the world's largest online retailing company headquartered in Seattle , WA . And, they continue to invest in initiatives that provide them a longer-term competitive advantage. Also, the ideal strategy should reflect the identified opportunities and threats revealed by analysing the external environment. Online retailers engage different types of suppliers with varying bargaining powers. The case Analysis Outline Introduction- Brief summary of the firm, officers, industry and location Problem identification: major problems to be resolved-use the 4ps model Swot Analysis: strengths: weakness: opportunities: threats Alternatives: strategic choices-solutions to the problems identified Analysis of alternatives: cost/benefit analysis of … This intervention should involve companywide commitment where every department is involved in determining the fitness of new product. The attempt to serve the Asian markets has registered mixed outcomes. Amazon operates in the online retail sector that has many participants. Amazon.com has strengths that have continued to help them out throughout the hard times in the economy and in the industry. However, most of us struggle sometimes in seeing the obvious. Upscale store vs. garage sale. Strategic Analysis of Internal Environment of a Business Organisation Kindle Edition by Ivor Ogidefa (Author) Format: Kindle Edition. An issue like online fraud can reduce online shoppers as they would feel unsafe when making online payments. Before looking at the internal assessment tools Amazon uses, take a moment to view these videos. The company has formed strategic alliances with logistics companies that have streamlined its logistics system. Leveraging on these products, the company could increase its market share by offering a … In the recent past, Amazon has faced disappointments when its attempt to introduce new products in the phone category flopped terribly. The company’s future depends on how best the Amazon’s management implements measures aimed at fully exploiting the strategic capabilities and at the same time ensuring the weaknesses do not prevent the company from realizing its goals. Amazon.com Inc. Report contains a full analysis of Amazon McKinsey 7S Model. This article examines the strategy of the world’s leading online retailer, Amazon through a SWOT Analysis methodology. For instance, the company’s performance in China was good despite the domination of Alibaba. Amazon is confronted by external forces that present opportunities and threats. Primary activities are those needed to produce a product or services for the end customers. The organization’s resources and capabilities combined together constitute its distinctive competencies. The e-commerce giant earned an operating income of USD4.2 billion, USD4.1 billion, and USD12.4 billion for 2016, 2017, and 2018, respectivly. The bargaining power of the suppliers has far-reaching impacts on the ability of a retailer to offer competitive prices. Amazon's Strategic Plan - External Analysis, Business Principles We Can Learn from Jeff Bezos - Founder of Amazon, Strong technological infrastructure with a single platform, High investments in technology development (e.g., Kindle) to best leverage digital products, Constantly soliciting suggestions on new products, Cost Advantage: A cost advantage exists when a company is able to deliver the same benefits as their competitors but at a lower price, Differentiation Advantage: A differentiation advantage exists when a firm is able to deliver benefits that surpass their competitors, Sophisticated online retailing technologies, Personalization features for customers on its websites, Reliable and easily scalable IT systems all one platform, New products (100 different products in seven major geographic markets). There has also been an increasing information technology in both developing and developed countries, and this is providing a valuable opportunity for online sellers to enhance their operations (Hawk 2004). Lilien, G.L., Morrison, P.D., Searls, K., Sonnack, M. &  Hippel, E.V., 2002, ‘Performance assessment of the lead user idea-generation process for new product development.’ Management science, vol.48,no.8, pp.1042-1059. Amazon is confronted by external forces that present opportunities and threats. While its CSR programs and policies evolve, Amazon.com Inc. needs to improve its efforts to satisfy the changing interests and expectations of stakeholders in the global e-commerce industry. Amazon.com’s competitive advantages are based on various resources and business capabilities. In this Amazon Pestle Analysis we will discuss the opportunities and threats of external environment of this e-retail business. 1. Developing countries have been experiencing a high internet penetration that is supporting e-commerce operations. originally appeared on Quora: the place to gain and share knowledge, empowering people to learn from others and better understand the world. In this article we examine simple tools that Amazon leveraged in conducting an internal assessment – to help it in its strategic planning process. Gathering the relevant market intelligence would lead to the introduction of the right products that reflect the current market needs. The conglomerate diversification will enable the company to continue with its low pricing strategies as losses made in retailing can be compensated by profits made in other sectors. Analysing Amazon’s internal environment reveals that cost leadership is a strategic capability. Amazon has been focusing on developed countries with little or no focus on developing countries. McGraw Hill. World’s top CEO, Jeff Bezos, has been the backbone of a company which grew from being a small startup to a trillion dollar behemoth. The government’s heightened commitment to fight cyber crimes is a valuable opportunity to Amazon since the company’s operations are susceptible to cyber attacks. The rivalry can lead to price wars where each player seeks to offer the best price. The low-cost advantage is under threat due to the increasing competition. The sector is made of both big and small retailers that compete for customers. The perception of people regarding online transactions is increasing where more people in developing countries are embracing online transactions. The online retail sector is made of customers who prefer making orders online instead of relying on the brick and mortar retail outlets. The economic environment forces present opportunities and threats to the company. The company should employ other competitive strategies to supplement price strategies. External and Internal Environments for Amazon External and Internal Environments Two segments of the general environment Everything being equal, it is the primary objective of any company or business to gain a bigger market share, grow, … The success of an online retail sector is determined by the firm’s ability to establish reliable distribution networks that ensure the products reach customers on time. The SWOT/TOWS analysis report for this ecommerce business focuses on providing insightful details about the internal and external analysis of the company. Not so with Amazon. Amazon maintains the minimum stock level, and this makes it necessary to streamline the relationships with the suppliers to ensure timely deliveries. Establishing brick and mortar stores will give the company a competitive advantage over Walmart considering that this competitor has been striving to venture into online retail. Beldad, A., De Jong, M. & Steehouder, M., 2010, ‘How shall I trust the faceless and the intangible? In the past Amazon has been focusing on serving developed markets that are characterized with high purchasing power. The strategies listed below shows the specific competitive advantage that is going to be realized after their implementation. Amazon is the world’s largest online retailer and is indeed a pioneer in the online retailing space. Analysis of Short-term (Operating) Activity Ratios. For instance, Amazon can venture into the real estate sector, and this would amount to conglomerate diversification. Social factors have diverse impacts on Amazon’s performance. The strong financial position has enabled the company to strengthen itself in the online retail sector through expansion. Amazon has an elaborate CRM system that supports the uninterrupted flow of information between the company and its customers (Amit & Zott 2001). 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