Introduction
Amazon is an American online retailer. It is the largest company in the world due to market capitalization and revenue growth. Main products of the company are Amazon App store, Amazon Echo, Amazon Kindle, Amazon Prime, Amazon Video, and ComiXology. According to 2017 financial reports, the revenue of the firm is US$177.866 billion (Enright, 2018). The report revolves around the current business situation. It seems unusual to analyze both internal and external business environments by applying strategic management tools. SWOT analysis and Porter five forces are essential vital management tools to derive key business insights.
Business Review
The SWOT analysis can help the management to derive insights regarding the internal and external business environment. It is a critical strategic management tool to make better decisions. Appropriate strategic considerations can be depicted by the company to enable long-term business sustainability.
SWOT Analysis
· Strengths
One of the significant strengths of the Amazon Company is the strong brand image. Due to high quality, low cost, differentiation, and availability of different products and services, the firm has successfully sustained the brand image in the competitive retail market. Also, a prominent competitive factor in the retail industry is the product portfolio. Amazon has made the extensive product mix as a key strength in the competitive landscape. The firm operates in many countries, and making products available through a broad product mix is a pivotal strategy to justify the purpose. One of the prominent strengths is the high revenue and rapid growth. The firm has been considered the number one retailer in the global retail industry. It also depicts a strong financial position. It can expand into different markets, especially neglected markets, due to this strength. So far, the firm has utilized all these strengths effectively, and it enabled business sustainability as well. Interestingly, Amazon is highly recognized due to its low-cost business. Due to the cheap business process or structure, it maintained low priced products for customers (Rey, 2015).
· Weakness
Despite gaining success online, the firm has a limited Brick & a Mortar presence (Whitten, 2017). Still, the company lacks a customer range in the retail market. For Instance, a big range of customers like to visit stores and buy products. Amazon contains a simple business model, and competitors can imitate it to get an edge. Products and delivery process are differentiated, but the business model has been imitated widely by existing competitors and new arrivals. It has been observed that the firm is depending on developed countries to generate revenue. Lack of penetration in developing countries is a big weakness, and it can hit revenue growth in the future. Rapid product development is a crucial capability. However, the firm often struggles due to many product flops. Kindle fire failed in the retail market because it did not meet the expectations of customers. Thus, product flops may hit the brand image and profitability.
· Opportunities
Market penetration is the most significant opportunity. Targeting neglected markets can be a great move to strengthen its position in the global retail market. So far, the firm has depicted successful acquisitions in different markets to increase market share and profitability. However, in these neglected markets, it can use the acquisition as a crucial market entry strategy. Financially, the firm is strong enough to acquire firms. It seems a good move to retain the competitive advantage over the other rivals. Amazon can also increase physical stores. Keeping the Brick & Mortar business model in the loop is a better strategy to retain its customer in an intense rivalry (Whitten, 2017).
· Threats
Price war in the retail industry is a major threat to Amazon. Different firms such as Wal-Mart and Target have depicted the intended low-cost structures to come up with low prices. The purpose is to reduce the switching cost for customers. For Instance, Everyday low prices” of Wal-Mart is based on the low-cost structure, and it reduces the switching cost (Jhonsa, 2018). Also, in developing countries, one of the factors of limited profit margins is the sluggish economic conditions and local competition. Also, government regulations may compel the firm to think about exit strategies in different regions.
Porter Five Forces
· Bargaining Power of Buyers
The bargaining power of customers in the retail industry is high. It is a strong force due to the availability of substitutes and low switching cost. People can navigate several options regarding price, quality, and availability and make decisions accordingly (Hu, 2018).
· Bargaining Power of Suppliers
With time, the firm has enabled forward integration, and it created a negative impact on the supplier’s power. Also, the management is focusing on limited suppliers to retain its quality. It increases the power of suppliers. The size of equipment manufacturers is moderate as well. Thus, overall, the power of supplier is a moderate force.
· Threat of Substitutes
Firms have developed the imitation capability in the market. It increases the threat of substitutes. For Instance, customers are finding similar products from Wal-Mart, eBay, Target, and Kroger at low prices. Thus, customer satisfaction and loyalty are two prominent elements (Hu, 2018), which can save the company from this strong force.
· The Threat of New Entrants
The threat of new entrants is quite low due to high business development cost. In the intense rivalry, it seems sturdy for a new arrival to maintain its brand image and convert customers. Low switching cost and higher economy of scale are significant barriers for newcomers in the retail market. Thus, Amazon is not afraid of it because it is a weak force.
· Competitive Rivalry
The retail industry contains a stiff competition. The major competitor of the company is Wal-Mart, which is just behind Amazon regarding revenues and market capitalization. Alibaba, eBay, Target, and Best Buy are major rivals due to their business expansion, the broad range of products, customer range, sales, low prices and availability for customers.
Pricing Strategy
Amazon is using the penetration pricing strategy. The purpose of the firm is to keep prices of different products and services low for customers initially. However, Amazon changes the pricing strategy after achieving sales and revenue targets. For Instance, the firm sets the penetration pricing for a while and converts it into competitive pricing. It investigates competitor’s pricing strategy and makes the decision accordingly. The low-cost business structure supports these pricing strategies. Interestingly, these pricing strategies are also aligned with the business vision of Amazon. The firm wants to keep prices low at any cost, and these are successful pricing strategies so far (Baertlein & Dastin, 2015).
Conclusion
In the end, it is to conclude that Amazon contains an excellent business condition despite having some threats, derived from the strategic analysis. Business expansion and change are two key recommendations for the company to be relevant, lucrative and sustainable in the global retail industry. Through better cultural integration, the firm may develop the product line, customer segments, and grab more customers. In this Amazon’s , SWOT analysis and five forces analysis have been used. Along with the company’s current position, some key strategies can be derived to secure the future. The firm needs evolvement with time, and Amazon, being a top retail giant, is entirely up to it.
References
Baertlein, L. & Dastin, J., 2015. Amazon cuts Whole Foods prices for Prime members in new grocery showdown. [Online] Available at: [Accessed 30 November 2018].
Enright, A., 2018. Amazon’s profit tops $3 billion as 2017 revenue grows 31%. [Online] Available at: [Accessed 30 November 2018].
Hu, K., 2018. Almost half of Amazon Prime members we surveyed say they’ll drop the service, but the company will be fine. [Online] Available at: [Accessed 30 November 2018].
Jhonsa, E., 2018. Walmart Had Strong Earnings, But They Weren’t at Amazon’s Expense. [Online] Available at: [Accessed 30 November 2018].
Rey, A.D., 2015. How Amazon Tricks You Into Thinking It Always Has the Lowest Prices. [Online] Available at: [Accessed 30 November 2018].
Whitten, S., 2017. Why Amazon needs to do more brick and mortar, not less. [Online] Available at: [Accessed 30 November 2018].
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