AMAZON WAC NO.

2
INTRODUCTION
Amazon.com prides itself as one of the key companies to have taken full advantage of the online
boom/World Wide Web and develop a global strategy that has turned it into a major force in
terms of technology and an increasing assortment of products and services, whilst keeping in
mind the worthy customer service they offer to their consumers they deserve. The business
strategies applied towards Amazon till date is in line with the external and internal environment
without which the specifications that need to be achieved for a successful company base will not
be possible. Since its humble beginning in 1995, Amazon has now become one of the worlds
leading retailers with its net sales amounting to $13.2 billion in the first quarter of 2012, a 34%
rise compared to previous years quarterly sales (Shaughnessy, 2012).
The following report will describe Amazons main strategies by evaluating and assessing their
suitability. Generic Strategy Options, PESTEL and Strategic Capability Analysis will be used as
tools to analyze the organization within the periods of economic recession and current recovery
i.e. 2008 2012/13, along with reference to its past to explain certain aspects of the organization
in detail.

PORTERS FIVE FORCES

Since early 1980s, Michael Porters Five Forces (Porter, 1980) has brought breakthroughs to the
conventional business strategy concepts, and has become the bible guide for leaders from
nearly every business and industry to perform effective strategic analysis. The Five Forces model
is generic enough and applicable to explain the behavior of many different markets.
Though after 20 years of its introduction the model is challenged and reinterpreted by some other
analysis techniques such as the Creative Web (Conklin and Tapp, 2000) and the Delta Model
(Hax and Wilde, 2001) for its limitations to certain areas, it is still nevertheless valid when
coping with the analysis of the market behavior under the revolutionary development of Internet
and e-Business in recent years.

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Impacts of the Internet to retailing industries
Since the Internet became part of our daily life in the late 1990s, the development of the
technology has enormously shortened the distance between people and provided niches for new
forms of business. Successful examples such as Amazon.com and Dell have significant
implications to the potentials for e-Retail businesses to take over the market shares of their
traditional retailing competitors. This phenomenon can be explained using Porters five forces:

Supplier Power
In the case of Amazon.com, like its retailing competitors, its supplier companies are mainly
publishers. Just as many readers, there are thousands of publishers in the world, thus they are not
concentrated at all. Most publishers rely their income from the profit of book ales, hence the
readers, i.e. the buyer industry, is an important customer of them. The 24-hour easily-accessible
service of Amazon.com provides a broader range of potential buyers than its retailing
competitors, which attracts suppliers more.
Many readers do not always need to find a particular book in bookshops they may have an
interested topic and would browse through similar books to choose a right one for them. So the
books of particular publishers (product) are not an important input for the readers (buyers). The
searching facilities in Amazon.com help reinforcing this fact more than its retailing competitors.
Moreover, publishers have limited amount of productions and are less likely to set up bookshops
by themselves; it is also less likely for them to acquire existing bookshops (either retailing ones
or online ones) due to cost effectiveness, therefore there is no much threat of forward integration.

Buyer Power
Amazon.com started its business in the form of a website, and its customers are visitors and
potential visitors to the Web site and its competitors sites (Kyle, 2002). One of the advantages
for the business to take the form of a website over conventional retailing approach is to minimise
the running cost of renting and opening stores to sell books, and hence the books they sell can be
priced lower than other non-website competitors to balance out the postal fee expenses. Another
important advantage is to provide a 24-hour, with no physical location limitation and
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customizable book-search service to customers. The effectiveness of this selling model yields
savings on auxiliary costs (such as transportation time and costs) and hassles, where buyers may
become less price sensitive to postal fees of different delivery options and even minor price gaps
of the books with all these advantages are taken into account.
Amazon.coms customized and reliable service helps creating loyalty and thus the lock-in
effects - the customers might consider buying books online more even when they walk pass a
bookshop physically, simply because they dont bother to carry heavy books which are not
needed urgent! Compare to those of the conventional retail bookshops, these lock-in effects
further weaken the already-weaken bargaining power of buyers.

Threats of Substitutes
The way how e-Retail business works today creates a lot of substitute threats to conventional
retailing players. Amazon.com itself started as a substitute of conventional bookstore it
provides other means and sources for the same products, services, or information (Kyle, 2002) as
its retailing competitors provide The impacts of typical B2C (Business-to-Consumers) e-Retail
business are mainly regarding to the reforms in distribution channels and value chains. Retailers
traditionally take goods from wholesalers and distribute them to consumers.
The B2C model imposes a new type of substitutes which was unforeseeable for conventional
retailers in the old days, resulting in making them become less attractive.

Barriers to entry
Most businesses in UK and also the rest of the world are SMEs and even self-employed
businesses (EIM, 2000). It is not uncommon that even unskilled or old people can set up a little
retail business such as take-away or second-hand fashion shops fairly easily. Therefore the
conventional retailing markets are easy to enter in general.
E-Retail is a new-born and difficult-to-master business. Since the technology bubble burst two
years ago, many people are threatened to enter the game. This is because e-Retail businesses
such as Amazon.com have high entry barriers, which include the expensive setup (or switching)
and maintenance costs of equipments and expertise; compliance of government regulations on
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data protection and privacy; the possible use of patents and proprietary resources; asset specialty
of businesses etc. (Porter, 1980, 1985).

Rivalry
The rival intensity of the conventional retail markets is high because there are usually a large
number of retailers competing to each other for the same source of customers, but it may not be
the same for e-Retail markets. In the Amazon.com case, its competitors include The Water
stones, WH Smith, The Books Etc., The Borders, and many other smaller bookshops, but not
many of them have as well-established and automated online system as Amazon.coms.
Other competitive advantages of e-Retail businesses over conventional ones are:

Goods storage costs are much lower, as goods can be ordered dynamically.
It is easier to provide differentiated products on the website to test the markets demand

than to put the physical ones onto the shelves.

The e-Retail market is rapid-growing with alongside the new Internet technologies.

However, e-Retail businesses themselves do have their own kind of rivalry issues: heavy
investment means difficult to exit, and this encourages competitions between the businesses; as
the technologies become more mature, more competitors join in.
Porters five forces help us visualizing the dynamics of conventional retail markets and e-Retail
ones, and explain why the former is less attractive than the latter nowadays. But the world
always repeats itself when the e-Retail markets saturate, they will soon have the same situation
as the conventional retail markets have today.

PESTEL ANALYSIS
PESTEL analysis is a framework or tool used by marketers to analyze and monitor the macroenvironmental factors that have an impact on an organization. The results are used to identify
threats and weaknesses which are used in a SWOT analysis which will be discussed after this
analysis (Professional Academy , 2013). These microenvironment forces not only affect the
organization but also other players in the microenvironment.

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Political
Political environment can affect a multi-billion dollar e-commerce business through legislations,
regulations, tariffs, standards, policies and other laws which can affect the company pricing,
profitability and further development of the industry especially when the company is a market
leader in the chosen market.

Economic
The economic environment can have a critical impact on the success of companies through its
effect on supply and demand. Companies must choose those economic influences that are
relevant to their business and monitor them. The general state of both national and international
economies can have a profound effect on a companys prosperity (Jobber, 2007, p. 81).
Due to the economic crisis and the recession that hit the world in 2008, most of the family
incomes declined or stopped all together due to increasing redundancies across the financial
markets. Also, the disposable income that most of the e-commerce businesses rely on decreased
due to people becoming tight on spending as there was no job security.
Internet retailing is growing at an unprecedented rate in Asia Pacific, growing by 188% between
2007 and 2012, which was the largest increase globally during that time. Asia Pacifics internet
retailing market is second only to North America. In highly populated countries such as China
and India, consumers are increasingly gaining access to broadband internet, which is driving up
the previously underdeveloped retailing segment. Asia Pacifics internet retailing market is
expected to overtake North America due to its large population size, rising incomes and growing
familiarity with technology (Euromonitor International, 2013). This growth aided Amazon
incredibly.

Social Networking
With Facebook and Twitter leading the way within social networking, the E-Commerce
businesses now have one of the best ways to expand their customer base using advertising and
marketing strategies that these two social network websites have to offer. Millions of users can
be reached through correct use of these social networking giants and loyalty can be kept intact
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without losing customers, at the same time gaining new customers through creative
advertisements that Facebook in particular has to offer.

Technology
Technology is the most important factor which affects an E-Commerce business. According to
Mintel (2013), in 2012, 86% of all UK households had a broadband connection, up from 80% in
2011. In April 2013, 67% of internet users personally owned a Smartphone and 35% had a tablet
in their household whereas some 29% of tablet owners and 20% of Smartphone owners had
shopped via the respective devices in the three months to April 2013. These statistics play in Ecommerces favor as more users are able to access the Internet through other means, hence
helping the E-commerce industry to grow accordingly.

Legal
Any online trading business within the UK, come under the influence of E-commerce
regulations, which came into force in 2002. The Regulations, called the Electronic Commerce
(EC Directive) Regulations 2002, implements the EU's Electronic Commerce Directive 2000
into UK law. The Directive was introduced to clarify and harmonies the rules of online business
throughout Europe with the aim of boosting consumer confidence (Out- Law, 2013).
Different E-commerce laws apply in China and India compared to UK and even USA which
means trading can be difficult between these countries. But, due to E-Commerce laws within the
new booming economies, it has become easier to regulate online businesses. For example, China
passed a new legislation in 2004 which helps to regulate economic commerce and security of
electronic transactions. In the wake of increased use of new electronic and IT in commerce,
adoption of modern legal framework to regulate electronic commerce is particularly important
for Chinas economic reforms (Yan, Benson, & Faegre, 2004). Therefore, legislations such as
these blur the trading boundaries between mainly the western countries and thriving economies
such as India, Brazil and China. Due to these laws in the upcoming economies, it has become
much easier for Amazon to set-up their websites in these countries.

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EFE MATRIX
Key External Factors

Weight

Rating

Score

The number of buyers over the internet is growing

0.25

4.0

1.0

Forecasting increase in US ecommerce

0.2

4.0

0.9

eBay, OverStock (NewEgg, CDW, etc)

0.35

4.0

1.4

Government regulations and instability on internet

0.05

1.0

0.05

Low market entry barriers

0.15

2.0

0.3

Totals

Opportunities

Threats

products and sales in international economies.

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TWOS ANALYSIS

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IFE MATRIX
Key Internal Factors

Weight

Rating

Score

Customer Relationship Management

0.18

3.0

0.6

Strong Focus on R&D

0.20

3.8

0.84

Diverse Products

0.13

2.5

0.375

Logistical advantage

0.15

4.0

0.76

High Debt Ratio

0.16

2.9

0.58

Risk of Introduction of Wrong New

0.09

1.9

0.19

Category
Free Shipping affects bottom line

0.09

2.7

0.27

Total

Strengths

Weaknesses

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IE MATRIX

Amazo

SPACE MATRIX

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BCG MATRIX

GRAND MATRIX

Rapid Market
Growth

Amazon

Quadrant II

Weak Competitive Position

Strong Competitive

Quadrant IV

Quadrant III
Slow Market
Growth

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Quadrant I

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QUANTITATIVE STRATEGIC PLANNING MATRIX

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