Amazon Strategic Analysis

Running Head: AMAZON STRATEGIC ANALYSIS 1
Amazon – Strategic Analysis

Bradley Paynter
University of the Cumberlands
Fall 2016
In Requirement for BADM 438-01

AMAZON STRATEGIC ANALYSIS 2
Table of Contents
Abstract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
Company Overview. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
Five Forces Model. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
PESTEL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
 Political & Legal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
 Economical. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
 Sociocultural. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
 Technological. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
 Environmental. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SWOT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
 Strengths. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
 Weaknesses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
 Opportunities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
 Threats. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Driving Forces. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29
Key Success Factors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Burning Issues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Strategic Suggestions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37
References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Abstract
Amazon.com Inc, is one of the largest online retailers in the world. Despite starting out as an
online book retailer, they have grown tremendously and now have a wide spectrum of products
they offer; ranging from electronics and media to clothing and health products. They have also
pioneered their own Kindle e-readers, tablets, TVs, and other devices. The purpose of this paper
is to analyze their business environment and suggest future actions that will benefit the company.
They operate in a very intense industry with many rivals. They must balance their relationships
with buyers and suppliers, while monitoring the ever-present threat of new entrants and good
substitutes. Though they provide excellent customer service, they must continually adapt their
business model to prevent replication and remain unique. There are numerous opportunities that
they can take advantage of. For example, they can expand their payment system beyond their
own website. As online retailers, they must take the responsibility they have with customer
information very seriously and protect it from the threat of theft. As a global company, Amazon
must contend with the political, legal, social, and economic environment of every country they
operate within. They must stay current with the technological world, and embrace the expanding
global nature of modern business. Amazon has an opportunity in its current business
environment to expand their operations and ability to meet customer’s needs by further
developing their own product line and physical store locations.
Keywords: Amazon.com, Amazon Prime, Kindle, PESTEL, SWOT, key success factors
Overview of Amazon
Amazon.com was founded by current CEO and Chairman Jeffrey P. Bezos in 1994, and
is among the world’s highest-grossing online retailers with $89 billion in revenue in 2014
(Reuters, 2014). The company is headquartered in Seattle, Washington, and is listed on the
NASDAQ Global Select Market under the symbol “AMZN” since its initial public offering in
1997. In 1995, Amazon opened its virtual doors to become “Earth’s Biggest Bookstore” and
“Earth’s Most Customer-Centric Company”.
Starting with books, the company has since then expanded into a broad range of product
categories including consumer electronics, media, digital downloads, shoes and apparel, health
and beauty, kids and baby, home and garden, as well as auto and industrial. Also, outside the
United States (U.S.), Amazon meanwhile operates in Canada, the United Kingdom, Germany,
France, Italy, Spain, Japan, China, Mexico, India, Brazil, Australia, and the Netherlands. Besides
expanding its online retail business in terms of additional categories and geographies, Amazon
also broadened its range of products and services to not only serve consumers but also sellers,
enterprises, and content creators. Regarding consumer products, for example, the company also
manufactures electronic devices including the Kindle e-readers, Fire tablets, Fire TVs, Echo, and
Fire phones. Additionally, Amazon offers a service called Amazon Prime, which is an annual
membership program that includes free shipping, streaming of movies and TV episodes, as well
as borrowing e-books for Kindle devices.
Overall, the company focuses on a vast selection, lowest prices, and outstanding
customer experience by providing easy-to-use functionality, fast and reliable fulfillment, and
timely customer service. For example, key features of Amazon’s retail websites include
personalized recommendations, customer reviews, secure payment mechanisms, detailed product

information, wedding and baby registries, customer wish lists, and content preview of many
books. On top of that, through its Merchant and Amazon Marketplace programs, the company
allows third-party sellers to offer their products on Amazon’s retail websites or on their own
websites, and to fulfill orders through Amazon’s fulfillment service. In doing so, the company
earns either fixed fees, revenue share fees, or per-unit activity fees. Similarly, the company
serves enterprises through Amazon Web Services (AWS), which offers a variety of cloud
computing, database, and 4 analytics services for any type or size of business. Lastly, Amazon
serves authors and independent publishers through Kindle Direct Publishing and Amazon
Publishing, as well as musicians, filmmakers, or app developers through various programs that
allow them to publish and sell content. Amazon manages its operations primarily on a
geographic basis, with its two major segments being North America and International.
Five Forces Model
The Five Forces Model was developed, in 1979, by Dr. Michael Porter. The model is an
analysis tool used to evaluate the dynamics between multiple forces that are at play within a
particular industry. The analysis involves the five forces of rivalry, substitutes, buyers, suppliers,
and new entrants. As stated by Porter (2008), it consists of analysis of how these “five forces
govern the profit structure of an industry by determining how the economic value it creates is
apportioned.” In short, the profitability of an industry may be eroded by competition, bargained
away to suppliers and buyers, and constrained by the threat of new entrants or substitutes. A
strong strategy can be developed that can protect a company from the competitive forces or
position themselves where the forces are diluted (Porter, 2008).

Rivalry
Usually the strongest of the five forces, rivalry can be a significant drain on profitability
and market share. The level of rivalry depends on several different factors. For instance, it can
be affected by buyer demand, switching costs, supply, differentiation, and diversity of the
competitors (Thompson, Peteraf, Gamble, & Strickland, 2016).
Buyer Demand, and Competitors
The current growth in the online sales industry is aggressive. According to Zaroban
(2016), the web sales growth rate was 14.6% from 2014 to 2015. That is almost six times the
2015 U.S. gross domestic product (GDP) growth rate of 2.6% (Sparshott, 2016). Amazon is in
constant battle with many competitors for a piece of that growth. As stated by Dudovskiy
(2016), Amazon competes in the electronics and general merchandise market with companies
like Walmart, BestBuy, Family Dollar, GameStop, RadioShack, Target, Staples, Sears, eBay,
Netflix, and Time Warner. These companies are all relatively large and have a vast amount of
resources at their disposal, making it easier for them to launch offensive and defensive strategies.
Differentiation and Diversity
In the retail business, you do not have as many options for differentiation as other
industry and markets (e.g. manufacturing). However, retail companies can differentiate by
expanding product line, improving customer experience, gaining distribution efficiency, and
pricing competitively. Amazon and its competitors all have differing strategies and objectives
that lead to a diverse array of products and purchase options for customers. Amazon has
differentiated their offerings in terms of pricing and customer experience. According to Jordan
(2013), “Amazon enjoys economies of scale far beyond their online competition, and they can
use that power to offer hyper-aggressive prices and fast, cheap shipping.” They have also
labored to offer a superior consumer experience with features like 1-click shopping, Amazon
Prime, recommendations, reviews, and wish lists.
Switching Costs and Exit Barriers
The market segments Amazon sells in have a low level of switching costs. It is difficult
to build brand preference and loyalty in retail. It is possible to lock customers in, to some extent,
with the differentiation strategies discussed above. However, these differentiated offerings are
often easy to replicate or improve on if a company has enough resources. Also, no matter how
much a customer may prefer a company and their features, if they find a better deal for a product
somewhere else, they can easily switch. Due to today’s technological capabilities, comparison
shopping is easier than ever before.
Exit barriers are considerably high for online retailers. It takes a large operation to
compete with the companies that dominate this industry. For example, Amazon’s net shipping
expense (total costs less shipping charges and Prime membership fees) for 2016, so far, is $4.56
billion (Richter, 2016). From 2010 to 2013, Amazon spent $13.9 billion developing 50 new
fulfillment centers (Kucera, 2013). After making such large investments, it is difficult for
businesses to leave an industry.
Summary
The retail industry is populated with numerous competitors; many of them very large and
rich with resources and capital. All of them are battling to differentiate the manner in which they
provide products to online customers who can easily compare services and switch between them.
All of these dynamics affect who will get a piece of the rapidly growing retail market. All of
these forces make for an aggressively intense market. Yet, a company must focus on more than
the rivals within the industry. A market with steady growth, such as online retail, is sure to
attract new entrants.
New Entrants
An important component of industry analysis is the threat of new entrants. The strength
of barriers to entry depend on the scale and cost of operations, cost advantages of key industry
companies, distribution networks, and brand loyalty. High barriers to entry make it difficult for
any company to enter a market. Even in an industry that has a relatively low risk of market entry,
it is crucial for the dominant companies to remain aware of the possibilities of new rivals. In the
modern business world, advancement in technology can cause unforeseen and dynamic changes
in an industry. Companies with a unique competitive advantage, an innovative vision, or the
resources to horizontally integrate can circumvent some of the entry barriers
Scale of Operations, Cost Advantages, Capital Requirements, and Distribution Networks
As described above, it takes a very large and costly network of warehouse and
distribution operations to properly compete in the retail industry. This can be seen by how much
Amazon reinvests in their own operations. They have dedicated themselves, to the detriment of
their net income, to build a massive operation. According to Jordan (2013), Amazon is larger
than the next dozen online retailers combined. Even most large, established companies that may
wish to diversify into the online retail market would have to develop massive infrastructure or
engage in costly horizontal integration endeavors (mergers and acquisitions) to gain any
significant share of the market. Further, the top companies of the industry have previously
established their large scale operations and can utilize the benefits of them to try to raise industry
barriers. For example, due to their massive operations, Amazon has large enough economies of
scale to offer highly competitive prices that would be difficult for new entrants to match (Jordan,
2013). They also have a massive and efficient network of fulfillment centers that allows them to
deliver products quickly, at little or no cost to the customer. In this industry, these factors are
major barriers to entry.
Patents, Brand Loyalty, and Customer Networks
Patents can be used by companies to protect their most important competitive advantages
and capabilities. As noted by Anders (2013), many companies “have used clusters of patents as
a way of marking their territory, so that competitors can’t launch low-cost, copycat offerings
without the expensive research necessary to earn market entry.” Shielding innovative operations
with patents can create strong barriers to entry. However, as noted by Anders, they only prevent
duplication of your methods. Innovative companies with the right resources can still remain
competitive. As of 2013, Amazon held 1,263 patents ranging from network encryption to data
mining techniques to improve features, such as, customer recommendations (Anders, 2013).
Even with patent-protected processes, unique customer experience, and low prices, the retail
industry is not conducive to building iron-clad brand loyalty, or even preferences. Some of the
large companies, such as Amazon, may build networks of customers that prefer to use their
services. With the growth of social media marketing, companies and influencers can quickly
spread the word about new products, features, and promotions. Amazon has many fans due to its
extremely popular customer service and experience. They have continually focused on their
customer’s needs and satisfaction, and it has clearly paid off. Still, these efforts are not enough
to truly lock customers in to a brand. As noted by Ying (2015), “loyal customers may love your
business, but sometimes all it takes is one disappointing interaction to turn your biggest fans into
your most vocal haters.” Due to the difficulty in building and retaining brand loyalty, low
switching costs, and rapid demand growth, the retail industry is very attractive to companies with
the means to enter.
Trade Regulations
Companies operating in the online retail market must follow a myriad of laws and
regulations. According to Selling Online: An Overview of the Rules, there are two sets of
regulations that apply to such companies. First, there are the traditional rules that apply to all
retailers, whether they are a physical or online retailer. For example, all retailers must conform
to the Sale of Goods Act, which provides rights to customers who purchase products that do not
live up to certain standards. Likewise, consumers are protected by the Consumer Credit Act
when they purchase with their credit card. In addition to laws pertaining to general retailing,
companies in this industry must also adhere to regulations that apply to online sales. For
instance, online sellers must follow E-commerce regulations, the Distance Selling Regulations,
and the Electronic Signatures Regulations (Selling Online: An Overview of the Rules). A new
entrant must become knowledgeable in regards to these regulations and have the means to
comply with them.
Summary
The high cost of setting up large scale operations make it difficult for new entrants to
compete with rivals with sizable cost advantages. Incumbent companies may also have efficient
distribution networks, patents, and loyal customers. New retailers also need to contend with a
web of trade regulations. These conflicting forces create a moderate to high threat of new
entrants. However, companies with vast resources and capabilities that can meet customer needs
in a unique way can bypass these barriers and penetrate brand loyalty. For example, Walmart
recently made a large move by acquiring Jet.com. Jet is a small online retailer that has tried to
break into the market by offering customers a unique shopping experience with innovative
features that are comparable to Amazon’s. According to Levy (2016), this “sale could give Jet
the funds needed to establish itself among customers, and help inject energy into Walmart’s
growing e-commerce efforts as it competes more aggressively with Amazon.com.” This
acquisition is the perfect example of how quickly barriers of entry can be avoided in the right
circumstances. Competing companies are not the only source of dynamic relationships that
affect the industry.
Suppliers
In every industry, there is a dynamic relationship between a company and the supplier of
their products or inputs. The side that has greater negotiating power depends on several factors.
Some suppliers provide inputs that are vital for a company to sustain competitive advantage,
while others offer basic products and services. Suppliers may offer products that are scarce or
easily substituted. Also, it matters if a supplier only has a few major customers or many
customers. In the end it comes down to which firm relies more on the other.
Demand, Differentiation, and Substitutes
Due to the nature of its business, demand in the retail industry translates to demand in the
supplier’s products. With the rapid growth of web sales and the large number of competitors
populating the market, suppliers enjoy a high level of demand. Nonetheless, this high level of
demand is not necessarily driven by the need for highly differentiated products. Some retailers
may wish to be unique by offering differentiated and targeted products. However, Amazon
differentiates through customer experience and is focused on offering just about anything they
can sell in their marketplace.

For the most part, they do not have many specific suppliers that provide unique, non-
substitutable products that are a major part of their competitive strategy. Still, they have
acknowledged that there is some level of risk due to their reliance on suppliers as a whole. In
their annual report (2015), Amazon stated,
If our current suppliers were to stop selling or licensing merchandise, content,
components, or services to us on acceptable terms, or delay delivery, including as a result
of one or more supplier bankruptcies due to poor economic conditions, as a result of
natural disasters, or for other reasons, we may be unable to procure alternatives from
other suppliers in a timely and efficient manner and on acceptable terms, or at all (p. 13).
This makes it clear that, even though the threat is mitigated by the large number of suppliers that
Amazon works with, large scale situations which can potentially affect many suppliers may
disrupt their operations.
Substitutes may or may not be an issue for Amazon’s suppliers. They have a large
market with millions of products provided by many suppliers. Substitution risk depends on the
specific supplier and their product line. As stated above by Amazon, there is never a guarantee
that they can easily find suitable replacements. However, they do try to keep their options open
and maintain some level of flexibility. They “do not have long-term arrangements with
most…suppliers to guarantee availability of merchandise, content, components, or services,
particular payment terms, or the extension of credit limits” (Amazon.com Inc., 2015, p. 13).
Switching Costs, Size and Backward Integration
For the most part, Amazon relies heavily on their suppliers. They provide the lifeblood
of their marketplace. How much they rely on a supplier depends on the product they provide and
whether or not it has comparable substitutes. There are some suppliers that Amazon must have
to operate properly. According to their annual report (2015), “we have significant suppliers,
including licensors, and in some cases, limited or single-sources of supply, that are important to
our sourcing, services, manufacturing, and any related ongoing servicing of merchandise and
content” (p. 13). Switching costs for these specific suppliers are higher than most of the other
companies who supply Amazon.
A large company like Amazon has a vast amount of resources available for expansion.
This can be seen in how much they have reinvested in operations over the years. As a result,
there is always a risk that they may vertically integrate. For example, Amazon has plans to
forward integrate into the shipping business. This would make the distribution process much
more efficient and reduce shipping costs. It is unlikely that Amazon would backward integrate
into their supplier’s territory, as they are obsessively focused on the customer side of the
equation. Also, they already have many different divisions that they are currently juggling.
However, if it was ever in their interest to do so, they have the capabilities to make it a reality.
As stated above, Amazon has some large suppliers that have enough power to
significantly affect their operations if they were delayed or ceased operations. Still, Amazon is
such a massive company, it is likely that many of these suppliers get a large portion of their
business from Amazon. This counteracts part of the threat and transfers some of the power back
to Amazon.
Summary
There are many strong forces at work in this industry. For example, the current market
conditions include rapid growth and high demand. Also, Amazon relies heavily on many of its
suppliers, and vice versa. Amazon has large scale operations, vast resources, and supplier
contracts that allow for flexibility. Altogether, these forces have a moderate effect on the
industry. Similar to suppliers, buyers have a struggle for power with companies as well.
Buyers
The buyers in an industry may have a large amount of power, under the right
circumstances. The amount of power depends on buyer demand, product differentiation,
switching costs, and buyer population. It also hinges on how informed buyers are.
Demand, Differentiation, and Switching Costs
As stated above, the industry is growing rapidly. In 2015, the market sales grew by
14.6%. This growth is not merely a fluke. In the six years since beginning to recover from the
recession, online retail sales have grown at average rate of 15.8% (Zaroban, 2015). At that rate,
the market will double every four and half years. This aggressive demand makes it difficult for
any individual buyer to have a large amount of power. However, the market is not as
differentiated as other markets (e.g. manufacturing industry). Also, even though there is some
level of brand preference, strict brand loyalty is not common. These two factors lower switching
costs for buyers.
Buyer Population, Information, and Price Sensitivity
Amazon is the largest online retailer in the world. They have approximately 244 million
customers (Kline, 2014). With such a large population of buyers, it is difficult for any individual
buyer to constitute a large enough portion to gain an advantage. However, as a whole, their
buyers are well informed. This is, in part, thanks to Amazon themselves. They acknowledge
how important it is for customers to be informed and are happy to give that power to them.
However, in the modern world of rapidly advancing technology, customers can be very well
informed without Amazon’s help.

The average retail customer is extremely price sensitive. This can be seen in how far
online retail sales dropped during the 2008 economic collapse. As noted by Zaroban (2015), the
market had grown by 20.5% in 2007. Growth dropped to 3.8% and 2.6% in 2008 and 2009,
respectively (Zaroban, 2015). Amazon’s reaction to the economic collapse is a testament to the
power of customers and their price sensitivity. They took great measures to cut prices to
ultimate lows, offered promotions, and free shipping.
Summary
Buyers in the online sales market have low switching costs and can easily shop at a
different retailer if they find a better deal. They also have power due to the lack of significant
differentiation, sensitivity to price change, and easy access to information. However, there are
many buyers driving up the demand level. These factors result in a moderate amount of power in
the hands of buyers. Further analysis is required to examine the effects of substitutes outside of
the realm of direct competition.
Substitutes
Substitutes are alternate ways to meet customer needs that are outside of the boundaries
of the industry. To be a suitable substitute, products and services should be affordable, available,
and have comparable functionality and performance.
Across the wide range of products available on Amazon’s marketplace, there are many
substitutes available for their customers. For example, Kindle users can go to a local book store
to find new and classic books at affordable prices. Customers looking for basic housing items
can easily go to their local Wal-Mart. Further, users who watch shows and movies on Amazon
Prime can easily go out to the movies or watch TV. As demonstrated previously, buyers have
very little switching costs. Therefore, retailers like Amazon face a high amount of risk from
substitutes.
Conclusion
The forces from rivalry are extremely high. The pressure from buyers, substitutes, new
entrants, and suppliers range from moderate to high. As can be seen from the analysis of these
forces, the overall competitive environment for Amazon is intense. It is a market with powerful
and dominant champions, aggressors on all sides, and the possibility of innovative underdogs
breaking through. There is little customer loyalty and a plethora of product options. Amazon
has managed to stay near the top by constantly innovating, and adapting to changes. While this
model evaluates the immediate industry and competitive environment, a detailed PESTEL
analysis can reveal important dynamics of the overall business environment.
PESTEL Analysis
PESTEL analysis is an important component of proper examination of the business
environment of any market, industry, or country. The analysis is focused on the forces of the
macro environment of a company and how those forces affect the company’s decisions,
strategies, and success. In particular, this analysis involves the study of the political, economic,
sociocultural, technological, environmental, and legal forces of the overall environment. These
forces have a significant impact on all companies operating anywhere in the world.
Political and Legal Forces
Companies face closely related political and legal forces that can affect their business
processes, growth, direction, and bottom line. Many online retail companies sell or operate in
numerous countries around the world. The governments of all of these countries may set laws,
regulations, or policy that can either hinder or help business operations in various ways. For
example, they may put regulations in place that involve shipping, sales taxes, tariffs, and
consumer protection. Companies must conform with these types of regulations whether they are
an obstacle or a benefit. Some countries may have a lack of structure that can make it difficult
for businesses to penetrate the market.
Amazon has not been shy about spending a large amount of money lobbying in the U.S.
to influence particular government policies. According to Plumer (2013), they have quadrupled
the amount they have spent on lobbying over the years. For example, their lobbying expense has
grown from $1.8 million in 2012 to $4.7 million in 2014. They have worked with lobbying
firms, such as Patton Boggs and Covington & Burling, to influence issues like online sales taxes,
corporate taxes, telecom regulations, copyright law, consumer safety, and law enforcement. For
years their main focus was the fight against online sales tax. They battled to maintain the
financial advantage they had over physical stores by not having to collect sales taxes for their
online sales. They went as far as threatening to cease operations in states that tried to force them
to collect sales tax. Now that Amazon has started to build physical warehouses in many states,
they are supporting the efforts of Congress to require online retailers to collect sales tax (Plumer,
2013).
The Justice Department has been a help to Amazon as well. Plumer (2013) says, “the
Justice Department won a lawsuit against Apple, accusing the company of conspiring with
publishers to raise e-book prices.” The judge presiding over the case discovered that the
companies involved in the price raising were collectively afraid that they would not be able to,
individually, compete with Amazon’s e-book prices (Plumer, 2013).
Amazon has had great success growing the line of services they offer customers, and
expanding geographically. To continue that trend, they must continue to navigate through the
sea of political and legal issues that populate their business environments. Economic factors of
the markets they do business in are just as important, if not more so.
Economic Forces
Economic factors generally have a large impact on sales for e-commerce and retail
companies. During economic downturns, consumers purchase products that they absolutely need
and cheaper versions of products they want. Businesses are exposed to risk of poor economic
conditions in all of the various countries in which they conduct sales.
Amazon has gone to great lengths to diversify the product-line they offer and expand into
new sales categories. For example, they offer over 300 million different products in their
marketplace (Burns, 2015). Also, they have made large moves into data services such as cloud
storage, content delivery, website building, and virtual computing. As demonstrated by
Fleishman (2009), they have made the process of purchasing items online easier. They offer
competitively low prices, free shipping, and deep discounts (Fleishman, 2009). Due to these
efforts, Amazon managed to steadily increase net sales throughout the recent economic
recession. In 2007, just before the economic collapse, Amazon had net revenue of $14.84
billion. During the economic downturn, they managed to post an impressive net revenue growth
rate of 27.9%, with revenue of $19.17 billion and $24.51 billion in 2008 and 2009, respectively
(Amazon.com Inc., 2009, p. 39).
Due to the nature of their international business dealings, Amazon has the potential for
losses due to changes in foreign currency and U.S. dollar exchange rates. As stated in their 2015
annual report, they
hold cash equivalents and/or marketable securities in foreign currencies including British
Pounds, Chinese Yuan, Euros, and Japanese Yen. If the U.S. Dollar strengthens
compared to these currencies, cash equivalents, and marketable securities balances, when
translated, may be materially less than expected and vice versa (Amazon.com Inc., 2015,
p. 10).
They must maintain accurate and frequently updated records to ensure that any significant
changes in the many different currencies they hold are quickly identified. Armed with this
information, they can be in a position to make important decisions swiftly and confidently.
Amazon has managed to weather the storm of the 2008 economic collapse that affected
the U.S., and the rest of the world. To avoid future problems and have continued success, they
must continue to anticipate and react to emerging economic factors that may affect business.
Along with unique economic conditions, each country (or individual market) has its own
sociocultural organization that must be observed and heeded as well.
Sociocultural Forces
Sociocultural forces of a country must be observed and adapted to for any business to
succeed. This becomes exponentially more important when large corporations, like Amazon,
decide to grow their operations into multiple countries. As cultures around the world begin to
adopt the use of technology in their everyday lives, the market potential for modern companies
becomes stronger.
Although they have managed to penetrate markets in many different countries, Amazon
has not had the expansion success that they have been hoping for. According to D’Onfro (2015),
only 40% ($35.6 billion) of their 2014 total revenue ($88.9 billion) came from international
sales. Despite plans for international sales growth, the percentage of international sales dropped
to 33.1% ($35.4 billion) of their 2015 total revenue ($107 billion) (Amazon.com Inc., 2015, p.
24). D’Onfro (2015) notes that they had plans to have notable growth in many countries,
including India and China. The problem they encountered in India is that only 12% (150
million) of the population of 1.25 billion people have debit or credit cards. Amazon has been
forced to rely on a cash-on-delivery operation which is not available in most of India. Amazon’s
competitor, Alibaba, has managed to secure and maintain an 80% share of the e-commerce
market in China with their superior understanding of the Chinese culture and the needs of their
customers (D’Onfro, 2015).
With proper attention being paid to the cultural makeup of a particular region and the
right strategy, Amazon can better penetrate new markets of many foreign countries. If they
succeed in their growth endeavors, they can potentially tap into a revenue stream that can greatly
add to their already impressive sales figures. While waiting for certain cultures to adapt to
technology, they must keep their eye on the part of the world where it is booming.
Technological Forces
The fast-paced, ever-changing world of technology can have a major impact on modern
companies. The cost of faster communications, storage, and processing speeds continue to drop.
Various new technological products are unveiled regularly. The expanded capabilities of
information systems, database systems, and device technology provides a potential gold mind to
companies that have the resources to innovate.
As pointed out by Curtis (2013), Amazon has benefited greatly from using emerging
technology to continually innovate their operations and services. Amazon’s Vice President of
EU Retail, Xavier Garambois, stated that, “innovation is part of the Amazon DNA and over the
past 15 years we have been constantly adding and refining technology that enhances and
improves the experience of all our customers.” Amazon has revolutionized the e-commerce
world time after time. For example, they have improved customer experience with the
conveniences provided by 1-click shopping, recommendations, reviews, and wish lists. After the
first purchase, 1-click shopping allows customers to purchase any items they want with a single
click; eliminating the need to put in their payment information and shipping address every time
they make a purchase. Amazon’s recommendation system utilizes its data base resources to
analyze purchases made by users, compare them with the habits of other users with similar
purchases, and offer recommendations tailored to that user. They also provide a detailed review
system where customers can leave text or video reviews of products. This review system
provides a forum for customers to give positive and negative feedback so other customers can be
better informed about their purchases. With the Amazon wish list, customers can save products
they would like to have in the future, all in one place. Usually with just one click, customers can
also add products from other websites onto their Amazon wish list. Family and friends can
purchase gifts from these wish lists. Amazon was, also, one the pioneering companies in the e-
reader industry. Upon its 2007 release, the Kindle dominated the market due to its superior
functionality and connection to the Kindle store library. They have continued to expand the
capabilities of the Kindle, making it a rival in the tablet market. By using their resources and
innovation, Amazon has diversified into the web services and cloud computing industries as
well. (Curtis, 2013)
Amazon’s dedication to research, development, and reinvestment for growth can be seen
in its financial reporting. For the past five years, they have had an average profit margin of
0.38%. The difference between revenue, net income, and research and development (R&D)
expense for the last five years can be seen in the table below.
2011 2012 2013 2014 2015

Revenue $ 48,080,000,000 $ 61,090,000,000 $ 74,450,000,000 $ 88,990,000,000 $ 107,010,000,000
Net Income $ 631,000,000 $ (39,000,000) $ 274,000,000 $ (241,000,000) $ 596,000,000
Profit Margin 1.31% -0.06% 0.37% -0.27% 0.56%
R&D Expense $ 2,910,000,000 $ 4,560,000,000 $ 6,570,000,000 $ 9,280,000,000 $ 12,540,000,000
At first glance, net income and profit margin are shocking when compared with Amazon’s
massive sales figures. Despite appearances, Yarrow (2013) believes Amazon’s business model
is sound and provides plenty of profit. However, these profits have been used to continually
keep them ahead of their competitors (Yarrow, 2013).
Amazon’s continued efforts to stay current and use new technologies in their business
will help keep them ahead of the curve, and their competitors. Although being at the head of the
pack is a healthy goal, to be a true leader in today’s business environment a company must think
about issues beyond their operations and bottom-line.
Environmental Forces
In the modern business world, it is crucial for a corporation to focus on sustainability. As
stated by General Electric CEO Jeff Immelt, “if you want to be a great company today, you also
have to be a good company” (Gunther, 2012). People around the world have become
increasingly worried about the future of the planet. Companies can no longer ignore the
environmental footprint that is left by their operations. Customers, shareholders, and investors
care about a company’s triple bottom line, which consists of financial, social, and environmental
measures of success.
Unfortunately, Amazon is far behind its competitors in regards to the triple bottom line
framework. They have been criticized for not being environmentally conscious and not releasing
information about their operations. As demonstrated by Kaufman (2015), many of their
competitors, such as Apple, Google, and Facebook, have released energy consumption reports
and invested in sustainability. In February 2014, Apple dedicated $848 million to develop solar
energy for their new headquarters. Likewise, Facebook has plans to have half of its operations
running on clean energy by 2018.

It has not gone unnoticed that Amazon is lacking in all of these areas. Amazon has
declined to release energy consumption reports, despite requests from many sources. Yahoo,
Netflix, and other customers of Amazon’s cloud-computing have asked for data about their
electricity use, and have been denied (Kaufman, 2015). As of February 2016, Amazon had never
released a sustainability report. It is unclear to all concerned whether Amazon gauges, reports,
or corrects issues involving work environment, diversity, charity contributions, and the global
environment (Gunther, 2015). A group called ClimateCounts ranks companies based on
environmental and sustainability efforts. They focus on four key areas: review, reduce, policy
stance, and reporting. According to their results, Amazon is consistently on in the bottom tier of
a list of hundreds of corporations. According to the ClimateCounts website, Amazon’s current
score is a shocking 9 out of 100, which is 11 points lower than last year. They received a score
of zero in the review and policy categories, and 8 and 1 in the reduce and report categories
respectively. (ClimateCounts, 2016). Furthermore, a report by Greenpeace International called
How Clean Is Your Cloud? gave Amazon a grade of F in three out of the four categories it
evaluates. (Gunther, 2015). Amazon has recently started to address some of the sustainability
issues. They have started using clean energy for a few of their facilities and have stated that they
are implementing a sustainability team to improve their operations (Gunther, 2015).
These issues have become so important in today’s business world that Amazon has no
choice but to start addressing them. The small strides that they are taking now must be the first
few footfalls that lead to a full sprint. They must expand their sustainability team and become
more transparent about their processes. If they do not take these issues seriously, they will be
giving rivals a golden opportunity to develop a competitive advantage where they are obviously
weak.
Summary
A detailed PESTEL analysis of the macro environment is crucial for any business.
This kind of in-depth analysis can give a company an overview of the business environment and
help them determine where, and how well, they fit within an industry. Nevertheless, these
industry and business environment analysis tools are not enough to start building effective
strategies. Together, PESTEL and Five Forces analysis provide valuable information to assist
with a thorough analysis of strengths, weaknesses, opportunities, and threats (SWOT).
SWOT
In evaluating a company’s overall situation, a key question is whether the company is in a
position to pursue attractive market opportunities and defend against external threats to its future
well-being. The simplest and most easily applied tool for conducting this examination is known
as a SWOT analysis, which zeroes in on a company’s internal strengths and weaknesses, market
opportunities, and threats (Thompson, p 89)
Strengths
A strength is something a company is good at doing or an attribute that enhances its
competitiveness in the marketplace. A Company’s strengths depend on the quality of its
resources and capabilities. Resource and capability analysis provides a way for managers to
assess the quality objectively. As a company such as Amazon moves into the future, it is
important for them to have a successful Customer Relationship Management (CRM) strategy.
Amazon has a strong reputation for providing customers with everything that they need, all
conveniently in their marketplace.
The process of purchasing with Amazon is extremely easy. With one-click ordering,
stored personal and card details, it makes the purchasing process smooth and quick. Customers
can also reap the benefits from recommendations for products and services for them based on
their prior purchases. Amazon has managed to make each customer feel like they have had a
personal experience on their site without actually dealing with any of their customers personally.
Behind all of this, is their CRM strategy. A key element of their CRM is personal data storage, or
their big data strategy. Over the life of Amazon, they have evolved from being a pure e-
commerce player into an immense Internet services firm which offers a large range of services
for corporations and individuals. In the early 2000s, Amazon began realizing they had huge data
sets from their customers that they could utilize for their benefit. Being an e-commerce giant, a
lot of Amazon’s success had always depended on making the right products available to their
customers. They must make the right products available or they risk losing their customers.
However, Amazon has been renowned for its product recommender system which puts
product suggestions to their customers based on their past purchasing behaviors. By doing this, it
put Amazon into an industry leader with the cross-selling or up-selling method. Clearly, Amazon
is an international ecommerce company. They use their connections from the internet from
various gadgets such as phones and tablets, and allow their customers to purchase products
immediately. So far, a lot of their success has came from their huge product base, which is about
everything. To be more specific, they sell kindles, books, DVDs, mobile phones, clothing,
jewelry, gardening equipment, and this list could practically go on forever. By expanding their
huge product mix, they enable customers to have the purchasing power they want, by having
alternatives to the normal every-day shopping experience with in-person stores. Amazon has a
very solid presence in many emerging economies. Within the past decade, Amazon has entered
China, Brazil, India, and some other small countries. In India, it is the leading e-commerce
company with more than 21,000 sellers. The last main strength Amazon has is their “GLOCAL”
strategy. GLOCAL stands for “Go Global, Act Local.” Amazon has struggled within the past
decade to make a significant impact in the Chinese market with powerhouse AliBaba having
main control. To combat this, Amazon is implementing marketing efforts directly just towards
the Chinese market, making those customers feel more welcomed.
Weaknesses
A weakness, or competitive deficiency, is something a company lacks or does poorly (in
comparison to others) or a condition that puts it at a disadvantage in the marketplace. A
company’s internal weaknesses can relate to (1) inferior or unproven skills, expertise, or
intellectual capital in competitively important areas of the business; (2) deficiencies in
competitively important physical, organizational, or intangible assets; or (3) missing or
competitively inferior capabilities in key areas. Company weaknesses are thus internal
shortcomings that constitute competitive liabilities. Whether a company’s internal weaknesses
make it competitively vulnerable depends on how much they matter in the marketplace and
whether they are offset by the company’s strengths (Thompson, p 91).
Amazon’s business model is easily imitable. As an example, other companies could
easily establish an online retail website that sells just about everything. Amazon generates most
of its revenues from developed countries, such as the U.S., and when other firms become fully
established in those developed countries, it would be difficult for Amazon to penetrate and
compete. Being an e-commerce company, the company will have some limited brick-and-mortar
presence in that some products that are more sellable in physical stores than in online stores. In a
survey by MarketTest.co.uk, 57% of users will not buy clothes online, due to the lack of
reliability from the sellers or product material. Due to this, the level Amazon has obtained is
projected to remain constant in some areas.

Another weakness of Amazon is their shipping prices. Although many customers would
consider Amazon Prime a vital part of their business, most people will not pay the membership
fee to get free shipping. Amazon Prime is currently $99 a year and is a subscription-based
membership program with a growing number of features. Although this part of Amazon’s
business is growing in size each year, the free shipping from it still incurs a loss around $500
million each year, which undoubtedly erodes profits. In the 2015 year, mobile commerce grew
three times faster than e-commerce growth. In Amazon’s case, they really haven’t done much to
distinct its mobile and desktop experience, as they are practically the same ported versions.
Although some users prefer this, most companies have different approaches to make the mobile
e-commerce more memorable and enjoyable.
Opportunities
Market opportunity is a big factor in sharing a company’s strategy. Indeed, managers
can’t properly tailor strategy to the company’s situation without first identifying its market
opportunities and appraising the growth and profit potential each one holds. Depending on the
prevailing circumstances, a company’s opportunities can be plentiful or scarce, fleeting or
lasting, and can range from wildly attractive to marginally inter-existing to unsuitable
(Thompson, p 91).
As the e-commerce industry continues to rise, the more secure payment processors such
as PayPal have to be. Amazon currently
has their own payment system, but could
expand this into other companies. PayPal
does exactly this, and it could absolutely
eliminate them, and be a great marketing

tool for Amazon. Another opportunity which Amazon could capitalize on relates to rolling out
more products under its own brand instead of being forwarded to a third-party site. Amazon
already sells their own brands of batteries, keyboards, and bedding, but this needs to be further
expanded to make a significant impact on their business. In the grocery world, private label
brands are a big money maker. The items are often produced in the same plants as name-brand
items but are labeled as a store brand, saving all the cost of advertising and thus allowing them to
be sold for less. On a study on USAToday, 88% of customers say they buy private label,
primarily because of the price difference. Amazon has mentioned in the past they have
considered offering a delivery service with groceries to their Prime users, but have yet to
implement this. Another opportunity is to expand even more in the international market. There
are many countries to be directly marketed towards and this could increase growth and profits.
Expansion over abroad brings synergies to a company due mainly to the larger customer base.
Expansion leads to more financial stability, because one country may suffer economically.
Threats
Often, certain factors in a company’s external environment pose threats to its profitability
and competitive well-being. Threats can stem from such factors as the emergence of cheaper or
better technologies, the entry of lower-cost foreign competitors into a company’s market
stronghold, new regulations that are more burdensome to a company than to its competitors,
unfavorable demographic shifts, and political upheaval in a foreign country where the company
has facilities (Thompson, p 93).
Being an e-commerce company, one of the biggest threats to any online business is the
increasing concerns over online shopping because of identity theft and hacking which leaves its
customer data exposed. Amazon has to be able to move quickly and ensure the customers that
their information is private and secure. To combat this, Amazon has a page on their website with
helpful tips and tricks for privacy and security, which is located at
https://payments.amazon.com/help. From here, you can get help with e-commerce plugins, view
your orders, and other things, but it still lacks guaranteeing their customers information. Another
threat comes from Amazon pursuing a cost leadership strategy. This is very aggressive, and
Amazon has had to face lawsuits from publishers and rivals in the retailing industry.
The focus on cost leadership that Amazon follows has become a source of trouble for the
company because of the competitors being upset with Amazon taking away the business from
them. The last threat is clear, and it is Amazon faces significant competition from local online
retailers who are more agile and nimble when compared to its behemoth type of strategy. This
means the company cannot lose sight of its local market conditions in pursuit of its global
strategy.
Driving Forces
Many developments can affect an industry powerfully enough to qualify as driving
forces. Some drivers of change are unique and specific to a particular industry situation, but most
drivers of industry and competitive change fall into the categories below (Thompson, p 65).
Shifts in industry growth up or down have the potential to affect the balance between
industry supply and buyer demand, entry and exit, and the character and strength of competition.
Sanderson from Marketwatch has three primary reasons why Amazon may be unstoppable. The
first is Amazon’s current share of the total U.S. market in retail is still low, but it is accelerating.
Sanderson estimates that Amazon’s direct sales business, which accounted for just 3.4% of retail
spending, grew by six times the market rate during the first quarter. In addition, Amazon’s e-
commerce business soared 27% during the quarter, compared with the 1% sales growth reported
by the biggest U.S. retailers. The second reason is the benefits of the adoption of Amazon Prime
are just beginning to expand internationally. Sanderson said he believes the big improvement in
Amazon’s international e-commerce growth rate to 26% in the latest quarter from 12% in 2014.
The third is the growth opportunity for Amazon Web Services is “extraordinary” and remains
open ended, with a sustainably high-margin profile (Kilgore, 2016).
The next driving factor is increasing globalization. From Amazon’s most recent filing
with the SEC, they quoted this. “Our international activities are significant to our revenues and
profits, and we plan to further expand internationally. In certain international market segments,
we have relatively little operating experience and may not benefit from any first-to-market
advantages or otherwise succeed. It is costly to establish, develop, and maintain international
operation and websites, and promote our brand internationally. Our international operations may
not be profitable on a sustained basis.” Based on this, international expansion may be hard to
achieve, but a company such as Amazon will be the one to succeed in this endeavor. The next
driving force is emerging new Internet capabilities and applications. Being an e-commerce
company, this hits a homerun. Amazon will have to be quick to accept any changes in the
internet and the application process.
The next driving force is technological change and manufacturing process innovation.
Advances in technology can disrupt or extremely impact a company’s success in the future.
However, with how wide-spread Amazon is, they will be quick to adopt and it will not impact
their business significantly. The next is product innovation. With Amazon being a middle-man in
some situations, it will be easy for them to keep up with innovation. However, with their own
products such as the Kindle, they will need to follow up on trends as Apple continues their
innovation with the iPads and the Samsung devices. Another driving force is entry or exit of
major firms. Amazon has established such a power-house in their many services, no major firm
will be able to enter. However, there are some rivals that can compete, especially in their
international expansions, where large firms already exist, such as Alibaba. The last driving force
impacting Amazon is changing societal concerns, attitudes, and lifestyles. Emerging social issues
as well as changing attitudes and lifestyles can be powerful instigators of industry change. Once
again, this is where Amazon excels. With lifestyles always changing, Amazon’s wide range of
products and services will help them avoid this problem.
Key Success Factors
Key success factors are defined as “those competitive factors that most affect industry
members’ ability to survive and prosper in the marketplace: the particular strategy elements,
product attributes, operational approaches, resources, and competitive capabilities that spell the
difference between being a strong competitor and a weak competitor – and between a profit and
a loss.” (Thompson, 2016, p. 72) It is very important for all members of an industry to pay close
attention to Key Success Factors to prevent failure and loss of customer base. Amazon has been
more than successful in making sure they know what makes their company shine, and adapting
to changing buyer wants and needs, as well as advancing technological improvements. The first
question to look at when deciding what factors are most important to competitive success is: on
what basis to buyers of the industry’s product choose between the competing brands, and what
product attributes and service characteristics are crucial. Since Amazon is an online marketing
company that sells multiple items, they are involved in e-commerce that places a lot of emphasis
on customer service. When a customer goes to Amazon’s website they know that with ease they
can find what they are searching for as “big data” is immediately put to work. Each customer
feels special because their website is personalized to them based on past purchases as well as
including “product suggestions to existing or new customers who might not have otherwise
bought a complementary product.” (Thompson, 2016, p. C-407) This type of personalized
marketing strategy is what makes customers choose Amazon when online shopping. Also, once
they expanded from only selling books they changed to a broad strategy attracting almost anyone
looking to make a purchase. Amazon is working toward becoming limitless in the range of
customers they serve, and creating a strong brand loyalty through exceptional customer service.
Customer service is one of the main Key Success Factors for Amazon as it is part of basis
of why buyers buy. Bezos had a strong belief that the key to penetrating market and increasing
sales was customer loyalty. Per George Parker “Amazon was a pioneer in delivering unmatched
customer service, which back in the early days of Internet commerce was “iffy” to say the least.”
Parker gives an example of his purchase with Amazon in which case he bought a Kindle. After a
week of having it, he dropped it on the floor, and stood on it. Parker then called Amazon and
explained what had happened. They said they would ship a new Kindle that day and to return the
old one in its pre-paid package. When Parker asked how much it would cost, nothing, they said.
He instantly became a “customer for life, not to mention an enthusiastic promoter of all things
Amazon.” (Parker, 2012) Instead of following traditional standards when communicating with
customers by sending formatted mass emails they created 360-degree customer profiles which
tracked and stored everything related to that customer. “Amazon could then create hyper-
personalized marketing messages regarding the products based on the individual customer’s
needs and interests.” (Thompson, 2016, p. C-407) Bezos believes that a company shouldn’t focus
on its competitors but rather on its customers. “His most important lesson in service comes from
the term ‘word of mouth.’” A view such as “in the physical world an unhappy customer might
tell six people, but online that same customer could reach 6,000” is a strong foundation for
customer importance company wide. (Snap)
The second question to ask when looking at Key Success Factors is: what resources and
competitive capabilities must a company have to be competitively successful. With such a broad
range of product offerings, Amazon must have somewhere to safely store in excessive quantities.
Not only does Amazon have a lot of products, but they must also know how much of each to
stock as well. Excellent management is needed for most effective use of shelf space and capacity
utilization, and strong relationships with vendors, as well. “Amazon has distribution centers
across the globe that allow them to quickly ship products, and they have excellent vendor
relationships that allow them to offer customers discounted pricing.” (Snap) Bezos has
developed a sensational business model that allows them to do all this quicker and more efficient
than any other competitor. Warehouses are “multi-football arena sized premises [that] take care
of sourcing, organizing, packing and shipping millions of orders a day. And surprisingly, they do
it with a vast number of workers who use simple barcode scanners to find, and expedite on its
way, any item in the warehouse.” (Parker, 2012) Because of the massive volume of product it
sells 24/7/365, Amazon maintains 80 enormous warehousing and fulfillment centers scattered
around the known universe. “The seemingly counter-productive thing about Amazon’s
warehousing system is that it relies on something described as "Chaotic Storage” where products
are shelved at random, and because items are stored randomly rather than categorically there’s a
more efficient use of shelf space.” (Parker, 2012) This is the type of competitive capability that
has been key to Amazon’s e-commerce success. They have also found multiple ways to
implement their “big data.” It is also used to check fraud in the organization and prevent
warehouse theft. “Amazon used big data and updated its product catalog data nearly 50 million
times a week.” (Thompson, 2016, p. C-408) This data is collected, stored, and analyzed to
identify which of the items were most likely to be stolen and the information was then fed back
to warehouses.
The final piece of Key Success Factors to analyze is: what shortcoming are almost certain
to put a company at a significant competitive disadvantage. The first major issue that could
quickly be a shortcoming for an e-commerce company like Amazon is shipping and shipping
costs. Shipping is an additional cost customers face when buying online instead of in store,
therefore it must be kept low to keep from turning customers away. If Amazon isn’t shipping
products they then aren’t selling any either, which means no revenue and profit. This is a large
issue that must be effectively managed for Amazon to have, and continue to have success.
Amazon has found a very happy middle ground with shipping that is cost efficient for both them
and the customer – Amazon Prime. Prime includes free two-day Shipping for eligible purchases,
unlimited streaming of movies and TV shows with Prime Video, and the ability to borrow books
from the Kindle Owners' Lending Library for $99 a year or $10.99 a month. This gives Amazon
some advance, unearned revenue, to filter in to the company, before a single item is even ordered
or shipped. They must also pay for their portion of shipping just like the customer, and incur
significant costs in doing so. “Shipping costs as a percentage of sales have risen every year since
2009. Last year, Amazon spent $11.5 billion on shipping, or 10.8% of sales, compared with 7.5%
in 2010.” (Bensinger, 2016) Amazon is now considering competing directly with UPS and
FedEx. The company could save $1.1 billion annually if it stopped using UPS and FedEx.
Keeping packages under its own control just over longer distances could save Amazon around $3
or more on a typical delivery.

By continuing to be innovative Amazon will build upon its well established key success
factors, as well as expand to areas, like shipping, where they can generate more profitability.
Burning Issues
There are 5 main strategic “how-to” burning issues to analyze: 1. how to meet challenges
of new foreign competitors, 2. How to combat price discounting of rivals, 3. How to reduce both
high costs and prepare for price reductions, 4. How to sustain growth as buyer demand slows,
and 5. How to adapt to changing buyer demographics. Although Amazon is not as overwhelmed
with foreign competition as other industries, they do face enough to keep them attentive. They
must watch out for increase competition from Alibaba, eBay, traditional retailers (Walmart and
Target), and new entrants such as Jet.com, as these could potentially limit market share gains for
Amazon over the next five to ten years. With so many capabilities to use for competitive
advantage Amazon has continued to outperform those in the global e-commerce market. Because
of the slowing economy in China, Alibaba will most likely make an international push for higher
growth rates. eBay is also working toward gaining a larger market share. “Over the previous 5-
10 years, Amazon has made several unsuccessful attempts to enhance its market share in China.
This could limit market share gain in the international market.” (Forbes, International, 2016)
With two rivals developing new strengths is a burning issues for Amazon to maintain as well as
prepare for strategic defenses at the top of the chain.
Looking at the second and third “burning issue” topics relates to price discounting of
rivals, cutting high costs, and reducing selling prices. Companies such as Walmart, Best Buy,
and Toys “R” Us announce polices that they will match any competitors lower price which poses
an issue for Amazon, as customers can buy in store for a cheaper price, cut shipping and get
instant gratification. Amazon is challenged by major retailers for every sale, but have found a
successful way to adapt and keeping “burning” controlled. “Internet Retailer Magazine reported
in mid-2013 that Amazon changed prices on about 40 million products many times during a
single day since they want to provide customers with the lowest prices and best value across their
vast selection.” (Forbes, Pricing, 2012) During the holiday season Amazon last year changed
prices on as many as 80 million products compared to Wal-Mart’s 922 changes, Target’s 354,
and Best Buy’s 336. They remain profitable by being smart about which prices to discount and
increase some prices as well. “Not all price changes went down, some went up, enabling retailers
to recover some profit margin by raising prices while remaining competitive.” (Forbes, Pricing,
2012) All this together puts great control on this issues created by rivals. They have shown to be
more than willing to adapt to the market, time of year and/or season, and respond to competitor’s
price reductions. Price reductions is counteracted by price increase in other products.
The fourth burning issue to consider is sustaining growth as buyer demand slows. The
strength of customer service is how Amazon tackles this issue. Buying and making purchases
happen every minute, so Amazon must make sure their brand is one that comes to mind when
consumers begin shopping. This is made easy by the effort put forth to make sure every customer
feels special, and not like a “number.” The 360-profiling, customized webpages, and individual
emails makes buyers want to come back for more. During peak times of the year, mainly
Christmas, Amazon is worked beyond capacity at times. This is the chance to reach new
customers that normally do not online shop throughout the year. A good experience here will
bring them back for repeat purchases as demand slows after December 25th.
The last burning issue is adapting to changing demographics. Interests of shoppers
change over time. One year a customer may be buying baby clothing and items, but in a couple
years will have parted from the need for those purchases. It becomes annoying to receive
repetitive e-mails about items one has no interest in, or coupons that will never be used.
Amazon’s 360-profiling keeps real-time information on each customer, storing data with every
item search and click. It tells what the customer is saying, what they are buying, what they are
doing, and what they are liking. Using big data to simple merge this information makes it easy
understand. As demographics for an entire population change, or for an individual person, over
time, Amazon can simply use the profiles to adapt. This makes them very flexible to the external
environment and social trends.
Strategic Suggestions
After in-depth analysis of Amazon, careful consideration of SWOT and PESTEL in
congruence with SMART objectives some strategic suggestions need to be made to help expand
and continue growth and success. The first suggestion builds upon an opportunity previously
discussed, developing more specific products under their own brand instead of almost complete
third-party reliability. The name and brand Amazon is well known for its distribution of such a
wide variety of product, but not for its specialty brand of backpacks, or blankets, or tools, for
example. Starting up an entirely new industry would not be congruent with their current purpose,
and extremely difficult and costly as well, but a realistic, cheap, durable product line would
increase brand loyalty if done correctly. A significant impact on business can only be made when
the product becomes well-known, and desirable. Amazon’s batteries, keyboards, and bedding is
meager to what other achievable private label products they create could be. If nothing else, they
could expand on these already established products to make them more successful and durable,
and then advertise it. If done in a timely manner, Amazon will have the opportunity to make a
giant push for a greater grasp of the market segment, along with partial control in a new segment.
A second suggestion is something that has already been put into work for Amazon, but
needs expanded on. Brick and mortar stores are in the beginning stages for the e-commerce
company, with the first being built in New York City where the store sells only books. This
specific aspect could be a great success for them if continued and more stores are built. This type
of diversification would be a type of forward vertical integration. They would be able to increase
their competitive range and advantage, as well as close the gap between the company and buyers.
They would no longer just be a threat to Wal-Mart’s online sector, or Books-A-Million’s online
sector, but to their face to face purchases as well. This would remove shipping costs and give
instant gratification to the customer, still all the while, while Amazon offers the best pricing
making this option very measurable and achievable. Carrying over the exceptional customer
service offered online, and benchmarking off companies such as Chick-Fil-A and Southwest
Airlines, they could realistically put themselves in a position for unmatchable competitive
advantage. Selling just books limits their customer base, but selling too many items becomes
unmanageable and not profitable. Finding the happy medium of books, limited apparel, and their
own branded products as discussed above would be a great start. The timing of this suggestion
would need to be very strategic, for example, opening a store around a peak time such a
Christmas.
The final strategic suggestion for Amazon would be to make a stronger push and support
for environmental purposes. As mentioned above in PESTEL analysis, “they have been criticized
for not being environmentally conscious and not releasing information about their operations.”
With recent changes in what is considered socially acceptable, the world has become very
“green.” The unmeasurable success of Amazon and its unicorn start-up makes it unacceptable for
them to not undertake this simple take. Social responsibility is key in how the public eye will
view Amazon’s operations, and they have a very defensive approach right now, that needs to
minimally be increased to accommodative, if not proactive.

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Running Head: AMAZON STRATEGIC ANALYSIS 1

Amazon – Strategic Analysis

In Requirement for BADM 438-01

Five Forces Model. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5

 Political & Legal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Driving Forces. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29

Key Success Factors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

Strategic Suggestions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37

developing their own product line and physical store locations.

“Earth’s Most Customer-Centric Company”.

as borrowing e-books for Kindle devices.

personalized recommendations, customer reviews, secure payment mechanisms, detailed product

Five Forces Model

apportioned.” In short, the profitability of an industry may be eroded by competition, bargained

position themselves where the forces are diluted (Porter, 2008).

competitors (Thompson, Peteraf, Gamble, & Strickland, 2016).

Buyer Demand, and Competitors

Differentiation and Diversity

Prime, recommendations, reviews, and wish lists.

Switching Costs and Exit Barriers

shopping is easier than ever before.

businesses to leave an industry.

attract new entrants.

in an industry. Companies with a unique competitive advantage, an innovative vision, or the

resources to horizontally integrate can circumvent some of the entry barriers

Scale of Operations, Cost Advantages, Capital Requirements, and Distribution Networks

major barriers to entry.

Patents, Brand Loyalty, and Customer Networks

the means to enter.

comply with them.

growing e-commerce efforts as it competes more aggressively with Amazon.com.” This

affect the industry.

Demand, Differentiation, and Substitutes

can sell in their marketplace.

their annual report (2015), Amazon stated,

If our current suppliers were to stop selling or licensing merchandise, content,

components, or services to us on acceptable terms, or delay delivery, including as a result

of one or more supplier bankruptcies due to poor economic conditions, as a result of

disrupt their operations.

most…suppliers to guarantee availability of merchandise, content, components, or services,

Switching Costs, Size and Backward Integration

companies who supply Amazon.

circumstances. The amount of power depends on buyer demand, product differentiation,

Demand, Differentiation, and Switching Costs

costs for buyers.

Buyer Population, Information, and Price Sensitivity

informed without Amazon’s help.

ultimate lows, offered promotions, and free shipping.

the realm of direct competition.

and have comparable functionality and performance.

analysis can reveal important dynamics of the overall business environment.

PESTEL analysis is an important component of proper examination of the business

Political and Legal Forces

for businesses to penetrate the market.

individually, compete with Amazon’s e-book prices (Plumer, 2013).

conditions in all of the various countries in which they conduct sales.

storage, content delivery, website building, and virtual computing. As demonstrated by

(Amazon.com Inc., 2009, p. 39).

annual report, they

sociocultural organization that must be observed and heeded as well.

customers (D’Onfro, 2015).

companies that have the resources to innovate.

well. (Curtis, 2013)

2011 2012 2013 2014 2015