Amazon Company: Internal & External Analysis

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Internal Organizational Audit

SWOT

Strengths

One of the strengths of Amazon is that it has a strong brand. Goel et al. (2020) argue that the company has one of the best retail brands in the world. There are numerous reasons why a strong brand is perceived as a strength during an internal company analysis. Du, Y. (2019) explains that one of those reasons is that it allows more interaction with potential clients. A strong brand is not only known to a significant percentage of the population by name and symbol, but also by quality. A second strength of the selected brand is expansive diversification. Angeloni et al. (2016) explain that the company started selling books and has grown to an e-commerce conglomerate. Diversification helps ensure assets are protected as they are in different fields.

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Weaknesses

It is important to note that Amazon holds key strategic weaknesses that have to be resolved. One such weakness is that the company has an imitable business model. Vieira et al. (2017) argue that numerous multinationals use a model that cannot be replicated as their competitive edge. However, numerous firms have the same model including eBay and Alibaba. Secondly, the company does not have enviable market penetration in developing countries. Arnett, Goldfinch, and Chinta (2017) explain that although there has been an increasing need for better services provision for people in developing worlds, especially Africa, this has not been factored by the firm. This means that Amazon is losing out on potential clients within the region.

Opportunities

As an initial pure online store, Amazon has an opportunity in exploring its brick-and-mortar strategies. Arnett, Goldfinch, and Chinta (2017) argue that the company has recently invested in providing the best brick-and-mortar experiences to its clients. However, there is still much to be done in regards to ensuring that the strategy works. A second opportunity that the company can invest in is new partnerships in developing markets. It is critical to note that there are partners who are willing to get into an agreement with Amazon in select developing nations (Goel et al., 2020). This will not only enhance the company’s diversification angle but also cater to their clients in these regions more effectively.

Threats

A clear threat to the organization’s market share is fierce competition. Numerous e-commerce companies are coming up at both local and international stages. Goel et al. (2020) explain that the digital economy has become lucrative that a majority of businesses are focusing more on e-commerce. On the same note, cybercrime has also hurt e-commerce. Vieira et al. (2017) explain that the rise of online crime has lowered the interest of potential clients in engaging in the same. Critically, for developing countries, the imminent threat is high shipping fees. Scholar A explains that this has deterred people in developing countries from using the platform. The company needs to use benchmarking strategies to handle these threats.

External Stakeholder Analysis

PESTLE

Political

There are two things that have to be considered when thinking about the political forces that affect Amazon. First, the fact that policies have to be created to curb cybercrimes. One can take this as an opportunity for e-commerce companies to come together and lobby for better political policies on the same. Secondly, political stability is key in the suggested developing countries. The firm has to ensure that market penetration is partly informed by the political stability of the targeted nation.

Economic

Currently, the company is affected by the loss of disposable income in numerous countries due to a global pandemic. It is important to note that shopping on e-commerce platforms is often viewed as a luxury and not a necessity. Therefore, the company relies on the accessibility of disposal income. In the event that the company penetrates the markets of developing countries, this too has to be considered.

Social

One of the social aspects that the company has to appreciate is modern culture. Indeed, this is an opportunity for the firm due to the fact that a significant percentage of the world’s population is keener on online shopping. Goel et al. (2020) note that there is an increase in consumerism in developing nations, further providing an opportunity for Amazon. The company has to align its objectives with such opportunities to take advantage of the same.

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Technological

The issue of technological advancements can be an opportunity and threat for the company. It is an opportunity because it allows more people to use online platforms for purposes of shopping. However, it can also be a threat because there is a rapid increase in technological innovations. It is prudent for the company keeps check of all innovations that might affect their space to maintain their market position.

Legal

There is an increase in product regulation in the majority of the countries the company operates. These regulations affect the quality, quantity, and even shipping. Therefore, it is critical for the firm to ensure they understand and are in line with their legal obligations in order to save on costs of litigation. On the same note, several countries keep updating their import and export regulations, which in turn also affects the business. It is important that the company bear this in mind in order to adhere to all laws possible.

Environmental

There are two main things that have to be considered when discussing the environmental aspect. The first is business sustainability based on current encouragements on environmental protection. It can be argued that Amazon is environment-friendly as it is a majorly online business. However, it is also critical to note that due to the fact that the company does not manufacture the products, some of its suppliers might not be environment-friendly. Secondly, one has to consider the corporate responsibility the company bears to ensure they lower their (and suppliers) carbon footprint.

Porter’s Five

Competitive Rivalry or Competition

The first of Porter’s Five is a competitive rivalry. Arnett, Goldfinch, and Chinta (2017) note that this is a strong force for Amazon. A major concern that makes this element strong is that the nature of business has a low cost for switching. Vieira et al. (2017) note that this can be resolved using a thorough cost-benefit analysis that is made clear to the firm’s clients. Critically, the high availability of substitutes also makes this a major concern for Amazon. The company is not only competing with international brands such as Alibaba but also local ones. This is especially the case in developing markets where the firm does not have a strong presence.

Bargaining Power of Buyers or Customers

As stated, there is a low cost for switching between competitors. According to Lu, Shi, and Huang (2018), this makes the bargaining power of consumers higher. Towards this end, therefore, one can argue that this element of Porter’s Five is strong. It is arguable that the high availability of alternative platforms that either directly or indirectly compete with Amazon also increases the customer bargaining power. Further, the fact that there is an ease of information on competitors and alternatives makes this a strong force.

Bargaining Power of Suppliers

One can argue that this is a moderate force for Amazon. The moderation is supported by the fact that suppliers have various alternatives they can use to sell their products. Additionally, there is also moderate integration (Arnett, Goldfinch, and Chinta, 2017), which gives Amazon the upper hand. Despite this, the low percentage or availability of suppliers makes this element a strong force. Amazon has to ensure that its supplier’s demands are met to maintain them. Additionally, the company has to ensure that its offer to suppliers is more favorable than its competitors.

Threat of Substitutes

It can be argued that there is a strong threat of substitutes. As stated earlier, there are low switching costs from one brand to the other. This makes it convenient for substitutes to attract Amazon’s clients and consumers. It is critical to note that the stated switching costs apply to both the firm’s suppliers and consumers. Secondly, there is a high availability of substitutes as stipulated in the competitors’ analysis. It is important to note that the threat of substitutes is further encouraged by the fact that getting into the business requires little capital.

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The threat of New Entrants

The fact that one needs little capital to start an e-commerce company means that there is significant pressure on Amazon to perform well. It is, however, important to also note that firms indeed need a significant amount of money to build an e-commerce platform that is as big as Amazon. Bearing these two concepts in mind, therefore, one can argue that the force is moderate due to the additional fact that the entrants also have to invest heavily in the brand.

Competitive Edge

There are several elements that Amazon can use for its competitive advantage. For instance, their strong brand is already a competitive advantage for the firm. Du (2019) notes that companies with the strong brand also tend to attract more clients. This premise is based on the power of consumer reviews, which have been described to be the modern type of word of mouth. Yoo-Nah, Kim, and Youn (2018) argue that word of mouth is the best form of marketing, and client reviews are just an updated and more digital form of the same. Therefore, brands that are well known, get more reviews and people tend to engage with them more. One strategy that the company can use to both improve their brand, hence, their competitive edge, is to use their suppliers’ reputation to manage the same. As mentioned previously, whereas the company practices environmentally friendly activities, some of its suppliers do not. This can be detrimental to the company’s overall brand if not well addressed.

The Porter’s Five analysis has shown that the company also has to consider the bargaining power of the consumers as it is currently too high. This can be done through benchmarking strategic capabilities. For example, the firm can target companies that have overcome similar challenges in order to also customize the lessons learned to their own mandate. It is critical to note that one strategy that can be used for the same is taking a consumer-centric approach. This will ensure that the company not only considers a cost-benefit analysis but also strategically communicates the same to its current and potential clients. It can be argued that this will increase the competitive edge of the firm as no other competitors have done the same.

It is also important to note that there are some strategic capabilities that can be cited as elements of competitive edge for Amazon. For instance, the Amazon Effect, as Vieira et al. (2017) call it, was used to transform consumer expectations at both brick and mortar and online stores. This is a strategic capability that is purely tied to Amazon although competitors have since imitated the same. The need for speedy reactions to a client’s demands and inquiries has positioned Amazon as one of the best digital retail companies. However, this has put significant pressure on shipping agents who take several days to deliver a product. It can be argued that Amazon can use this opportunity to further diversify its portfolio and venture into transport and logistics. This would make the consumer journey complete and easily managed.

Strategic Plan

Types of Strategic Directions Available to the Organization

There are two main strategic directions that are available to the organization. The first is the strategic use of product differentiation to enhance the brand and its competitive edge. There are two things that one has to consider here. The first is that product differentiation can happen if Amazon agrees to brand the products with their logos. This is different from what is happening now, where the branding is on the box that contains the item from a third party. Due to the fact that Amazon does not produce these items, it can be encouraged to get a partnership with their suppliers that includes the Amazon brand on all products on their platform. It is important to note that the branding does not have to take the shape of the Amazon logo but should be something easily identifiable by the clientele, and that easily relates to the brand.

The second strategic direction is a partnership with transport and logistics companies that allows Amazon to ship on their own instead of fully relying on third-party transport and logistic companies. Based on both the internal and external analysis, one can argue that shipping, which is not handled by Amazon, is a weak point. This is due to the number of days and even costs that are offered to Amazon clients. It is possible to find a client who has purchased a product for $20 pay $50 more to get fast shipping. This can deter small businesses that want to order in bulk and even individuals from purchasing through the platform. Again, from the company analysis done, this can be viewed as a viable opportunity for Amazon to diversify while still improving their consumer experiences.

Strategic Positioning and Growth Strategies

Ansoff’s four main growth strategies can be applied to both determine and ensure Amazon’s strategic positioning. The first growth vector is market penetration, which according to Arnett, Goldfinch, and Chinta (2017), offers similar products to new markets. In this strategy, the company does not offer different products to different regions. It can be argued that this is the best option (recommended) for Amazon. This is because the company does not manufacture the products themselves. They cannot, therefore, offer new products that are market-specific. If the company wants to follow this strategic direction, then the growth strategy would not be applicable.

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The second growth strategy is market development. Vieira et al. (2017) note that this strategy combines market penetration with an additional creation of products that are specific to a market/region. It can be argued that this is not convenient for Amazon. This is due to the mentioned fact that the company only offers a platform for sellers and clients. On the same note, the third strategy is product development, which encourages the development of products to be released in existing markets. Due to the additional fact that not only does Amazon currently not produce any products, the company also has to consider the fact that they are saturated in their existing markets. Therefore, this strategy does not apply to the firm. The last strategy is diversification. According to Arnett, Goldfinch, and Chinta (2017), this strategy allows the company to introduce new services to both current and potential markets. Indeed, one can argue that Amazon can use this to further diversify its portfolio. Therefore, it is recommended that the company uses a combination of the first and last strategies mentioned.

Strategies, Objectives, and Tactics

The suggested strategy to be used will be drawn from Ansoff’s five ventures. As explained, the company must use a combination of market penetration and diversification to further its strength in the market. The issue of market penetration targets developing markets as these is not well covered. Vieira et al. (2017) note that the company has not put enough focus on developing markets despite the fact that they have a demand for their services. It is possible that the venture into developing markets has been made that more difficult due to political and economic instability and also shipping. Whereas the company cannot determine political and economic stability in each of their markets, they can influence the shipping element. This is through the suggested venture into transport and logistics. One can argue that such a venture will help the company provide products to people in developing countries at affordable rates compared to what they are paying now.

The mission, vision, and objectives of the suggested strategies will be aligned with that of the company. This is due to the fact that the firm already has a strong brand, and that can be used as an advantage. A change in the strategic context will also mean recreation of the brand. It is critical that Amazon considers the suggested strategic directions due to the high competition in the market. Further, the realization of the strategic options early will ensure the company has enough time to implement the same.

Reference List

Angeloni, M., et al. (2016) ‘Information and knowledge management in research and development projects – a case study’, Iberoamerican Journal of Strategic Management, pp. 4-7.

Arnett, J., Goldfinch, B. and Chinta, R. (2017) ‘Multi-dimensional nature of innovation at Amazon’, International Journal of Business Innovation and Research, 15(1), pp. 2-7.

Du, Y. (2019) Who will win in the future digital market – Competitive Analysis between Amazon and Alibaba. Berlin: HWR.

Goel, P. et al. (2020) ‘Customer experiences, expectations and satisfaction level towards services provided by Amazon’, International Journal of Tourism and Hospitality, 3(1), pp.7-18.

Lu, Q., Shi, V. and Huang, J. (2018) ‘Who benefit from agency model: A strategic analysis of pricing models in distribution channels of physical books and e-books’, European Journal of Operational Research, 264(3), pp. 1074-1091

Vieira, D. R. et al. (2017) ‘Model for managing uncertainty in aeronautics projects’, International Journal of Product Lifecycle Management, 10(3), pp. 1-10.

Yoo-Nah H., Kim, D. and Youn, M. (2018) ‘A Brief Analysis of Amazon and Distribution Strategy’, The Journal of Distribution Science, 16(4), pp. 17–20.

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BusinessEssay. 2022. "Amazon Company: Internal & External Analysis." May 11, 2022. https://business-essay.com/amazon-company-internal-and-amp-external-analysis/.

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BusinessEssay. "Amazon Company: Internal & External Analysis." May 11, 2022. https://business-essay.com/amazon-company-internal-and-amp-external-analysis/.