Amazon.com, 2016 Case Study Solution
Key Problem/Issue of the case
It can be said that there are many problems which are faced by almost all the organizations operating in any sector or industry. Furthermore, there are many problems which are facing by Amazon because of their nature of operations, these problems are very specific to Amazon and other companies operating in online retail sector.
The key problem which is faced by Amazon is the consecutive losses the company is generating, Amazon incurs consecutive losses in the recent years despite the heavy increase in revenues and market share. Furthermore, the weight age of losses is also very high which increases the intensity of the problems. Although the company generates profits in the most recent year but the profit margin is very smaller as compare to the other companies operating in the sector such as Alibaba.
In addition to this, the increasing competition is also another problem faced by Amazon, the intensity of the competition is increasing day by day which is resulting in the reduction in gross margin of the products of Amazon. Although the major competitor of Amazon i.e. Alibaba is relatively less aggressive to the competition as compare to the other competitors. However, it can be said that the aggressiveness of Alibaba could have very adverse impacts on the future of Amazon.
External Analysis
Porter Five Forces:
Bargaining Power of Supplier
Amazon can obtain its inventory from numerous suppliers from all over the globe. Which indicates that the bargaining power of supplier is low at Amazon. But it is the fact that Amazon does not have its own plants for production of raw material which gives some power to the supplier. Hence we can conclude that the overall bargaining power of supplier is medium at Amazon.
Bargaining Power of Buyer
Amazon uses the internet to sell its products. Buyers can search thousands of retail websites on the internet to buy a product. This indicates that the switching cost and preference to Amazon products has a low impact on the customer’s decision. So the bargaining power of customer is high at Amazon.
Rivalry amongst competitor
Amazon is an e-commerce business. Although it is the first website of e-commerce with the passage of time, many other companies introduced themselves as e-commerce which increases the rivalry amongst the competitor. Furthermore, as Amazon operates globally, therefore, it faces the global competitions.
Threat of Substitutes
Although Amazon innovates itself with the passage of time and creates a good name in the market. But the threat of substitutes is still high at Amazon. Because people may switch to newspaper or music from book reading habits or they may purchase books from other websites or from university library etc.
Threats of New Entrants
Amazon maintains a huge amount of inventory and has a good status in the market. Therefore, the threat of new entrants is low at Amazon. Furthermore, for entry in e-commerce market one has to manage the huge amount of capital along with this he should have good skills in IT. This further decrease the threat of new entrants at Amazon.
PEST:
Political:
The political environment is also very favorable for the business of Amazon, the political of US is very stable now and the relation of US with many countries are improving which can assist Amazon to expand their operations to other parts of the world. In the year 2013, Amazon has expanded into India where it gets a very positive startup. If the relations between India and US are poor, Amazon cannot generate such level of returns.
Economic:
The economic conditions of the US and the world as a whole appears to be very favorable, the economic conditions are improving especially after the financial crises of 2008-09 the financial environment is very stable now. Moreover, the inflation is in control and the employment levels are also very good which makes the economic and financial environment of the industry very good for business.
Social:
The social factors are in support of Amazon; the company have undertaken various corporate social initiatives which has led to increase in reputation of Amazon. The senior management of Amazon designs corporate and business level strategy in such a manner that enhance its reputation.
Technological:
The technological environment is very important for Amazon; the nature of operations makes the technological environment very important. In order to sustain the competitive advantage, the management of Amazon should have to ensure that they remain ahead from their competitors in terms of technology.
Internal Analysis
Strengths:
- Amazon has the string financial background which allows it to expand the operations and also imply the latest technology easily into the functions.
- The company has strong management that develops and incorporate the revised business strategy timely into the organizational structure.
- The company has strong and vast supply chain strategy which makes it efficient and effective in terms of reaching out to a customer.
- The company has lean supply chain structure that allows it to mitigate the dependence on the suppliers.
- Also, the company has its own distribution centers which reduces the inventory holding costs and also measure the right sales order through POS techniques..............
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