Introduction
Organizations need a conducive and habitable environment for them to realize their strategic objectives. In most cases, the environment is not always conducive because of existence of forces in the external environment that prevent the effective functioning of an environment. This paper examines the internal and external environment in which Amazon operates, its strengths and weaknesses, opportunities and threats posed by the external environment, as well as core competencies and resources that Amazon has that makes it the crème in its industry.
General environment
Amazon’s general environment encompasses the macro environment and the powers which are beyond the control of the organization. These are the legal forces, technological, demographic, sociocultural, economic forces and sustainability factors.
Demographic segment
Amazon’s external environment that poses the greatest threat is the demographic segment of the general environment. Amazon is the biggest online retailer in the market, and it sells its products via ecommerce platforms. The characteristics of the populations play a great role in Amazon’s success. The twenty-first century customer has become enlightened and demands nothing less than quality products at low prices and delivered in the most convenience way. Amazon sells to people of different ethnicities in different locations serving more than 100 countries. Amazon customer segmentation is broad as it adopts a multi-segment positioning selling to people in urban and rural areas, both make and females, professionals, employees, students among other populations as long as people are aged 14 years and above. To appeal to the wide ranges of customers is really challenging because Amazon generally adopts a ‘one size fits all’ approach. Some customers require quality products, yet maintaining and ensuring quality is an uphill task. For instance, Amazon was held liable for the physical injury and property damage that resulted from a counterfeit battery explosion that Amazon caused.
Technological segment
Amazon business model has been and is about technology. Its operations are grounded on state of the art technology. Amazon is an online retailer, meaning that Amazon uses the internet and related technologies such as efficient data services, servers, and cloud among others to continue its operations. As such, technological force poses a great force in the business environment. Amazon operates in various industries like the retail industry, subscription services and in the web services. In the subscription services, Amazon competes with technology leaders such as Google, apple and Netflix while in the web services; Amazon competes with industry heads like Microsoft, IBM and oracle. Competing with technological leaders like Google, apple and Microsoft is not a walk in the park, given that these firms are specialists in their industry while Amazon is not. To create convenience for the modern customers, Amazon has to keep up with the latest technologies such as the Amazon drone services that ensure speedy delivery, nearly express delivery to compete with Walmart. Amazon has to ensure that it remains on top of the game for its Amazon prime services such as prime music, prime video and Amazon music unlimited to compete with services like Netflix and apple’s iTunes.
Five forces of competition
Michael Porter advanced five main forces that affect firms in any given industry. These factors make up the macro environment of a firm and comprises of buyer bargaining power, threats of substitute products, threats posed by new entrants, competitive rivalry among existing firms and the bargaining power of suppliers.
Bargaining power of buyers
As earlier retorted, the modern customer is very enlightened, thanks to the availability of information and choice. The bargaining power of Amazon is high given that there are substitute products readily available at no switching costs involved. Since Amazon deals with general products and no specialty products, customers will not hesitate from switching to the online seller to another online retailer or visit a brick and mortar shop. Due to the high bargaining power of buyers, Amazon places great emphasis on customer satisfaction by ensuring products are delivered on time and any replacements and returns are suitably handled to convert first-timers into repeat customers. Amazon vision is to be the customer-centric company on earth, which acknowledges the old saying that “customer is the king.” The mission highlights the organization’s stance on creating convenience for customers and strategic decisions such as express delivery through Amazon drones demonstrates that Amazon is committed to ensuring that customers are indeed treated like kings.
Competitive rivalry in the Industry
While Amazon has made headlines in terms of its business acumens and excellence in the different areas it ventures in, the excellence has not come without a cost. Amazon grapples with fierce competitors who are not ready to let its success and market share go untouched. Amazon is commonly referred to as the Walmart of the internet because of the wide range of businesses and products it sells starting from books, audio books, electronics to even grocery. Many online retailers have come up following the success of Amazon such as eBay, FlipKart, Alibaba among others. Alibaba is a Chinese corporation that is giving Amazon sleepless nights by using penetration pricing to get a large market share. FlipKart is an Indian ecommerce platform that was acquired by Walmart in 2015 for US$15 billion.
Organizations need a conducive and habitable environment for them to realize their strategic objectives. In most cases, the environment is not always conducive because of existence of forces in the external environment that prevent the effective functioning of an environment. This paper examines the internal and external environment in which Amazon operates, its strengths and weaknesses, opportunities and threats posed by the external environment, as well as core competencies and resources that Amazon has that makes it the crème in its industry.
General environment
Amazon’s general environment encompasses the macro environment and the powers which are beyond the control of the organization. These are the legal forces, technological, demographic, sociocultural, economic forces and sustainability factors.
Demographic segment
Amazon’s external environment that poses the greatest threat is the demographic segment of the general environment. Amazon is the biggest online retailer in the market, and it sells its products via ecommerce platforms. The characteristics of the populations play a great role in Amazon’s success. The twenty-first century customer has become enlightened and demands nothing less than quality products at low prices and delivered in the most convenience way. Amazon sells to people of different ethnicities in different locations serving more than 100 countries. Amazon customer segmentation is broad as it adopts a multi-segment positioning selling to people in urban and rural areas, both make and females, professionals, employees, students among other populations as long as people are aged 14 years and above. To appeal to the wide ranges of customers is really challenging because Amazon generally adopts a ‘one size fits all’ approach. Some customers require quality products, yet maintaining and ensuring quality is an uphill task. For instance, Amazon was held liable for the physical injury and property damage that resulted from a counterfeit battery explosion that Amazon caused.
Technological segment
Amazon business model has been and is about technology. Its operations are grounded on state of the art technology. Amazon is an online retailer, meaning that Amazon uses the internet and related technologies such as efficient data services, servers, and cloud among others to continue its operations. As such, technological force poses a great force in the business environment. Amazon operates in various industries like the retail industry, subscription services and in the web services. In the subscription services, Amazon competes with technology leaders such as Google, apple and Netflix while in the web services; Amazon competes with industry heads like Microsoft, IBM and oracle. Competing with technological leaders like Google, apple and Microsoft is not a walk in the park, given that these firms are specialists in their industry while Amazon is not. To create convenience for the modern customers, Amazon has to keep up with the latest technologies such as the Amazon drone services that ensure speedy delivery, nearly express delivery to compete with Walmart. Amazon has to ensure that it remains on top of the game for its Amazon prime services such as prime music, prime video and Amazon music unlimited to compete with services like Netflix and apple’s iTunes.
Five forces of competition
Michael Porter advanced five main forces that affect firms in any given industry. These factors make up the macro environment of a firm and comprises of buyer bargaining power, threats of substitute products, threats posed by new entrants, competitive rivalry among existing firms and the bargaining power of suppliers.
Bargaining power of buyers
As earlier retorted, the modern customer is very enlightened, thanks to the availability of information and choice. The bargaining power of Amazon is high given that there are substitute products readily available at no switching costs involved. Since Amazon deals with general products and no specialty products, customers will not hesitate from switching to the online seller to another online retailer or visit a brick and mortar shop. Due to the high bargaining power of buyers, Amazon places great emphasis on customer satisfaction by ensuring products are delivered on time and any replacements and returns are suitably handled to convert first-timers into repeat customers. Amazon vision is to be the customer-centric company on earth, which acknowledges the old saying that “customer is the king.” The mission highlights the organization’s stance on creating convenience for customers and strategic decisions such as express delivery through Amazon drones demonstrates that Amazon is committed to ensuring that customers are indeed treated like kings.
Competitive rivalry in the Industry
While Amazon has made headlines in terms of its business acumens and excellence in the different areas it ventures in, the excellence has not come without a cost. Amazon grapples with fierce competitors who are not ready to let its success and market share go untouched. Amazon is commonly referred to as the Walmart of the internet because of the wide range of businesses and products it sells starting from books, audio books, electronics to even grocery. Many online retailers have come up following the success of Amazon such as eBay, FlipKart, Alibaba among others. Alibaba is a Chinese corporation that is giving Amazon sleepless nights by using penetration pricing to get a large market share. FlipKart is an Indian ecommerce platform that was acquired by Walmart in 2015 for US$15 billion.
In the retail sector, Walmart is jealously guarding its market share by acquiring ecommerce platforms like shoes.com, ModCloth among others while Amazon is stepping at Walmart doors by acquiring brick and mortar stores like whole food Inc., which is a fierce competitor of Walmart. In the web services and cloud computing, Walmart battles with tech giants such as oracle and Microsoft, which is not a walk in the park. In the recent past, Walmart has addressed the threat of buyer bargaining power and industry rivalry by relentlessly taking strategic moves such as acquisition of wholefoods, use of Amazon drone for speedy delivery, all aimed at providing variety and convenience to keep abreast with the market forces.
Future improvements
To address the external forces in the near future, Amazon can engage in acquisition with major suppliers through vertical integration or form strategic partnerships with a major technology giant such as Google and other upcoming smaller companies. By merging with major suppliers, Amazon is likely to provide more goods and services at reduced cost in line while merging with technology companies is going to supplement Amazon’s technological prowess in the near future. Technology holds the future and technology has become a lifestyle. This verity has been brought about by the emergence of corona virus disease whereby most things were taken to digital platforms ranging from learning, meeting and even working. Therefore, a strategic partnership with a technology leader will ensure that Amazon has positioned itself to carry and lead the future.
Greatest external threat
Although Amazon is a giant retailer, it faces competition from local and international competitors. The fierce competition forces Walmart to adopt strategies such as cost leadership that significantly reduces its margins. The easy entry barriers make it possible for other retailers to enter the lucrative online industry such as Costco, Target, Best Buy, Wayfair, home depot, apple and eBay in the United States. International online retailers are such as FlipKart and Alibaba that make Amazon’s strategic alliances to dwindle.
Greatest opportunity
Amazon has a potential opportunity to sell its own brand through the small business accelerator whereby the firm has announced an $18 billion investment to help small businesses to sell to customers. The company seeks to help small scale traders in areas like logistics, tools, services, education programs among others to accelerate the growth of existing sellers, as well as empower small businesses to become suppliers.
To deal with the threat of intense competition, Amazon should engage in promotions from time to time. Also, Amazon should reward shoppers spontaneously to induce customers to buy at Amazon with hopes that they might become winners. To deal with the small business accelerator, Amazon should take its initiative to developing economies such as in sub-Saharan Africa in a bid to strategically position it to venture the emerging economies as online retailer of choice.
Strength and weaknesses
Amazon’s strength lies in its efficient delivery. In the recent past, the world has been grappling with coronavirus disease, which is a contagious disease. Many governments have instituted measures like movement restrictions and lockdown to curb the spread. The outbreak of covid-19 has been Amazon’s blessing in disguise as customers purchase and pay for goods online, deliver the goods instantly at the comfort of their homes without the risk of contracting the deadly disease. While Amazon has a good reputation of success, great delivery system and wide variety of choice, it has an imminent weakness of quality focus. Amazon eyes its focus on ease of buying, speedy delivery and optimizing product search at the expense of monitoring quality. Amazon has been embroiled in a court case whereby a counterfeit battery bought at Amazon exploded causing damage to property. Lack of perceived quality is likely to see people migrate to platforms with higher reliability and good quality.
Strategy or tactic
To take maximum advantage of its efficient delivery system, Amazon should target institutional customers and have them sign deals and strategic partnerships where Amazon will enjoy the benefits of bulk buying. For instance, an institutional customer like a school is likely to purchase in bulk and buy frequently. Walmart will enjoy constant sales and enjoy economies of scale or delivering in bulk. To deal with the weakness of quality focus, Amazon should have suppliers sign a code of conduct that makes them responsible for damages arising from faulty products.
Resources, capabilities and core competencies
Amazon has grown at an exceedingly fast pace given that that it was established in 1994, and it has exceeded Walmart in terms of brand equity and market capitalization. According to Forbes, (Debter, 2019), Amazon has a market capitalization of over $900 billion, surpassing Walmart which has a market capitalization of less than $300 billion. Amazon has a strong brand equity, which is a rare, valuable, non-imitable and organization specific. Amazon also has artificial intelligence capabilities that make it easy to reduce costs. For instance, Amazon uses robots for packing and unpacking goods in and out of the warehouses which help in cost minimization. Amazon also has strategic warehouses and distribution centers that help in speedy delivery, as well as market expertise given that Amazon has a considerable history of e-commerce.
Future improvements
To address the external forces in the near future, Amazon can engage in acquisition with major suppliers through vertical integration or form strategic partnerships with a major technology giant such as Google and other upcoming smaller companies. By merging with major suppliers, Amazon is likely to provide more goods and services at reduced cost in line while merging with technology companies is going to supplement Amazon’s technological prowess in the near future. Technology holds the future and technology has become a lifestyle. This verity has been brought about by the emergence of corona virus disease whereby most things were taken to digital platforms ranging from learning, meeting and even working. Therefore, a strategic partnership with a technology leader will ensure that Amazon has positioned itself to carry and lead the future.
Greatest external threat
Although Amazon is a giant retailer, it faces competition from local and international competitors. The fierce competition forces Walmart to adopt strategies such as cost leadership that significantly reduces its margins. The easy entry barriers make it possible for other retailers to enter the lucrative online industry such as Costco, Target, Best Buy, Wayfair, home depot, apple and eBay in the United States. International online retailers are such as FlipKart and Alibaba that make Amazon’s strategic alliances to dwindle.
Greatest opportunity
Amazon has a potential opportunity to sell its own brand through the small business accelerator whereby the firm has announced an $18 billion investment to help small businesses to sell to customers. The company seeks to help small scale traders in areas like logistics, tools, services, education programs among others to accelerate the growth of existing sellers, as well as empower small businesses to become suppliers.
To deal with the threat of intense competition, Amazon should engage in promotions from time to time. Also, Amazon should reward shoppers spontaneously to induce customers to buy at Amazon with hopes that they might become winners. To deal with the small business accelerator, Amazon should take its initiative to developing economies such as in sub-Saharan Africa in a bid to strategically position it to venture the emerging economies as online retailer of choice.
Strength and weaknesses
Amazon’s strength lies in its efficient delivery. In the recent past, the world has been grappling with coronavirus disease, which is a contagious disease. Many governments have instituted measures like movement restrictions and lockdown to curb the spread. The outbreak of covid-19 has been Amazon’s blessing in disguise as customers purchase and pay for goods online, deliver the goods instantly at the comfort of their homes without the risk of contracting the deadly disease. While Amazon has a good reputation of success, great delivery system and wide variety of choice, it has an imminent weakness of quality focus. Amazon eyes its focus on ease of buying, speedy delivery and optimizing product search at the expense of monitoring quality. Amazon has been embroiled in a court case whereby a counterfeit battery bought at Amazon exploded causing damage to property. Lack of perceived quality is likely to see people migrate to platforms with higher reliability and good quality.
Strategy or tactic
To take maximum advantage of its efficient delivery system, Amazon should target institutional customers and have them sign deals and strategic partnerships where Amazon will enjoy the benefits of bulk buying. For instance, an institutional customer like a school is likely to purchase in bulk and buy frequently. Walmart will enjoy constant sales and enjoy economies of scale or delivering in bulk. To deal with the weakness of quality focus, Amazon should have suppliers sign a code of conduct that makes them responsible for damages arising from faulty products.
Resources, capabilities and core competencies
Amazon has grown at an exceedingly fast pace given that that it was established in 1994, and it has exceeded Walmart in terms of brand equity and market capitalization. According to Forbes, (Debter, 2019), Amazon has a market capitalization of over $900 billion, surpassing Walmart which has a market capitalization of less than $300 billion. Amazon has a strong brand equity, which is a rare, valuable, non-imitable and organization specific. Amazon also has artificial intelligence capabilities that make it easy to reduce costs. For instance, Amazon uses robots for packing and unpacking goods in and out of the warehouses which help in cost minimization. Amazon also has strategic warehouses and distribution centers that help in speedy delivery, as well as market expertise given that Amazon has a considerable history of e-commerce.
