Strategic Analysis (SWOT and Five Forces) of Amazon Inc

Table of contents

Introduction

Amazon.com provides a wide catalogue of products and services to different consumer groups. Below is the detailed analysis of Amazon’s resources, capabilities, distinctiveness and networks.

Unique Market Position

According to Motoko and Stone (2010) Amazon has the distinctive position of being the largest online book seller and e book seller in the United States. Its catalogue has a wide range of products and services for its customers (Amazon.com). It must be noted that this is not a unique offering if compared to its rivals like e-bay, Barnes and Noble, Waterstones and WH Smith. Its distinctiveness comes from two things:

Unique position compared to rivals
Success of Kindle e reader

Amazon possesses a first mover advantage as it has access to vital resources plus ability to develop networks that is very difficult to replicate (Grant 2008). Amazon has a strong brand presence because of its continuous innovation and twenty month head start over its competition. Over a period of time it has acquired vital customer behaviour information, easy demand pattern forecasting and industry standards others have to compete with (Mellahi and Johnson 2000). An added advantage is psychological switching costs because of its early lead.

Amazon’s wholesale model is another feature of its uniqueness. Due to this it is able to set consumer prices as Amazon makes wholesale purchases. Competition is suppressed and new entrants face a hard time because of its heavy discounted prices.

The Kindle e reader has made a huge presence in the market because of its light weight and soothing continuous readability handling. According to Stross (2010) Kindle lets you do reading perfectly. However competing e readers are providing coloured screens and multitasking features too. A perceptual map highlighting Amazon’s Kindle is shown below:

In this figure if we see Amazon’s kindle is placed in the third quadrant which is specialist and black and white screen.

Micro environment analysis using Porter’s five forces.

This has already been discussed in the first question. However bargaining power of buyers and suppliers is not discussed.

Bargaining Power of Buyers

Bargaining power of buyers is really high as there are many ways to buy books and cd’s online provided the options of Barnes and Nobles website and Apple’s i tunes. But Amazon has a high customer loyalty as it attracts customers by offering low prices (Chaffey 2009).

Bargaining Power of Suppliers

Amazon has a very favourable relationship with publishers because of the wholesale model it uses allowing it to set the price for the consumer. Some time back when Amazon was not buying directly from main distributors. They wanted to sell the products below market price as Sony and Panasonic didn’t do direct selling. However Amazon had a unique position and advantage as it came up with its own distribution centres.

Amazon SWOT Analysis

Major strength for Amazon is its first mover advantage, access to resources, capabilities, networks that allow them to suppress the competition. This strength feeds into its greater market share and bargaining power with its publishers plus a wholesale model lot leading to high sales volumes.

Weakness of Amazon is its very little bricks and mortar presence in comparison to its competitors. Thus, buyer is not able to have a first-hand experience of the product until purchased (Bossman 2010). This can have an effect on the sales of Kindle online as buyers may have some concerns. The proprietary format followed for e books is also a weakness as there is a demand for more choice and scope from customers.

Below is a diagrammatic representation of SWOT analysis.

Strategic Direction

With regards to Amazon’s Kindle its strategic direction should be market penetration through more advertising and marketing programs and better price options. Market penetration leads to a high market share and profitability in an identified market (Jobber and Fahy 2006). Amazon can move into the empty quadrant in the figure 1 by providing a coloured screen. This product development approach will make it more competitive in the dynamic market.

Strategic position-Differentiation or cost leadership

Amazon has its strategic position over Kindle by differentiating it and positioning it as a best for reading product in the market. If the market demands Amazon can move into the first quadrant of the perceptual map by conducting more research. This will manoeuvre Amazon in a position that is distinctive, advantageous and in line with consumer needs (Doyle and Stern 2006).

Amazon’s market leading position offers resource capability for cost leadership which further complements its price leadership strategy.

Conclusion

It is evident that Amazon occupies a unique position in the market. Amazon currently is focussing on being a market leader in providing a product that is best for reading although acknowledging the craze for colour screen and multipurpose features offered by competitors.

Based on its strengths it can focus on market penetration with innovative products and add ons like colour screen plus multipurpose functions. Combining this with its price leading strategy will lead to more growth and profits.

 

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