Amazon or also known as amazon.com, found in 1994, is an American e-commerce and cloud computing company. Jeff Bezos was the founder and he was from Seattle, Washington. Based on market capitalization and total sales, it is the largest online retailer. It initially started off as an online bookstore. Then later it diversified to many other products covering almost all markets ranging from electronics, computers, apparels, food, furniture, toys etc. The company also produces various consumer electronics such as Kindle e-Readers, Fire tablets, smartphones, Fire TV, and Echo. Amazon has separate retail websites for different countries such as the US, the UK, Germany, France etc. Currently, Amazon is the fourth most valuable public company in the world.
Following is a detailed Porter Five Forces Model Analysis of Amazon:
Competitive Rivalry – High
The rivalry in the online retail industry is very high. This is because the number of players in the recent years has grown. Secondly, traditional brands are also offering online sales giving further competition to these online retailers. The competitors of Amazon are eBay, Alibaba, Flipkart, and others. For Amazon, it’s not just these other giants that are giving it a tough time; many small-scale retailers, brands, and online stores are also fighting it for market share (Dudovskiy, 2016). There are many online retailers that are specifically targeting particular products such as electronics, apparels, auto parts etc. All of this has lead to intense rival competition for Amazon.
Threat of New Entrants – Low
Although it is not difficult to create an online retail store but to reach the level of Amazon would take a lot of investment, time, and efforts. The expansion and growth of the digital technology has brought a number of changes in the retail industry. Many new brands have entered the e-retail segment. Many international and domestic brands have emerged. All of these brands can enter the market but won’t be able to take on a giant such as Amazon. It would require extensive investment in warehousing, distribution, logistics, marketing and other factors (Chang, 2014). Similarly, there are many others factors like time and brand reputation that market difficult for new entrants to challenge Amazon or attempt to grab market share from it. Thus, the threat of new entrants is low for Amazon.
Bargaining Power of Suppliers – Low
Being such an established player in the industry, Amazon always has the upper hand over the suppliers in the supply chain. Although the number of suppliers to Amazon is very large, they have to follow a certain set of rules and regulations laid out by Amazon. Amazon ensures that the suppliers it is purchasing are following ethical working principles at their work locations. No supplier can even think of forward integration. The switching cost for supplier for Amazon is almost negligible. Due to its large sales for every item, there are a large number of suppliers that are ready to supply Amazon with the required products (Greenspan, 2017). Therefore, no supplier is in a position to attempt to influence the product prices of Amazon. So, the bargaining power of suppliers against Amazon is low.
Bargaining Power of Buyers – High
Amazon lays a lot of stress on customer satisfaction and product quality. It ensures that the products are received on time and any returns or replacements are properly handled to convert first-timers into repeat customers. The buyers switching cost is low. Also, buyers are well informed and due to increasing trend of online retailing, buyers have a number of options to go to. Buyers have a strong bargaining power against Amazon due to the number of competitors it has.
Threat of Substitutes – High
The substitution to Amazon are retailers like Wal-mart, branded outlets, online stores of brands that Amazon also sells, small markets in cities and soon. Since Amazon does not sell anything unique, it faces very high threat of substitution. A single bad experience will drive a customer away from online retailers (Pratap, 2017). At the same time, there are still many people today that prefer to visit a retailer rather shop online for their needs. This all creates high threat of substitution for Amazon.
References
Chang, B., 2014. Porter’s 5 Forces on Amazon. [Online] Available at: https://prezi.com/u84qlspzynt8/porters-5-forces-on-amazon/ [Accessed 19 June 2017].
Dudovskiy, J., 2016. Amazon Porter’s Five Forces Analysis. [Online] Available at: http://research-methodology.net/amazon-porters-five-forces-analysis/ [Accessed 19 June 2017].
Greenspan, R., 2017. Amazon.com Inc. Five Forces Analysis & Recommendations (Porter’s Model). [Online] Available at: http://panmore.com/amazon-com-inc-five-forces-analysis-recommendations-porters-model [Accessed 19 June 2017].
Pratap, A., 2017. Five Forces Analysis of Amazon Inc. [Online] Available at: http://www.cheshnotes.com/five-forces-analysis-of-amazon-inc/ [Accessed 19 June 2017].