Amazon is considered to be the biggest e-commerce platform that specializes in online retail, cloud computing, digital content and competes in thirty other industries. Amazon was established by Jeff Bezos on July 5, 1994, and began its venture as an online book shop, however later it extended to selling video/music content, computer games, hardware, clothing, furniture jewelry, toys, and AI services. Recently in 2017, Amazon has acquired Whole Foods Market chain for around 14 billion US dollars. It’s believed that Amazon acquired Whole Foods in order to compete with Walmart. The company currently has around 647000 employees and this number keeps increasing due to the rapid expansion through different industries. Amazon was able to attract lots of customers due to its fast delivery service and lowered prices. The company was able to thrive because it was based online and there were no expenses for space rent as in the cases of brick and mortar stores. Amazon’s formula of success belongs to the ability to embrace innovation and creating new markets that never existed before. Amazon Inc. competes against many firms including Walmart, Google, Apple, Microsoft, and Home Depot. Due to its massive success, Amazon was even declared to be a Business killer due to the fact that it led to Toys R Us to declare Bankruptcy. The President of the United States, Donald J. Trump tweeted many times about how Amazon is hurting companies, avoiding taxes and taking away jobs. A few companies that are affected by Amazon are Barnes & Noble, Macy’s, Blue Apron, Foot Locker and many other brick and mortar stores.
The Wall Street Journal recently published an article about Amazon’s Food Delivery falling short and affecting customer loyalty. The author of the article, Heather Haddon gave an example of how Amazon can’t meet the requirements of their newly implemented grocery shopping available through Whole Foods by stating that: “Kelly Hills ordered a sour-dough loaf from Whole Foods recently but was offered a jalapeno cheese bread instead. Her so-called shopper either a contract worker employed by Amazon or Whole Foods staff member tasked with compiling delivery orders had opted to put decaf coffee in her bag instead of whole roasted coffee beans and celery instead of celery root and single seltzer flavor rather than a variety.” Ms. Hills said that if she was very frustrated by these bizarre substitutions. The problem is that Amazon wasn’t able to come up with a new and improved inventory-management system and opted to use the old inventory system that Whole Foods had before. This problem might also be a result of Amazon.com running separately from the newly acquired Whole Foods.
Throughout the years the company has competed against multiple strong competitors. As Porter’s Five Model suggests, during this analysis, all five forces are going to be discussed and broken down. The competitive rivalry is considered to be a strong force and a great player in Amazon’s day to day business. Most retail companies are aggressive and show competitive power against each other. For instance, Walmart is a direct competitor of Amazon due to the rapid expansion of Walmart in the e-commerce sector. In addition to that Walmart has the brick and mortar stores, a fact that directly affects Amazon. No everyone is comfortable with online shopping and therefore Walmart is able to serve both markets, online and offline. Now that Walmart has established its online presence it can compete with Amazon through low switching costs online. Because of the extreme external factors, Amazon needs to put more emphasis on competition and thoroughly analyze the company based on the Five Forces.
Amazon is often affected by its suppliers that control the products that are sold on Amazon.com. Based on Porter’s Model this is the bargaining power of Amazon inc’s suppliers and is considered to be a moderate force. For instance, when Amazon is promoting its own line of clothing (Amazon Basics) it is launching a promotion campaign that advertises the items online at a very low price. If the suppliers change their mind and increase the price of manufacturing or impose a higher minimum purchase quantity then Amazon will be directly affected by this and forced to sell the product at a price that creates enough revenue. Porter’s Five Forces Model describes this force as a moderate threat but combining all the suppliers together it’s clear that this becomes a strong force. In order to avoid such problems, the company has to take care of the external factors develop strategies that can lock in deals with all suppliers. Due to the fact that Amazon’s mission statement is all about the customer-centric approach, this also makes the company vulnerable in front of its customers (Bargaining power of Amazon’s Customers/Buyers). The low-rated products are the ones that have problems or quality issues and therefore it affects sales. In order to prevent this strong force, Amazon is listing the best products to come up as first during a product search and even has a badge that says “Amazon’s choice”. Amazon considers this strong force as a major one and takes all the responsibility through a very responsive customers service and low priced products.
Another point from Porter’s model is the threat of substitutes or substitution and is considered to be a strong force. It’s well known that Amazon competes with eBay, Etsy, and Walmart. It’s been proven that customers can easily switch from one online retailer to another if they find better prices. Most of the millennials compare prices between online shops before making a purchase. There is a huge list of smartphone applications such as ShopSavvy, BuyVia or Honey that allow comparing prices across multiple websites and finds the lowest price possible. Nowadays online shoppers look at price and delivery time as the two most important factors that contribute to their decision. This is why Amazon is now trying to create its own delivery company in order to make this process even faster. To make shipping even faster, Amazon is experiencing with new ways of shipping such as Drone Air Shipping that could bring down the shipping time to hours or even minutes depending on the location. Full-scale drone testing projects are currently taking place in the UK and Europe. Amazon understood that the fourth point of Porter’s model can play a big role in the long-term success of the company.
Last but not least, the Threat of New Entrants is considered to be a weak force because Amazon is a well-established e-commerce platform with years of experience and rich knowledge about its customer’s needs. It’s very hard for new entrants to compete on price with Amazon because Amazon has become an empire with its own manufacturers, warehouses and so on. It would probably take many years and billions of dollars to create a new company that would directly compete with Amazon and even if that happens, Amazon might have an eye on these companies from their early stage. Therefore, the fifth force of Porter’s model represents a minor issue for Amazon’s success.
In conclusion, Amazon remains to be one of the biggest players in the online retail industry. The fact that it is one of the oldest companies in this sector of the economy gives it a major competitive advantage. Even though the company is very successful in the online retails, it still needs to create new methods that could improve the Grocery shopping service because not taking care of this problem will only hurt the customer loyalty. Developing new strategies and adopting a new inventory-tracking system is a must for surviving in this competitive world.
The company might also partner with Instacart Inc. which is the biggest grocery delivery service. Being aggressive and trying to dominate each sector of the economy isn’t always the best way.