Amazon external environment

Introduction:

Now a day's everyone can purchase anything online, but it very difficult to start and maintain online selling goods business. In internet we can buy CDs, books, and movies very easily. Over a last decade, online stores have come and gone so often, many people mock at their start. At this stage amazon.com came in to existence with the aim of transforming physical retailing to online retailing i.e. world wide web (www).Though the number of customers who have access to internet technology are limited at the time of his organisation launch, he predicted rapid growth of customers and it is one of the largest online shopping in the world today.

The main idea behind this is to grab attention of customers globally without setting up big industries or plants overseas. The only weapon is technology. As the technology can grow as fast as anything else, Bezos has a foresight that his company will be a role model for entire retailing industry. The basic investment of Amazon.com is technology.

History:

Jeff Bezos is the founder of Amazon.com. the head quarters was set up in the year july,1995 in Washington, USA.

Bezos is fascinated towards technology when he was in high school; he was very creative thinking when he was young. At the age of 30, Bezos completed his graduate in electrical engineering and computer science from Princeton University. He was a youngest senior vice president of D.E Shaw & co. (Johnson and schools, 2002)

He has a good knowledge about the World Wide Web (www) and technology he had predicted the growth of www will be very faster at a 350 percent monthly. In the month of June 1994, bezos has quit his job from D.E Shaw & co and he had done a lot of research on online shopping which provides faster growth and also user friendly to the customer.( Johnson and Scholes, 2002)

In the year 1995 with the help of his wife and three friends he started business and at the same time he is maintaining the good relationship with shippers and also with wholesalers. He also developed software which provides customer to select and purchase different variety of goods though internet and he started his online store in June 1995. (Johnson, Scholes and Whittington, 2008).

The brand name is very important for any organization, Amazon.com started it operation with the name of "cadabra.com" from the word abracadabra which is from Abra, but friends of bezos pointed out that the name is similar to the word "cadaver" and he has changed the name in to "Amazon.com" even conscious of the value of branding on the web, Bezos chose to name his site after the world's largest river, telling newsgroups that Amazon.com, in turn, would become the biggest bookstore in the world.(Saunders,2000).

Bezos wants' Amazon.com to be a place where customer can buy anything and everything online, the company quickly grew from online bookstore to electrical and entertainment good like DVDs, CDs, computer software, hardware, video games, electronics, toys, furniture and many more.(Ann, 2006).

As per our research location is very important for physical retailing. But for online retailing technology is the heart. He chose Seattle to start his operation because of book distributor Ingram which obviously provides approximately 60 per cent of Amazon.com's books. (Johnson and schools, 2002)

Based on Forrester research it is clear that the total number of goods purchased on web exceeded US $ 43 billion in 1998 and is going to increase to US $ 1.3 trillion in 2003. On the other hand as per Media Metrix approximately 16% of internet users visited Amazon.com in 1998. (Saunders, 2000)

In 1999, Bezos awarded with man of the year by Time magazine for his company's success in popularising online shopping. In 2008 the numbers of visitors of Amazon.com are nearly 615 million which is approximately double than that of wal-mart.com by the survey of compete.com. (Saunders, 2000)

Strategy of Amazon.com

According to porters five forces theory, a good strategy of any organisation, which is a new entrant, is to cooperate with the existing similar ones which will create competitive rivalry and produce goods of better quality.

Any organization must be in a good position to balance between opportunities and threats. Amazon's initial threats were books and music sellers.

New entrants to the market will create good competitive atmosphere. Perhaps bezos was one step ahead of competitors by naming his company after the world longest river Amazon. It attracted more number of customers on internet simply because of brand name.

The major components of amazon.com are browsing, searching, reviews by the customers, safety credit card payment and the single click technology.

He thought of selling different goods, which includes hardware, software, books, toys, CD's and videos. At the beginning, he chose books to sell, because of cheaper prices and availability of large no of volumes.

Amazon.com also operates internet movie database (www.imdb.com), which contains more than 250,000 movies from the birth of film i.e. 1891-2009.

On the other hand, amazon.com has created user-friendly atmosphere to customers. Bezos applied his thought in two effective ways, which includes cheaper prices and quick delivery. He made more than 3 million books available to customers just at one click away.

Amazon faced threat from the biggest retailer called Barnes and Nobles. Just because of rapid growth of technology, Amazon took advantage over Barnes and Nobles with only one third of employees that of Barnes and Nobles had at that time.

Amazon's first business strategy was not to expect any profit. He suggested all his stakeholders to do not look for any profit for next four to five years. This was very effective business plan. In the mean while many online companies gained profits than Amazon. But suddenly the e-commerce ship was sunk and many of the online retailers were disappeared from the race. This strategy kept Amazon in profit zone in late 1990's.

Amazon.com External Environment

Environment is the main key factor for all the organizations the change of the environment will affects the whole organization.

For example, the great print publisher Encyclopedia Britannica which is having 200 years of pride has been washed out by the entry of Microsoft's Encarta and online Wikipedia. Here we can observe that technology played the key role in the entire transformation. It's the environmental change.

Amazon followed the same thing. It achieved revolutionary growth only using technology. There are different frame works and analysis to discuss the strategy of Amazon.com.

PESTEL Frame Work

PESTEL refers to Political, Economical, Technological and Environment and legal factors which is useful tool for any organization to understand the market growth or decline and such as the position, potential and direction for a business. It is a business measurement tool of the organization.

The PEST analysis is the framework for reviewing the situation like SWOT analysis and porter's model to be used to review a strategy or position, direction of a company, a marketing proposition or an idea. PEST analysis works well in brainstorming meetings and it is also used in business strategic planning, marketing planning, business and product development and research reports.

Amazon.com spread it wings in United Kingdom, Denmark and France with the help of the individual governments. Then only it will be benefited by taxes and so on. With the help of the government only it could launch its authorized web site in any country. These are the political factors.

Economics refers to the exchange rates of the different countries around the world and economy growth. Amoazon.com followed the right way of strategy by making its products available to the customers around the world as per their economy standards of the country. It also focus on developing countries like India, China.

Social Influences includes changing cultures and demographics like ageing population in many western societies. Technological refers to innovations nanotechnology or the rise of new composite materials and internet browsing software i.e. technology.

Environmental specially stands to "green" issues such as pollution and wast and finally Legal embraces legislative constraints or changes such as health and safety legislation on company mergers and acquisitions. (Johnson, Scholes and Whittington, 2008).

PORTORS Five Forces Frame Work

Porter's five forces framework was originally developed as a way of assessing attractiveness (Profit potential) of different industries. It constitutes an industry's structure.

The five forces are:

  • The threat of entry in to an industry
  • The threat of substitutes to the industry's product and services
  • The power of the buyer of the industry's product and services
  • The power of the suppliers to the industry
  • The extent of rivalry between competitors in the industry.

The main message from the porter is where these five forces are high, and then industries are not attractive to compete it.

The Threat of Entry

The threat of the entry depends on the extent and height of barriers to entry. Higher the barriers to entry are good for existing competitors (incumbents), because it will protect them from new competitors coming in. these barriers includes

  • Scale and Experience: Economies of scale are extremely important. For example take 'sakshi 'local news paper which was launched recently in Andhrapradesh, India with large number of copies and cheaper prices in order to cope with the incumbents like Eenadu and Vaartha. In the similar passion Amazon.com came into light with more than 100,000 volumes of books.
  • Access to supply or distribution channels: In most of the manufacturing industries have had control over the supply or distribution channels. In some industries this barrier has been overcome by new entrants who have bypassed retail distributions and sold directly to consumers though e-commerce. The main distribution channel of Amazon.com is though internet i.e. E-commerce. The same way of distribution is following by many companies like Dell computers and ebay.com

The Threat of substitutes

Substitutes are products or services that offer a similar benefit to an industry's products or services, but by a different process. Fox example films and theatre are substitutes for each other; aluminum is a substitute for steel in automobiles.

Even Amazon.com has substitutes at the time of launching the substitutes is Wall Mart, Banes and Nobles etc.

  • The Price/Performance Ratio: is a critical factor to substitution threat. Amazon.com is an online shopping thought internet wherever customer is. It provides the quick delivery and good quality of products with cheaper rate.

Power of the Buyer

Customers, of course, are the essential for survival of any business. Power of buyer must be high most of the Amazon.com customer's are purchase the product though internet. For example in most of the European countries milk is available in grocery sector where a few retailers dominate the market.

The buyer power is likely to be high when some of the following conditions prevails

  • Concentrated Buyers
  • Low Switching Costs
  • Buyer competition threat

Power of Suppliers

Supplier should be in a position to supply the raw materials what an organization or industry need to produce their product into the market. It includes technology, fuel supply and raw materials. For example Amazon.com will receives the software's from the Dell computers.

Competitive Rivalry

It's entirely different from substitutes. Ebay.com, wal mart and so on are its competitive rivalries. For example Indian railways have only substitutes but no rivalry. If competitive rivalry is high then automatically the quality will be maintained which leads to customer satisfaction.

  • Competitor balance: this means there should be no dominance over another. For smaller industries it will be good to have balanced competition.
  • High fixed costs: Amazon tried to fix its prices in reasonable region by increasing the volumes this means automatically reducing prices. So this causes rivalry between similar ones.

Innovators Vs Followers

Amazon is strictly a follower. It entered the online book selling market in 1995; four years later the real online pioneer the computer literacy book store of Silicon Valley, California.

Being a follower is always a fetching point. The late mover advantages are,

  • Free riding: Amazon simply followed the technology of the computer literacy of Silicon Valley. Of course it implemented its own methods to overcome the difficulties. After four years it enjoyed the taste of success.
  • Learning: Jeff Bezos has done lot of research before entering into the online marketing. We can learn better being a follower. We can overcome the faults what the innovators has done.

The main thing is being an innovator he will be the king maker. He no needs to bother about the competitors. Also no need of having any experience

Information and product/service features

Information technology succeeded in providing organizations a lot of features mentioned below.

  • Lower prices.
  • Pre purchased information of products.
  • Eases the purchasing process.
  • Speed delivery of products.
  • Web sites replacing face to face selling.

Information and changing business models

Amazon has greater information processing capability which provided the opportunity to build their relationships with others in their value network. It developed different business models like market research, after sales services by other parties by providing commission to them.

As the generation became faster, it developed new ways like e-commerce models, keeping traditional business models complexity and innovating new ideas.

Some of the models they approached are like,

  • Electronic process: In this, E-shops move marketing and display to websites which reduces costs. It provided large scope of advertisements and keeping all products under one brand.
  • Extension of business views: by business models like e-auctions which is easy, cheap and fast. The services provided by this will be more trusted by keeping service specialist such as payments or logistics.
  • Transformation models created business to be done in one way like electronically. It helped by reducing cost in information brokerage, creating virtual communities and collaboration platform.

Amazon kept its internal business model to be worked properly by keeping its members like managers etc and stake holder to go in one hand.

Conclusion

The existence of any company depends upon the strategy they adopt. After facing lots of problems at the starting stage and Amazon.com gained its momentum. . Its long term goal is to spread its fame to each and every person on the globe and made available its products to all. With the up to date innovative technologies Amazon is going to be the pioneer of total retailing industry.

References

  • Johnson, G. Scholes, K and Wittington, R (2008). Exploring Corporate Strategy text and cases (8th edition), FT Prentice Hall, England.
  • Johnson, G and Scholes, K (2006). Exploring Corporate Strategy text and case (6th edition), FT Prentice Hall, England.
  • Saunders, R. (2000), "Business: Amazon.com way", Capstone, USA.
  • http://www.quickmba.com/strategy/
  • http://www.ocf.berkeley.edu/~elram/competitors.html
  • http://www.idealog.com/blog/amazons-competitive-advantages-will-they-extend-to-an-ebook-world
  • http://www.1000ventures.com/business_guide/cs_biz_model_amazon.html
  • http://keywen.com/en/PEST_ANALYSIS#FORCES_ANALYSIS

Please be aware that the free essay that you were just reading was not written by us. This essay, and all of the others available to view on the website, were provided to us by students in exchange for services that we offer. This relationship helps our students to get an even better deal while also contributing to the biggest free essay resource in the UK!