Porter’s Five Forces Model Company Analysis: a Case Study

This strategy proposal report on amazon.com will provide an overview of the amazon firm and we will also see how the porter’s five model can help in analyzing the external environment in which the company is operating. Through this analysis the company can understand the external factors which can impact the business operations and overall performance. Porter’s five force model will analyze various parameters related to model to identify the competitive rivals, the threats which arise from the new entrants, to understand the bargaining power of buyers and suppliers and the threats which it makes getting from the substitutes. Besides this we will also see the strategies which have been adopted by amazon to get an edge over the competitors and this report also provides a proper justification for the strategy adopted by amazon. The benefits can be seen clearly. This report will help to analyze how Amazon functions and what are their main goals an inspiration. It will help in identifying how this model could help in making a pathway for Amazon to make it far more superior form its competitors. The various internal factors which could support the motive such as availability of resources, the investments, and the product design with the help of porter’s five forces model can be attained wherein the external factors related to competitors, the environment can also be considered and planning can be done accordingly.

Jeff Bezos, was founder of amazon.com started as the “World’s largest bookstore” in july 1995.A virtual book store that physically owned no books, Amazon.com was opened with promised to revolutanize retailing. Bezos clearly applied a trail of e-commerce innovations that many have studied and followed.Amazon.com was established to create personalized store-fronts for each customer by providing more useful information and more choices than could be found in other bookstore. Readers can review books and evaluate them on a one-to-five star rating scale,and browsers can rate the reviews for helpfulness. Amazon.com’s personal recommendation service aggregates data on buying patterns to know who might like which book.Amazon.com’s one-click shopping lets buyers make purchases with one click.

Over the years Amazon.com has diversified its product lines into DVDs, music CDs, computer soft-ware, video games, electronics, apparel, furniture, food, toys and more. In addition it has opened seperate web sites in Canada, the United Kindom, Germany, France, China, and Japan. Amazon.com continued to expand its product offerings from 2007 with the launch of Amazon video on demand, allowing customers to rent of purchase films and telivision shows on their computer or telivisions. The company’s most successful product launch was the Amazon-branded kindle,an electronic book reader that can deliver hundreds of thousands of books, magzines, blogs and newspapers wirelessly in a matter of seconds. As thin as a magzine and light as a paperback,the device was Amazon.com’s number one selling product in 2009. To overcome the lag between purchase and delivery of product, Amazon.com offers fast, inexpensive shipping to builds customer satisfaction, loyalty and frequency of purchase orders. One key to Amazon.com’s success in all these different sectors was a willingness to invest in the latest internet technology to make shopping online faster, easier and more personally rewarding for its customers and third-party merchants. The company continues to invest in technology, is focused on the long-term,and has successfully positioned itself as a technology company with its wide range of Amazon web services. This growing collection of infrastructure services meets the retailing needs of companies of virtually all sizes.

Amazon is one of the key players in the market and they have been one of the well-renowned names in the market. Their presence could be also seen in online retailing, computing services, digital streaming, and consumer electronics. Besides this they have also made their presence in the groceries and daily products. According to the recent statistics it has been found that amazon is one of the leading e-retailer in the US with its net sale of around 281.54 billion in 2019. The main source of the company revenue is generated through electronics sale and another source of revenue generation is through the third-party that is from the subscription revenues and AWS activities. Due to the amazon brand visibility and reach across the globe has made amazon as one of the most prominent and most recognized brands in the world. Amazon has understood the needs and demands of the customers and due to this they are able to get an edge over the competition. they had unique technology and concept such as amazon prime which added more convince to the consumer. Therefore, slowly but gradually they were able to capture the market share, their constant innovation and diversification of the product have helped them in gaining the current position. In 2018, amazon has generated around $141.92 through product sales and 19.7% which is $118.57 billion in 2017. Every year they have been reaching new heights in the market.

From the begining of company started its business,Bezos said that even though he started as an online bookstore,he eventually wanted to sell everything through Amazon.com.Currently,with more than 600 million annual visitors,the company continues to get closer to that goal with revolutionary products like the Kindle and Cloud computing web services.

Application of Porter’s Five Forces Strategy Model

The porter’s forces are said to be an analytical model which facilitates different marketers and business entities to look at the various levels of a balance of power to know the real difference between the various organizations on a global level, at the same time it also helps in identifying the potentially profitable aspects of a business and in understanding the attractive areas which make the firm stand out from the rest. According to Porter, Firm moving ahead with the same strategy to the same target market forms a Strategic group.The firm that carries out that strategy best will make the most profits. The porter’s fives force model includes the following points:

• Rivalry among established firms

If it is seen for the competitive rivalry of Amazon then it could be seen that the rivalries in the online marketing industries are very high. This is due to the increase in the number of online retailers over the years. And at the same time the traditional sellers who used to sell their product earlier only in stores have also come up with online sales giving which to adds on the competition to the firm. The very close competitors of Amazon can be Flipkart, eBay, Alibaba, and now many others. Not only do these big online retailers give Amazon tough completion but also due to an increase in online sales and dependency the small scale retailers have come up with various new ideas to give an edge over Amazon. Many online retailers target special products which can be apparels, various electronic itemsets. Which in a way adds on the intense competition to Amazon.

• Risk of threat from the new entrants

To reach the position where Amazon is today it requires a lot of investment, lots of time, and collective efforts. Due to the expansion of digital technology, it has in a way supported and brought numerous changes in the online retail industry, which has immensely helped the domestic as well as international brands to have emerged. Though all of them may become successful in making their place in the market, to become as giant as Amazon won't be possible for them. It requires huge investments in setting up warehousing, logistics, marketing, distribution, and at the same time managing both the international as well as the domestic market. At the same time, there are other parameters to which make Amazon stand ahead is time and brand reputation which it has gained over time, and for the entrants to challenge that is not an easy affair. Thus, it can be said that the threat of new entrants is very low for Amazon.

• Bargaining power of the buyers

Amazon gives a lot of emphasis on customer satisfaction and the product quality which they give. They ensure in-time delivery as well as keeping track of any return and replacements so to check that they are handled appropriately which in a way helps them to retain customers and provide them with immense satisfaction. The switching cost of buyers is very low. Also, in today's time buyers are well informed as well as they are aware of what could benefit them better and good give a quality product and at a reasonable price. This is due to the increasing trends of online retailing which is because of the change in the patterns of living of the people. The buyers today have several options open for them, which gives them a strong bargaining power against Amazon due to multiple competitors available.

• Threat of substitute products

The substitute to Amazon is the retailers like Wal-mart, branded outlets as well as the online stores' brands which Amazon sells on its site. Since Amazon does not sell products of its own and they are easily available at outlets and other sites, it faces a huge threat of substitution. A minute mistake or a band experience of service from Amazon can lead to customers switching to its substitutes available in the market. At the same time, there are still those people who prefer traditional ways of buying wherein according to them they could physically test the quality and check the alternatives available as they get a lot of variety available in the outlets. All this creates a high threat of substitution for Amazon.

• Bargaining power of the suppliers

Being at the position where Amazon is considered to be the player of the online retail industry. Amazon always has an upper edge over the suppliers when we talk about the supply chain. The number of supplier of Amazon are comparatively very high and large in numbers and thus they are bound to follow certain rule and regulations laid down by Amazon. Amazon keeps a check on the suppliers to know that they are following all the guidelines which Amazon has made to follow ethical working principles at their workplace. It is next to impossible for a supplier to even think forward integration. The switching cost of the suppliers from Amazon is almost negligible. Due to the large scale of the requirement to keep up the stocks which Amazon maintains a large number of suppliers are ready to supply their products to Amazon. Therefore the possibility to influence the prices fixed by Amazon is not possible from any of then other suppliers in the market. So, it can be stated that the bargaining power of the suppliers against Amazon is low.

Proposed Strategy: Differentiation

The differentiation is concerned with product differentiation. It adds value for the customers through differentiating the product from the ones available in the market which the competitors are selling. According to Philip Kotler differentiation is an act of where a product is designed in such a manner that differentiates to set a bar of the brands or companies offerings that differ from the competitions. A product as to be differentiated on various bases which can be from the style, design, quality, reliability, quality as well as repairability. An organization should have a very strong brand name wherein they own a good reputation in the market, with loyalty. The marketing strategy should also be made very strong to adapt the differentiation strategy which also includes various advertising and gaining sponsorship from the good brands. The benefits which are considerably seen while adopting differentiation strategy are mainly reduced price competition as it allows an organization to compete within the market with other parameters other than the lower prices. The second benefit that can be seen is unique products as a differentiation strategy helps in building the unique qualities of a product which helps it to stand out from the rest of the similar products. And this could be communicated through effective marketing and advertising done by them. It gives better profit margins as product differentiation turns the product into higher quality products; this in a way helps in gaining larger profit margins. Consumer brand loyalty can also be created through effective differentiation which creates brand loyalty for the customers. If the firm maintains brand loyalty then it could retain its customers which helps in building a good customer base. lastly no perceived substitutes as when the differentiation strategy is successfully implemented then the product is present in such a way that the competitors in the market get diminished automatically which in a way reduces the number of substitutes available in the market. This gives advantages in the market which thus supports the idea of differentiation and frequent revolutionization. The differentiation strategy can be divided into three different parts i.e. hybrid, purification, and sophistication. The proposed strategy for Amazon can be differentiation has there are several competitors of them available in the market which sells similar products and to take a position among them which is far ahead can be done through this strategy the steps which can be done through this strategy is selling the products, not on MRP as well as keeping the quality of the products very high. The uniqueness of the products available on Amazon can attract more customers and also give a competitive edge over the rest in the market.

Differentiation strategy can be considered the most prominent strategy for Amazon since it has many competitors in the market both in retail online markets as well as the outlets selling similar products and to stand out from them making the demand of its own Amazon has to adopt a certain strategy to maintain its customer base, demand and at the same time have an edge over its competitors through high quality and more customers centric approach. Since differentiation strategy supports uniqueness which is very essential for Amazon to adopt such a strategy so that they could evolve after every particular period which will maintain their brand name and reputation which they Have within the market. Increasing brand recognition and value will help in the differentiation strategy. Due to the change in lifestyle of the people, they are becoming more inclined towards online buying of goods, and thus if Amazon takes up the correct strategy the could acquire good customer base and retain them for a long period which is very essential for those who have several competitors like Amazon. According to this one can differentiate and carve out the best image in this crowded market. Differentiation could be a difficult job to do as this consists of several parameters that have to be done related to customer orientation and being creative at the same time. Differentiation strategy can also compliment partnership strategy which it follows already through tieing up the range of companies which makes it stocking up with a variety of products become easier and also this differentiation strategy could add the unique aspect to it which could make Amazon stand out from the rest of the competitors available in the market.

Conclusion

To conclude it can be said that Porter’s five forces model is very useful in identifying and strategizing their next move which they could take to maintain the balance of buyers and sellers. Although, it can also be seen that the model has certain advantages too as it does not allow us to view various other parameters that are relevant outside the outline factors mentioned in the model. Since Amazon is a giant retailer and also one of the very few reputed trusted brand in itself. Thus porter’s model can help in getting an edge over rivals and establish themselves and revolutionalized every particular time. The differentiation strategy will make some of the loopholes to get covered as it will help in making Amazon far more superior than it was earlier. The differentiation strategy will help in making it unique and always up to the standards which it excepts it to be and could plan furthermore the goals which they have to attain. This will help in gaining customer trust and thus they would consider Amazon one of the best and the products sold to be of the best quality and at the best price, which in a way decreases the chances of customers moving towards its competitors.