Company Snapshot: Amazon
Amazon.com leads the online retail industry, indicating business success in addressing issues shown in the company’s SWOT analysis. A SWOT analysis of Amazon shows the strengths that the company uses to overcome its weaknesses and the threats to its e-commerce business, so as to maximize the benefits from exploiting opportunities in the market. To maximize the benefits of having the highest revenues in the online retail industry, Amazon must ensure that it continues to effectively address the concerns shown in this SWOT Analysis. They have established their brand in various categories.
The table set forth below compares cumulative total return on the common stock with the cumulative total return of the Morgan Stanley Technology Index, the S&P 500 Index, and the S&P 500 Retailing Index, resulting from an initial investment of $100 in each and, except in the case of the Morgan Stanley Technology Index, assuming the reinvestment of any dividends, based on closing prices. Measurement points are the last trading day of each of Amazon’s fiscal years ended December 31, 2011, 2012, 2013, 2014, 2015, and 2016
|Cumulative Total Return Year Ended December 31|
|Morgan Stanley Technology Index||$100||$116||$153||$172||$184||$207|
|S&P 500 Index||$100||$116||$154||$175||$177||$198|
|S&P 500 Retailing Inde||$100||$126||$184||$204||$257||$272|
Amazon’s Strengths (Internal Strategic Factors)
Amazon.com Inc.’s e-commerce success relies on its notable strengths. In the SWOT Analysis model, this aspect enumerates the internal strategic factors that the company uses to grow its business. The following strengths support the success and ongoing growth of Amazon:
- Strong brand
- Extensive product mix
- Highest revenues in the industry
· Competition in the market: With increasing number of local & national players it’s becoming very hard for the companies to differentiate themselves from others. There is also threat from counterfeit products destroying its brand image in the market.
· Price of commodities: Increasing price of commodities will result in further increase in the price. Further increase in price will result in decrease in sales, margins & brand switching.
· Buyer’s power: With highly diversified consumer goods market where there are lots of brands claiming different sorts of benefits, it’s very difficult for consumers to stick to a particular brand & hence results into brand switching where consumer got power to select a brand based on several factors like availability, reference group recommendation, preference & price.
· Being the world’s leading online retailer, Amazon derives its strengths primarily from a three-pronged strategic thrust on cost leadership, differentiation, and focus. This strategy has resulted in the company reaping the gains from this course of action and has helped its shareholders derive value from the company.
· Amazon primarily derives its competitive advantage from leveraging IT (Information Technology) and its use of e-Commerce as a scalable and an easy to ramp up platform that ensures that the company is well ahead of its competitors.
· One of the key strengths of Amazon is that it enjoys top of the mind recall from consumers globally and this recognition has helped it enter new markets, which were hitherto out of bounds for many e-Commerce companies.
· Using superior logistics and distribution systems, the company has been able to actualize better customer fulfillment and this has resulted in Amazon deriving competitive advantage over its rivals.
Amazon’s Weaknesses (Internal Strategic Factors)
Amazon’s weaknesses present challenges that limit its e-commerce business. This aspect of the SWOT Analysis model outlines the internal strategic factors that impose difficulties in growing the business. In the case of Amazon, the following weaknesses are most significant:
- Easily imitable business model
- Limited penetration in developing markets
- Limited brick-and-mortar presence
- By rolling out its online payment system, Amazon has the opportunity to scale up considerably considering the fact that concerns over online shopping as far as security and privacy are concerned are among the topmost issues on the minds of consumers. Further, this would improve the company’s margins as it lets it reap the advantages of using its own payment gateway.
- Another opportunity, which Amazon can capitalize on, relates to it rolling out more products under its own brand instead of being a forwarding site for third party products. In other words, it can increase the number of products under its own brand instead of merely selling and stocking products made by its partners.
- Amazon can increase the portfolio of its offerings wherein it stocks more products than the norm currently which places it in a position of strength and comfort as this can translate into higher revenues.
- The fourth opportunity, which Amazon has, is in terms of expanding its global footprint and open more sites in the emerging markets, which would certainly give it an edge in the uber-competitive online retailing market.
Amazon.com has a business model that others can easily imitate. For example, other firms could easily establish an online retail website that sells just about anything. Also, Amazon generates most of its revenues from developed countries, such as the United States. When other firms become fully established in developing markets, it would be difficult for Amazon to penetrate and compete in such markets. The company’s limited brick-and-mortar presence also limits the ability to attract customers to certain product types that are more sellable in physical stores than in online stores. Based on this aspect of the SWOT Analysis, Amazon.com Inc. must strategically maintain online and offline competitive advantage to overcome the negative effects of its weaknesses
Opportunities for Amazon.com Inc. (External Strategic Factors)
There are a variety of opportunities available to Amazon.com. Inc. In the SWOT Analysis model, this aspect identifies the external strategic factors that the firm could use to grow its business. Amazon has the following opportunities related to the e-commerce market:
· Penetrate developing markets
· Expand brick-and-mortar business
· Boost measures to reduce counterfeit sales
Amazon has the opportunity to penetrate developing markets. This move should establish the company’s presence before other large online retail firms take root, thereby giving Amazon the advantage of a stronger competitive edge. The company also has the opportunity to open more brick-and-mortar stores to improve competitiveness against large retailers with significant brick-and-mortar presence. This condition presents an opportunity for the company to improve its technological measures and organizational policies to address counterfeit sales. For example, an automated process for consumer reports and product evaluation could help reduce the amount of counterfeit products sold on the website. In this aspect of the SWOT Analysis, Amazon has major opportunities for growth.
Threats Facing Amazon.com Inc. (External Strategic Factors)
Amazon faces a number of significant threats in the online retail market. External strategic factors that reduce business performance are considered in this aspect of the SWOT Analysis model. Amazon.com Inc. must address the following threats in the online retail industry environment:
· Aggressive competition with large retail firms
Cybercrime threatens practically every online retail company. Amazon must keep stringent measures to counteract cybercrime attacks against its online operations. For example, the company must intensify its network security efforts. Also, Amazon.com faces the issue of imitation, considering that its business model is easily imitable. The materialization of this threat could reduce the company’s market share. Moreover, aggressive competition is an issue against Amazon.