E-commerce Industry - Amazon - Case Study Example

E-Retailing/E-commerce Industry – Amazon Executive Summary This report presents e-retailing current and future opportunities by analysing Pestle and Porter’s 5 forces of the e-retailing industry with a focus on Amazon. E-retailing is growing rapidly worldwide changing. Retailing industry is affected directly by the political situation of a country in terms of rule and regulations governing internet usage in a country and policies. USA and EU economic conditions are not favorable, reducing the purchasing powers of consumer, while China, UAE, India and Pakistan consumers have increased purchasing power. Social factors such as culture affects the operation of e-retailing. Some parts of the world restricts internet due to ethical and religious factors. Social media is on the rise providing a new dimension of marketing. A business that is not willing to embrace technology will not survive online. Mobile phones apps have emerged and there is need to protect customer information online to gain customer trust. Customers are likely to purchase products from a company that is concerned with the environment, therefore e-retailers need to embrace environmental concerns ensure that they promote environmental sustainability in their operations. International laws affect the operation of e-retailers and businesses should be aware of these laws, especially those that are used to open markets in USA and EU. Threats of new entrants is relatively low because of low barriers to entry. Bargaining power of buyers is relatively high for buyers who purchase products from the marketplace and relatively low for Amazon Web Services (AWS) buyers. Threats of substitute products is high, supplier bargaining power is low while rivalry amongst existing firms is high Table of Contents Executive Summary 2 1.0 Industry overview 5 2.0 Political Factors 6 3.0 Economic Factors 7 4.0 Social Factors 7 5.0 Technological Factors 7 6.0 Environmental Factors 8 7.0 Legal Factors 8 8.0 Threats of New Entrants 9 9.0 Bargaining Power of Buyers 10 10.0 Rivalry among existing firms 10 11.0 Threat of Substitute Products and Services 11 12.0 Bargaining Power of Suppliers 12 13.0 Conclusion 12 14.0 Reference List 13 Books 13 Websites 13 Academic Journals 14 Appendix 1 – Industry Overview 14 Appendix 2- Pestle Analysis 15 (a)Political Environment 15 Table of high-ranking websites blocked in mainland China 16 (b)Economic Environment 17 (c)Social Environment 18 (d)Technological Environment 20 (e)Environmental 20 (f)Legal Environment 21 Appendix 3 – Porters 5 Forces 22 (a)Rivalry in the e-retailing Industry 22 22 (b)Threats of Substitute Products 25 (c)Bargaining Power of Suppliers 27 (d)Threats of New Entrants 27 (e)Buyers Bargaining Power 28 1.0 Industry overview Transformation of store and trade transactions has been purported by the expansion of the internet worldwide. E-commerce is buying and selling products through the internet and is related to online shopping. It utilizes regular technological maintenance to ensure that online store sites, delivering of products and monetary transactions is done smoothly. In 2013, it was reported that B2C e-commerce sales increased to over 1.2 trillion US dollars. E-commerce retailers different types including B2B (business-to-business) and C2C (consumer-to-consumer) (Stastista, 2016). Another type of e-commerce on the rise is mobile commerce, which involve selling and buying products and content through mobile devices. E-commerce statistics currently report that about 40 percent of internet users in the world have purchases goods or products online through tablet, mobile, desktop and other online devices. This is equal to over one billion buyers online and this figure is expected to continue growing. Amazon is known to be one of the leading e-commerce platforms worldwide, with its competitors form Asia such as Alibaba and Rakuten expanding constantly within the B2C e-commerce market. The most popular C3C commerce is eBay, an online auction website. Another exciting trend to be watched is mobile commerce with the growing usage of tablets and widespread use of smartphones. This e-commerce type includes travel purchases, retail services, content and media on the mobile (Hosting Facts, 2016). Alternative digital payments such as online payment and digital wallets providers have witnessed rapid growth and adoption rates in the past few years. The current market leader in digital payments is PayPal owned by eBay with over fourteen billion US dollars in volume of mobile payment (Adyen, 2015). PESTLE Analysis Cartwright (2004) asserts that PESTLE analysis is a tool that help in analyzing the business external environment that may affect it. It stands for Political, Economic, Social, Technological and Environmental analysis. 2.0 Political Factors Business can be affected highly by the countries’ political situation, which involves rules and regulations related to business, law and order situation and political instability in those countries (Worthington, 2003). Amazon continuously looks at growing into other markets such as China despite serving in more than 140 countries. Currently China’s strict censorship policies have threatened the growth of Amazon. China has blocked Amazon.com many times, and the company may also be affected by google blockage by the same government. China is growing in the number of internet users and this could mean potential market growth for Amazon (South, 2014). In addition, internet users are not protected by any rules and regulations, which may results to customers losing their finances. It is because of this issue that many potential customers perceive purchasing goods online to be unsafe. Such countries serve as a challenge for the expansion of Amazon. 3.0 Economic Factors People’s purchasing power and a country’s economic condition where a business is looking forward to growing is linked to these factors. EU and USA economic conditions have not been favorable, and people’s purchasing power has gone down due to economic downturn. Economic uncertainty has caused consumers to shun away from spending their money on purchasing different products (Reuters, 2015). However Pakistan, India, UAE and China’s purchasing power people is increasing, therefore providing potential market growth for Amazon. 4.0 Social Factors These factors relate to culture and daily living style. Internet usage is rapidly growing amongst people in the world, but does not mean buddying and selling online forms part of their culture. Many people from many countries shun away from selling and buying online due to their habit, uncertainty and safety, and it is always a challenge to change people’s habit (Pablo, 2012). Many people are accustomed to purchasing from traditional brick and mortar stores, than online retail stores. Online payment is also not part of many countries’ culture. Internet in some parts of the world is restricted due to ethical and religious factors, a factor that may hinder Amazon from selling their productions in these regions. There is also an increase in social networks with billions of people visiting sites like Twitter and Facebook daily. They also provide a platform to market directly on the business site (Naum, 2015). These social network marketing can increase Amazon’s awareness. 5.0 Technological Factors Technological advancements may affect a business and Amazon should keep up with these advancements. EU and USA consumers use Smart phones, therefore in order to facilitate customers (Internet Retailer, 2013), Amazon need to offer Mobile phone apps. It is also of great concern for many people on how save their private information is online. It is therefore essential for Amazon to embrace latest technology to protect information of customers on the internet. 6.0 Environmental Factors Factors relating to environmental issues may affect the business. Today, customers worldwide are increasing having a concern on the impact of different businesses and their products on their environment (Nastu, 2007). In order to exert minimum effect on the environment, environmentally friendly products should be promoted by Amazon. Amazon is also offering cloud computing and cloud storage which eliminates the need for storage and hardware for the general public. This could massive number of electronics such as computer components and hard drivers no longer required in mass production. Shopping online also reduces pollution from vehicles, a driver of a delivery car can deliver two hundred purchases to customers instead of two hundred customers driving to make a purchase from a store. However, unnecessary packaging to the shipped item is added to the shipping products, therefore, Amazon needs to work towards having a greener solution in shipping. 7.0 Legal Factors A business may be affected by different legal factors due to government rules and regulations. Amazon needs to be aware of international laws of selling overseas. There are certain rights to the media that Amazon needs to comply with when selling multimedia online. Each country has its strict rules and regulations for businesses and this can be challenging for Amazon which is used to open markets like EU and USA. Business related legal issues in different countries may affect Amazon’s growth in other countries (Theresa, 2011). Porter’s Five Forces 8.0 Threats of New Entrants The industry that Amazon operates in has low barriers to entry. There are no specific permits or skills required to enter the industry in which Amazon competes except the requirement of modest capital. Toy stores, apparel, electronic and books are highly fragmented, making the entry easy. However, recent trends show that e-retailer sites are becoming an online version of traditional boutiques. The sophistication of the internet software enables it to provide more personalized service than small traditional independent retailers. It is easy for new entrants to pursue low-cost advantage strategy of a larger retailer in combination with personalized service, therefore competing quickly with traditional shops (Perritt, 2000). Though, there is low barrier to entry Amazon has a competitive advantage over the new entrants. “One-click” shopping tool that enables customers make a purchase quickly on Amazon kind of locks in customers, as Amazon is able to store and recall billing and shipping information of customers. Moreover, Amazon build a huge distribution network when by benefiting from the late 1990’s opportunities of cheap financing that saw it raise over $1 billion in debt. New internet start-ups are facing a hostile welcome by capital markets today, therefore making it difficult for them to compete with Amazon’s warehouses. In addition, it would be difficult to imitate Amazon’s policy of free shipping on orders $25. The threats to new entrants is therefore relatively low. 9.0 Bargaining Power of Buyers The bargaining power of buyers in the industry is relatively high in general. However, it is important to acknowledge that buyer bargaining power for Amazon varies with categories of customers depending with the nature of services and products being consumed. The customers who have the highest bargaining power are those who purchases from the marketplace of amazon, because they can switch to substitute services and products or to a competitor. On the other hand, there is less bargaining power possessed Amazon Web Services (AWS) buyers because of high switching cost to another service provider. Amazon Marketplace sellers is another category of customers of Amazon, who do not possess a substantial bargaining power because they have no other alternatives at their disposal besides Amazon. Amazon’s leadership position globally give it a competitive advantage. 10.0 Rivalry among existing firms Rivalry among existing firms in the industry Amazon operates in is very intense. Exit barriers and rapidly industry growth rates are among the factors that cause competition intensity. Amazon competitors are divided into various categories as follows: 1. Mobile e-retailing or online e-retailing sites including those that distribute or sell digital content. 2. Physical retailers, producers, manufacturers, distributors, vendors, and publishers of Amazon products. 3. Web search engines, comparison shopping websites, social networks, web portals and media companies that are direct competitors or collaborate with other retailers. 4. E-commerce service providers including payment processing, customer service, and website development 5. Providers of computing products and services, information storage 6. Companies that sell, market, manufacture or design electronic and telecommunication devices. Direct competitors of Amazon include Noble.com, eBay and Barnes and Noble.com. Its zShops and auctions competes with Ubid.com, eBay and Yahoo Auctions. Its MP3 competes with Apple’s iTunes directly. Its Web Services competes directly with Google App Engine. Its electronics, toys and DVDs/videos competes with eToys (toys), Columbia House (DVDs/videos, and Newegg (electronics). Indirect competitors are Bestbuy.com, Kohls.com, and Walmart.com 11.0 Threat of Substitute Products and Services Amazon’s threat of substitutes is high, with an exception of 1-Click Ordering, a patented technology. Most retailers have online store in addition to physical presence. The products sold by Amazon can be bought from other different web sites on the internet. Argos for instance is a possible substitute for Amazon in UK. Customers can buy books from Half Price Books, Books-A-million, and Barnes and Noble Books. Books can be borrowed at a university library and communicate for free. Amazon’s music selection can also be bought at retailers such as Virgin Megastores or Trans World Entertainment. People can also download or listen or watch music on free sites such as YouTube. Kitchen products can be purchased from stores like IKEA. Generally, substitutes to products offered by Amazon appear to be many, however, the same quality of customer service and convenience that Amazon provides to its customers may not be offered by other websites or physical stores (Statista, 2016). 12.0 Bargaining Power of Suppliers Suppliers’ bargaining power in the industry is medium to high. Inventory of Amazon could be gotten from other many suppliers across the world, thereby, making the suppliers’ bargaining power at a medium. In addition, the goal of Amazon is to provide everything to everyone and therefore, it is a large buyer of products. Amazon decides what to sell on its website, therefore using this influence over smaller suppliers. On the other hand, suppliers have a higher bargaining power over Amazon as Amazon cannot compete with them. There are no production plants run by Amazon besides its own inventory. Products suppliers include its marketplace sellers such as zShops and Auctions and the web service companies it partners with. Therefore, for Amazon to be successful it depends on its partnership with online sellers and other businesses such as Office Depot, Borders, and Target (Geldman, 2016). Without these suppliers, there would be no existence of large products selection enjoyed by Amazon, therefore absence of its philosophy of providing everything to everyone. 13.0 Conclusion This report has detailed e-commerce’s current and future positions of the e-commerce industry, demonstrating the movement of economic environment. The industry is changing as mobile shopping comes to maturity and the split of consumer mindshare across many devices continues. Billions of online transactions that provide insights into shopping behavior online is witnessed. There will be opportunities and risks for companies as e-shopping becomes complex. The ability of companies such as Amazon to use partner and key technology to reach a consumer who is always across devices with personalized messages, will determine either its success or failure. 14.0 Reference List Books Adyen 2015. The Global E-Commerce Payments Guide Cartwright, R. (2002). Mastering Marketing Management. New York: Palgave Websites Geldman, A 2016. The World’s Top Amazon Marketplace Sellers. Accessed [online] on May 29, 2016 from http://www.webretailer.com/lean-commerce/top-amazon-marketplace-sellers Hosting Facts 2016, Internet stats & facts for 2016. Accessed [online] on May 29, 2016 from https://hostingfacts.com/internet-facts-stats-2016/ Internet Retailer, 2015 Special Report: E-commerce technologies advance. Accessed [online] on May 29, 2016 from https://www.internetretailer.com/2013/06/03/sponsored-supplement-e-commerce-technologies-advance Naum 2015, Tools that improves Social media marketing results. Accessed [online] on May 29, 2016 from http://www.nirmal.com.au/tools-that-improves-social-media-marketing-results/ Nastu, P 2007. 53% Of Consumers Prefer To Buy From Company With Green Rep. Accessed [online] on May 29, 2016 from http://www.environmentalleader.com/2007/10/02/53-of-consumers-prefer-to-buy-from-companies-with-green-rep/ Lee, M 2012, INTERVIEW - Amazon aims for top three in China market. Reuters India. Accessed [online] on May 29, 2016 from http://in.reuters.com/article/amazon-china-idINDEE84907L20120510 Pablo 2010. 7 Reasons People Are Scared to Shop Online. Accessed [online] on May 29, 2016 from http://www.fortune3.com/blog/2012/08/reasons-people-scared-shop-online/ Statistita 2016. E-commerce. Accessed [online] on May 29, 2016 from https://www.statista.com/markets/413/e-commerce/ South, J 2015. Punching a Hole in the Great Firewall: The ‘Collateral Freedom’ Project. Accessed [online] on May 29, 2016 from https://www.chinafile.com/Punching-Hole-Great-Firewall Theresa, 2011. Legal Issues That Are Important To Any International Strategy. Accessed [online] on May 29, 2016 from http://growglobally.org/?p=629/ Academic Journals Perritt, HH 2000, Economic and Other Barriers to Electronic Commerce. Barriers to Electronic Commerce, vol 21 , No. 3 pp 563-584 Appendices Appendix 1 – Industry Overview The table below shows the 2015 Global Retail E-Commerce Index, which shows the small and the largest e-commerce countries. The top 30 dominates the largest e-commerce markets in the world with United States, China and UK in the lead. The smaller markets such as Mexico are in the bottom half, and have potential of growing. Appendix 2- Pestle Analysis (a) Political Environment The table below shows the high-ranking websites blocked in China. Amazon had been unblocked usually, and usually it is blocked more often. Table of high-ranking websites blocked in mainland China Alexa Rank Website Domain URL Category Primary language Duration of blockage Current Status 64 Pornhub pornhub.com www.pornhub.com Porn English 2012, May to 2016, April UNBLOCKED 71 The Pirate Bay thepiratebay.se thepiratebay.se Sharing English 2012, February (or earlier) to 2012[26] UNBLOCKED 75 Rakuten Market rakuten.co.jp rakuten.co.jp Shopping Japanese 2012, 15–17 June, September ?? to 19? UNBLOCKED 87 Dailymotion dailymotion.com dailymotion.com Sharing English Unknown to Present[2] BLOCKED 94 Amazon Japan amazon.co.jp amazon.co.jp Shopping Japanese 2012, 15–17 June UNBLOCKED (b) Economic Environment Spending by U.S consumers declined between 2007 and 2010 by an estimation of 3.2 million jobs due to latest recession. Relative resilience is demonstrated compared with overall economy, reviving in 2012. (c) Social Environment Online shoppers still have anxiety and high fears of shopping online. The graph below shows that there is a yearly increase of social media users. Social media has become an important tool in business for brand building. (d) Technological Environment Giants like Amazon have sown seeds of mobile e-commerce, whose growth is predicted as a big bang. Smartphones are becoming a norm, and apps are becoming friendlier to use, enabling this segment to grow. (e) Environmental The chart below shows that 71% of America consider the impact of their purchasing when they shop. (f) Legal Environment The chart below shows categories of legal or compliance issues that companies face in their expansion internationally. Appendix 3 – Porters 5 Forces (a) Rivalry in the e-retailing Industry The graph below shows that the competition in the e-retailing industry is very high with Amazon is leading the industry. Amazon’s main competitors and market share COMPANY NAME SEGMENT NAME OF TOT. REV. MARKET SHARE AMAZON.COM, INC. Media 20.83 % 57.56 % eBay Inc. Transaction 79.04 % 18.08 % Netflix, Inc. Total 100 % 18.94 % Time Warner Home video electronic delivery 6.66 % 5.43 % COMPANY NAME SEGMENT NAME OF TOT. REV. MARKET SHARE AMAZON.COM, INC. Electronics & other general merchandise 69.96 % 11.41 % BEST BUY CO., INC. Total 100 % 5.49 % eBay Inc. Transaction 79.04 % 1.07 % GameStop Corp. Total 100 % 1.13 % RadioShack Corporation Total 100 % 0.42 % WAL-MART STORES, INC. Total 100 % 76.78 % SEARS Total 100 % 3.7 % COMPANY NAME SEGMENT NAME OF TOT. REV. MARKET SHARE AMAZON.COM, INC. Other 0.98 % 1.1 % Google Inc. Other revenues 10.14 % 8.4 % Oracle Corporation Cloud infrastructure 1.89 % 0.71 % PTC Inc. Extended PLM 41.73 % 0.58 % PTC Inc. SLM 13.55 % 0.19 % salesforce.com, inc. Subscription & support 93.25 % 7.08 % salesforce.com, inc. Professional services & other 6.75 % 0.51 % Oracle Corporation Services Business Total 10.2 % 3.82 % Accenture plc Outsourcing 44.21 % 16.23 % INTERNATIONAL BUSINESS MACHINES CORP Global Technology Services 41.3 % 35.22 % MICROSOFT CORPORATION Intelligent Cloud 27.3 % 26.14 % (b) Threats of Substitute Products The table below shows price comparison of exact product matches between Amazon, Jet and Walmart. Amazon’s products are substitutable. The spread sheet below compares prices of products between Costco and Amazon. Amazon’s products are substitutable. (c) Bargaining Power of Suppliers The above shows part of Amazon’s suppliers: produce suppliers. (d) Threats of New Entrants The chart below shows how e-commerce is increasing all over the world with sales in China toping the world. This shows that there are many entrants to the industry. (e) Buyers Bargaining Power Amazon had over 130 million in 2010 in terms of active members over Apple (200) and eBay. This shows that buyers did not switch to other products or to a competitor. Read More