Amazons PESTEL Analysis
PESTEL analysis is the technique where political, economic, socio-cultural, technological, environmental, and legal factors are evaluated to identify external forces that impact markets growth or decline. Assessment of the external environment helps to recognize key drivers and create a development strategy for the company.
International regulations are slowing Amazons expansion. Some countries regulations limit possibilities of internet purchases. However, internet providers bring faster and more affordable internet to more consumers which enable more consumers to shop at Amazon. Often, the company under analysis needs help of national governments to launch its authorized countywide websites and receive benefits in regard to taxation. In less internet penetrated open countries, besides direct investments, Amazon requires assistance of local authorities to develop the demand for e-commerce to a significant level. An online global retailer can expand its operations to closed countries through strengthening political relationships and trade pacts. In new countries, Amazon needs either pre-determined national priority supporting the e-market development or strong governmental lobbying of internet-based industry to increase the governmental capacity to earn. In some instances, the corporation needs local political hierarchies to relax cultural or religious ideologies for facilitating conditions friendly to the e-commerce development.
Since the company deals in US dollars, fluctuations of currency can cause issues when selling via the internet. Currently, global economy is improving, and internet sales are expected to grow. When the economy suffers downfalls, online retail sales are one area that either grows or does not suffer as much (Marcus, 2004). Economy standards of particular countries might require specific strategies to make products available to their populations. Some countries, notably China, and India, and emerging markets experience boom of a commercial internet usage.
Religious and ethical values of some countries restrict internet usage and e-commerce. Therefore, social climate of these countries is not conducive for online sales. However, overall outstanding internet growth rate presents opportunities for increasing the market share. Amazon can use social network marketing to increase peoples awareness of its presence. Culture approval of e-marketing is important to the Amazons expansion and development. In less tolerant cultures, e-commerce is challenged or belittled. In addition, the context of cultural supremacy over the power of modern technologies is a result of conservative cultural beliefs of the local population.
Amazon online retailing offers possibilities of surpassing competitors. Consumers can access internet anywhere in the world through tablets and mobile devices. This makes price comparing easy and allows attracting customers to Amazon even when they are shopping in other stores. Technological awareness and education of buyers creates a platform for the internet retail penetration and related socio-political changes. Technology-based economies increase customer reliance on online shopping and create significant demand for e-commerce (Marcus, 2004). Technology-based industries and societies facilitate market segmentation that allows e-commerce development. Nevertheless, internet shopping becomes the target ground for criminal activity.
Amazons cloud computing and storage eliminates the need for storage devices and hardware for the general public and results in potential subsequent decrease in need of computer components and hard drives, which leads to less industrial wastes. Online shopping minimizes pollution from vehicles since one vehicle delivers hundred purchases instead of hundred vehicles driving customers to the store. Shipping adds packaging, which means extra resources and extra waste, but Amazon currently develops eco packaging. The company owns warehouses near airports that minimize the need for vehicle use and transportation (Marcus, 2004).
Selling overseas requires that the company stays aware of international laws and regulations. Sales of various items might be regulated by different laws. Selling multimedia online may require acquiring certain rights to the media. Some filmmaking and music studios oppose sales of digital copies because this makes it easy to do pirate duplication of original content. This circumstance requires regulating copyright management issues.
The results of the PESTEL analysis suggest following forces that might significantly impact Amazon and the industry the company operates in.
The first one is international regulations and dependency on the governmental support. These factors have the potential to significantly limit Amazons expansion to foreign markets;
The second driving force is a possibility of active development in emerging markets that experience boom of the internet retail;
Third is the development of modern technologies and increase in technological literacy among people. This force facilitates spread of online retail and strengthens Amazons competitive advantage. Further technology growth will facilitate grows of online sales;
Being environmentally oriented becomes a must for a global enterprise since environmental requirements are getting stricter, and governments set forth regulations encouraging environment-friendly performance.
These macro forces have the potential to become driving forces, impact Amazon and online retail industry in general, and affect future competition the most in the nearest future.
Structure-Conduct-Performance Model of Online Retail Industry
Structure-Conduct-Performance (SCP) approach provides an assessment of an organization through microeconomic analysis. In the SCP, the success of a company in producing benefits for consumers (companys performance) depends on the conduct (behavior) of buyers and sellers, which is based on the structure of the market. The structure, in turn, depends on basic conditions demand for a product and technology. The companys conduct and the structure of industry determine the organizational performance.
Large number of players keeps the online retail market highly competitive. The largest online retail companies are Amazon, eBay, Alibaba, Google, Mail.ru, Yahoo, Tencent, Baidu, Staples, Apple, Walmart, Dell, Barnes & Noble, and Facebook. Amazon is the greatest global online retailer with 20% of online retail market share in terms of online visitors. eBay comes second with 16% of the market share of the online retail space. Alibaba takes the third place with 14%. Amazon is an online retail leader in terms and online sales as well (Krishnamurthy, 2004). Another measure of a commercial website is revenue per visitor. This measure shows exceptional efficiency of Amazons operation. The corporation under consideration employs a price-leader strategy by offering the lowest prices for the most popular products (Mirow, 2005). This comparative evaluation allows concluding that Amazon possesses a very high degree of the market power. The present high demand for online shopping and subsequent supply determine the existence of a large volume of online retail market players and the emergence of new ones. Besides online retailers, there are other competitive forces, such as manufacturers, vendors, publishers, distributors, catalog retailers, and physical world retailers, which possess significant brand awareness and sell through direct marketing, mail order, and the internet. Indirect competitors are web-search engines, comparison shopping websites, web portals and media companies that market directly or in collaboration with other retailers. Additionally, there are firms that provide customer online retail services. High competitive conditions influence the behavior or market players in a way that they force companies to expand, introduce customer loyalty programs, and innovate (Mirow, 2005). Importantly, Amazon is known for listening to its customers and partners and implementing their suggestions (Wong, 2009).
In order to further improve the companys performance, strengthen competitive advantage, and increase market share, following recommendations can be made for Amazon.
1) The need to maintain availability of the large selection of products;
2) Maintaining its position of a price leader and low-cost strategy and high brand recognition;
3) Pursuing ease and convenience of customer services, speed of fulfillment, reliability, and accessibility;
4) Maintaining the high ability of adapting to changing conditions and developing new features: cloud storage and cloud computing; new e-commerce model of selling through a third-party provider (Schmidt, n.d.);
5) Ensuring the safety of transactions and customers data and improving customers overall experience;
6) Acquisition or partnership with a range of enterprises in different sectors and pursuing cooperative advertising arrangements with third parties and vendors;
7) Increasing the customer traffic to the Amazon website and promoting repeat purchases;
8) Development of new marketing tools, such as commission for referrals, discounted and free shipping, and promotional offers.