Amazon Inc Strategic Analysis Using SWOT and PESTLE Frameworks

Introduction

In the past decade, the e-commerce retail sector has experienced exponential growth. Technological advancements such as fast internet, high smartphone penetration, and artificial intelligence have been the key contributor to this growth. Also, the recent emergence of the COVID-19 pandemic has caused fear among the general public about visiting physical stores consequently further popularizing online shopping. These factors among others have resulted in the e-commerce retail sector achieving tremendous popularity worldwide. The major e-commerce retailer that has accrued the benefits of online shopping popularity is Amazon Inc., which is the leading e-retailer worldwide.

Whereas Amazon is the leading e-commerce retailer it must implement strategic measures to continually improve its competitive advantage in the retail industry, which is characterized by stiff competition and a high level of dynamism. It is, therefore, imperative that Amazon periodically conduct a strategic analysis to identify internal and external factors affecting its competitiveness. The strategic analysis provides data that allows Amazon to formulate strategies that will allow it to improve its competitive advantage. The purpose of this paper is to conduct an internal and external strategic analysis of Amazon Inc. and propose recommendations to ensure Amazon remains the leading e-commerce retailer globally.

Literature Review

Amazon Inc. is an American multinational e-commerce retailer and cloud computing organization founded in 1994 by Jeff Bezos. The conglomerate is headquartered in Seattle, Washington. Amazon surpassed Walmart in 2015 as the most valuable retailer in the US by market capitalization. Amazon’s three operating segments are North America, International, and Web Services. The company utilizes three business models. One, its retail operations, which are spread across Amazon Retail whereby the company procures inventory that it stores in its distribution centers. Two, Amazon Marketplace, which is a platform where third-party merchants list their products on the company’s website for a fee. Third, Amazon Web Services, which focuses on providing cloud computing services (“Companies History”, 2022). Amazon’s business model and marketing strategy coupled with other factors have propelled it to become the top e-commerce retail company in the world by market capitalization and total sales.

Currently, Amazon is worth more than $1 trillion in market capitalization. The e-retailer company serves customers across the globe from its online platform. The company’s vision is to establish itself as the most customer-friendly one-stop internet-based shop. The company has also started building physical stores in the US, which have a unique cashier-less concept in an effort to provide customers with the best shopping experience (Alshmrani, 2021). As the company continues to grow and expand to new markets it needs to have a strategy that will ensure it optimally improves its competitive advantage. Phillips and Moutinho (2018) emphasize that effective strategic analysis informs appropriate resource investment and strategic approaches that help a company reach its set goals and objectives.

The strategy formulation can be effectively done by understanding the internal and external factors affecting the company’s competitiveness. According to Phillips and Moutinho (2018), strategic analysis defines how a company operates its business and, as a result, helps to determine the functioning of an organization and whether it is on the right path to achieving set goals. Conducting strategic analysis points out areas that need changes and those that need enhancements. hence, it informs strategic planning, which in turn leads to effective resource allocation hence helping an organization reach its set goals (Phillips & Moutinho, 2018). Thus, this strategic analysis of Amazon Inc. will help the company consider its internal and external environment in a way that will keep it on top of the e-commerce retail sector.

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Amazon Inc Strategic Analysis

Two types of strategic analysis will be conducted in this report; that is, internal strategic analysis and external strategic analysis. Internal strategic analysis focuses on helping a company look inside itself to define the positive and negative performances. Conducting internal strategic analysis points out areas that need further improvement with an appropriate set of resources investment. Consequently, this hones an organization’s competitive edge. Notably, internal strategic analysis mainly focuses on a company’s performance by assessing its potential to reach set goals (Phillips & Moutinho, 2018). The commonly used tool for internal strategic analysis is the SWOT analysis. SWOT is an acronym that stands for Strengths, Weaknesses, Opportunities, and Threats. Strengths entail the positive areas that help a company grow. Weaknesses entail the areas that an organization needs to fix to improve its competitive edge over competitors. Opportunities are factors that an organization can leverage to gain a competitive edge over competitors. Lastly, Threats are factors that can negatively impact a company’s performance if they are not properly managed (Phillips & Moutinho, 2018). This report will utilize SWOT analysis to evaluate Amazon’s internal environment.

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External strategic analysis focuses on the external factors that affect a company’s performance. Hence, strategic external analysis helps a company look outside itself to identify factors that affect its performance, whether positively or negatively. The external factors might be interrupting the company’s growth or can be leveraged to improve performance. For the strategic external analysis to be accurate, a company must know how the market functions and how various external factors impact its competitiveness (Phillips & Moutinho, 2018). The commonly used technique to conduct external strategic analysis is PESTEL analysis. PESTEL is an acronym that stands for Political, Economic, Social-cultural, Technological, Legal, and Environmental facets. As such, PESTEL analysis evaluates the political, economic, social-cultural, technological, legal, and environmental factors affecting a company (Phillips & Moutinho, 2018). This report will utilize PESTEL analysis to evaluate Amazon’s external environment.

Amazon Inc SWOT Analysis

Strengths

Strong brand and a wide array of products. Amazon is one of the most widely recognized brands in the world. The company started as a bookseller and slowly diversified into new products and now it has established itself as a one-stop shop. For the 28 years that Amazon has been operational, it has established itself as a robust brand in the e-commerce retail sector. As a result, it enjoys strong brand loyalty from its customers, with experts hailing it as the new-age retail giant. Currently, the company enjoys over 60 percent of the worldwide commerce or online-based retail market share. The achievement has been accomplished through Amazon’s three key business strategies namely, cost leadership, differentiation, and being customer-oriented. From solely selling books, Amazon has significantly diversified its product selection to food, kitchenware, apparel, video games, electronics, toys, jewelry, kindles, merchandise, and lately cloud services, which have driven the company’s competitive advantage allowing it to achieve a leading market position in its respective sector (Warrier et al., 2020).

Customer-oriented business initiatives. The organization’s easy-to-use and customer-oriented customer management approach have generated customer-centric models geared toward enhancing customer experience. By leveraging big data analytics Amazon mines data behaviors of different customers to offer them products based on their unique interests. Amazon is, therefore, able to offer individual items or a combination package based on customer inclinations displayed via their previous purchases or items visited. The enhanced customer experience has earned Amazon customer loyalty. Approximately 55 percent of Amazon’s customers are repeat buyers. Amazon also offers its customers a wide range of perks including free two-day shipping, unlimited streaming of music free of ads, cloud storage of photos, movies and television shows, and videos and content –on-demand services among others (Dudovskiy, 2022).

Robust delivery network. Being the world’s leading e-commerce retail company, Amazon has well-established packaging and shipment services that rivals with operations of companies such as UPS and FedEx in the US. Amazon’s efficient logistics and distribution model allows it to make fast and reliable deliveries at its customers’ doorsteps. The company’s focus of its vast delivery network system is its fulfillment centers, which are established across the country, with most of them located near big cities. The fulfillment centers not only ensure fast and reliable delivery but also significantly reduce shipping costs (Flamand, Wisher, & Riley, 2020).

Cost leadership. Amazon utilizes cost leadership as a strategy to gain a competitive advantage over its competitors. Amazon keeps the price of most of its products similar or slightly lower than that of its competitors. The company is more oriented toward cost leadership than the traditional brick-and-mortar retailers. The extensive storage and distribution facilities, superior customer services, and key partnerships with third parties add to the cost advantage of Amazon (Wiggington, 2018).

The ‘Glocal’ strategy. The ‘Glocal’ strategy is an approach employed by Amazon in its efforts to gain a competitive advantage over its competitors. Glocal is an acronym for Go Global and Act Local. The strategy has allowed Amazon to establish itself as a dominant player in foreign markets. Using this strategy, the company leverages its logistics capabilities and creates ground-up tailored offerings for the local market, consequently successfully fighting off domestic competition in foreign markets. A recent example of the implementation of the Glocal strategy is India, whereby Amazon gained a competitive advantage over local e-retailers by adjusting its customer services and marketing strategy to meet the unique needs of the locals (Alshmrani, 2021).

Subsidiaries and acquisitions. Amazon started as an online book store in 1994. However, currently, it entails a multitude of business operations that allowed it to transform into a one-stop shop. Most of Amazon’s diversification has been a result of acquisitions of companies done across the globe over the years. For instance, the acquisition of Zappos in 2009 and Kiva System in 2012. Between 2015 and 2021, the company acquired more than 15 technology startups. Notably, Amazon strategically acquires these companies to boost its competitive advantage as they all align with its bottom line (Warrier et al., 2020).

Weaknesses

Shrinking margins in the e-retail. Despite Amazon’s improving performance, its e-commerce business is delivering considerably low profit margins. A report by McKinsey in 2021 pointed out that high on-site advertising, storage, and shipping expenses for online-based retailers, including Amazon, keep their profit margins lower than those of brick and mortar retailers. As more new entrants join the market, the margins continue shrinking as Amazon strives to compete on a price basis (Dudovskiy, 2022).

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Product failure. Even with its exponential growth and tremendous success, Amazon has had its fair share of product failures. Some of its major failures include the Fire Phone, Amazon Restaurants, Amazon Local (deals service similar to Groupon), Amazon Destinations, and Endless.com (an online marketplace for high-end clothing). These failures have negatively impacted Amazon’s resources. For instance, in the third quarter of the company’s financial year 2014, Amazon reported a loss of $170 million, which resulted from its investment in Amazon Fire mobile phones (Flamand, Wisher, & Riley, 2020).

Lack of physical stores. The lack of brick-and-mortar stores prevents Amazon from effectively diversifying into various product segments, especially outside the US. For instance, the lack of adequate physical stores has prevented Amazon from effectively diversifying to food products and fashion and clothing among other segments that generate new revenue streams for the company. Additionally, some customers prefer physical stores where they can physically see and feel the product they are purchasing. Amazon’s inability to cater to these customers positions it at a disadvantage (Dudovskiy, 2022).

Tax avoidance issues. In the past, Amazon has been accused of tax avoidance by international, especially in foreign nations. Amazon has also attracted a negative reputation due to its poor tax conduct. A 2020 report by the Fair Tax Foundation showed that the company has paid $3.4 billion in taxes in the US while making $26.8 billion in net profit in the last decade (Dudovskiy, 2022). Tax avoidance issues can lead to serious lawsuits that can have detrimental impacts on the organization.

Opportunities

Vertical Integration. Over the years Amazon has evolved into a considerably vertically integrated company. Amazon has its own warehouses and shipping services that operate on both ends, towards the customers (forward) and the suppliers (backward). The company also has its own book publishing platform, which allows independent writers to publish their works on Amazon. However, the company needs to further integrate vertically by embracing more business expansion in the supply chain (Dudovskiy, 2022). Amazon can achieve a higher level of vertical integration by acquiring businesses that provide the goods or services that it sells.

Global expansion. Amazon is well established in over 15 countries across the globe and has a limited presence in numerous countries including China. North America remains Amazon’s largest revenue source, but sales in international markets growing at an increasing rate. Amazon should roll out a strategic plan to penetrate and become well established in foreign markets to improve its competitive edge globally. The company needs to prioritize expansion into promising markets in South and Southeast Asia (Dudovskiy, 2022). This should include investing heavily in fulfillment centers and the entire delivery network in these nations to offer much faster and more reliable deliveries.

Expansion through acquisitions. Over the years Amazon has invested heavily in strategic acquisitions. The strategy is usually driven by the desire to enhance customer experience hence leveraging creativity and innovation. To date, Amazon’s largest acquisition is Whole Foods Market. This move was innovative and consumer-centric and, as such, proved groundbreaking in the e-commerce retail sector (Dudovskiy, 2022). Amazon needs to leverage its resources to acquire more companies that provide it with a strategic competitive advantage. A market that amazon should consider penetrating via acquisition is the pharmaceuticals market. Such acquisitions can result in major market disruptions and improve Amazon’s competitive edge.

Opening physical stores. Amazon has a plan to open numerous large retail stores across the US to boost its revenue from electronics, clothing, and other household items. Contemporary studies have shown that traditional brick and mortar cannot be completely replaced just yet since there is a significant portion of the customer market that still prefers the experience of physical stores. Amazon should introduce new physical stores not only in the US but also in foreign markets (Dudovskiy, 2022). However, the company should leverage technology to establish stores that are creative and innovative to enhance the shopping experience.

Threats

Increasing competition. Amazon faces competition from both brick-and-mortar and online-based retail stores. The company’s main competitors include Walmart, eBay, Alibaba, Otto Group, Best Buy, Target, Walgreens Booth Alliance, Google, Microsoft, and Netflix among others. The company’s largest competitor is Walmart, which mainly utilizes the brick-and-mortar model but also has a significant online presence. Notably, the largest portion of revenue comes from its physical stores. Amazon also faces the threat of new entrants. Due to low entry barriers in the e-commerce retail sector, retailers are increasingly entering the online platform and this poses a significant threat to Amazon (Alshmrani, 2021).

Regulations and lawsuits. Amazon’s exponential growth in the last decade has not come without encounters with regulatory and legal issues. Both the US and foreign nations’ policies and regulations have impacted the company’s growth. For instance, in 2020 an antitrust probe against Amazon was launched by the European Commission for possible abuse of its market position using big data. The following year, 2021, the company faced an antitrust lawsuit by the US government over claims that it is crashing its competition unlawfully. Besides the antitrust lawsuits, the company is also facing multiple discrimination lawsuits filed in various states across the US by former and current employees. The company also recently agreed to pay $13.5 million to its warehouse for extra time spent on mandatory security checks after each shift (Dudovskiy, 2022).

Counterfeit products/fraud. Fraud and counterfeiting have proved harmful to online retailers. In the case of Amazon, the problem is significantly severe. Recently, there have been numerous reports of fraudulent merchants hijacking abandoned product pages with many reviews and good ratings to dupe clients. The problem is considerably severe to the extent it affects Amazon’s brands such as Amazon Basics. There have also been reported to be a great number of merchants selling counterfeit products on Amazon’s online-based platform (Alshmrani, 2021). These merchants pose a significant threat to Amazon as they are tarnishing the company’s reputation.

Amazon Inc PESTEL Analysis

Political factors. E-commerce retailers operate alongside political influence. Governments’ activities affect Amazon’s operations in the US as well as abroad. The political factors that impact Amazon include the political stability of developed nations, especially the US and European countries. The government level of e-commerce support can also present an opportunity or pose a threat to Amazon. Also, the increasing governmental efforts geared toward cyber-security present an opportunity. Political stability benefits Amazon by creating opportunities for the company to expand and diversify its business in developed nations. For instance, Amazon can expand its brick-and-mortar operations beyond the US to complement its online-based business.

Also, the overall government support, both locally and abroad, presents an opportunity for Amazon to expand its business. Government support facilitates Amazon’s ongoing expansion into relevant markets (David, 2020). However, political factors also pose a threat to Amazon. For instance, the Chinese government has insisted on supporting local e-commerce retailers by providing restrains to foreign players. This has made it challenging for Amazon to become well established in the Chinese market. The foreign firms that are expanding their operations due to their local government’s support present a threat to Amazon by heightening competition. Also, governments’ increased fight against cybercrime presents an opportunity for e-commerce companies such as Amazon to thrive (Dudovskiy, 2022). Thus, political factors present both opportunities and threats to Amazon.

Economic Factors. Amazon’s performance is dependent on the economic situations of the countries where it operates in both online and physical store businesses. Political factors that affect Amazon include the economic stability of countries where the company has established its operations, the disposable incomes in nations where the company provides its services, and potential economic recession. The economic stability of nations where Amazon has established its operations increases the likelihood of Amazon’s success. Economic stability minimizes issues in the remote or macro-environment, as a result, minimizing the risks associated with online business expansion. A potential economic recession forecasted by economic experts due to issues such as the oil crisis and COVID-19 pandemic long-term impacts threatens Amazon’s business. However, on the upside, opportunities for economic growth in developing countries, which will increase the disposable income in these nations, presents an opportunity for Amazon to expand its operations to these countries, especially in Africa and South America (Dudovskiy, 2022). Therefore, economic factors present both opportunities and threats to Amazon’s operations.

Social-cultural factors. Social-cultural trends and changes impact the performance of e-commerce businesses. Key social-cultural factors that impact Amazon’s performance are the increasing online buying consumer habits, increasing wealth disparity, and increasing consumerism in developing countries. The increasing gap between the rich and the poor in many countries across the globe can lead to a stagnation in disposable income. A high level of stagnation in disposable income is unfavorable for e-commerce retailers such as Amazon. On the upside, the growing consumerism in developing nations increases the potential for Amazon’s success (David, 2020). David elucidates that higher consumerism is favorable to Amazon’s generic strategy for expansion and, as such, boosts the company’s competitive advantage. Thus, the consumerism trend in developing countries provides an opportunity for Amazon to expand into these markets. Amazon also stands to benefit from the increasingly growing consumer online buying habits. As technology continues to advance in artificial intelligence, big data, and the fast speed of the internet, more people across the globe are increasingly preferring to shop online (Luo, 2020). Besides the growing wealth gap, the rest of the social factors present an opportunity for Amazon to penetrate and expand its operations into developing nations.

Technological factors. Being that Amazon is an online-based retailer, technological advancements directly and significantly affect its performance. Technological factors relevant to Amazon’s operations include the rapid technological obsolescence, increasing rates of cybercrimes, and increasing efficiency of IT resources. E-commerce retailers including Amazon face the threat resulting from rapid technological obsolescence. This trend imposes pressure on Amazon to continuously develop its technological asset to remain ahead of the curve. The rapid technological obsolescence can also prove to be an opportunity for Amazon to cement its competitive advantage if it adopts futuristic technologies that enhance the consumers’ shopping experience. For instance, its heavy investment in big data technology proved to be a worthwhile investment that catapulted the organization ahead of all its competitors (David, 2020).

Additionally, the rapidly increasing efficiency in IT resources efficiencies presents opportunities for Amazon to improve its performance. For instance, emergent innovative technologies can help Amazon maximize its online retail productivity and minimize operational costs (Dudovskiy, 2022). On the downside, Amazon faces the constant threat resulting from cybercrime. Cybercrime threatens the quality of customer shopping experience and the integrity of Amazon Inc. Cybercrimes such as online fraud on Amazon’s online platform discourages customers from visiting the shop again due to lack of trust (Onyusheva & Seenalasataporn, 2018). Notably, trust is essential in the online-based retail business, since customers purchase products on these platforms based on trust that the merchant will deliver the product in its desired condition and on time.

Environmental factors. The operations of Amazon are subject to the influence of the natural environment despite the company utilizing an online business model. Environmental factors that Amazon must consider include the increasing interest in environmental programs, increasing popularity of low-carbon emission lifestyles, and rising emphasis on business sustainability. Amazon has an opportunity to improve its environmental contribution in response to the growing interest in environmental programs. Contributions to these programs can help Amazon contribute to environmental sustainability. The growing popularity of a low-carbon lifestyle presents Amazon with an opportunity to ensure that the products it sells align with the policy (Sastry, Katvi, & Tourani, 2019). Corporate social responsibility consciousness allows companies to boost their corporate image, which in turn attracts customers and wins government support, among other benefits (Sánchez‐Torné, Morán‐Álvarez, & Pérez‐López, 2020). Thus, the environmental factors present an opportunity for Amazon to boost its corporate image, which in turn can increase the company’s competence in its respective market.

Legal factors. Amazon must adhere to the legal requirements in conducting its operations. Legal factors that are significant to Amazon’s operations include the rising product regulation, the changing import and export regulations, and the rising environmental protection regulations on online-based businesses. The rising product regulations are a result of societal demands regarding consumer safety and security. The regulations present presents an opportunity for Amazon by intensifying the company’s efforts to combat the sale of counterfeit products on its online platform. Reduced counterfeit products translate to increased customer trust hence is beneficial to Amazon. Regarding the changing, import and export regulations, the trend presents an opportunity for Amazon to expand its operations. In an effort to boost their commerce many countries are loosening their import and export regulations. The change in these regulations allows Amazon to exploit the increasing ability of sellers to access oversea suppliers. Lastly, the rising environmental protection regulations on businesses present Amazon with an opportunity to strengthen its brand image by implementing appropriate corporate social responsibility policies (Dudovskiy, 2022). Thus, the legal factors provide Amazon with opportunities to boost its competitive advantage.

Conclusion and Recommendations

To sum up, Amazon remains the leading player in the e-commerce retail market. Despite the increasing competition among other threats that the company has faced over the years, it has demonstrated its resilience by adopting innovative business strategic models, which has allowed it to thrive. Amazon needs to consider the opportunities and threats identified in this evaluation, which thoroughly assesses the company’s internal and external environment. The company should utilize the information presented in this report to inform its strategic plan. By leveraging the identified strengths in the SWOT analysis, Amazon can ensure it optimally exploits the identified opportunities. The company should also formulate an extensive risk management framework to manage the risks identified in the SWOT report as it continues to strategically allocate resources to address its weaknesses.

Moreover, the company needs to strategically allocate its resources to address the threats identified in the PESTEL analysis and maximize the opportunities identified in the same evaluation. Amazon should create a strategic plan that seeks to exploit the advantages identified in the PESTEL analysis. The plan should also have provisions for managing the identified risks to ensure that the company thrives. By formulating a plan informed by the results of this report’s analysis, Amazon can facilitate long-term success despite the competitiveness and dynamism that characterize the e-commerce retail sector. A plan informed by the results of this analysis will allow Amazon to strategically expand its operations using an evidence-based approach, consequently honing its competitive edge. To reiterate, the strategic plan that Amazon will formulate must focus on optimally exploiting the opportunities by leveraging the company’s strengths and effectively managing the risks while working towards addressing the company’s weaknesses.

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