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Situational Analysis

SWOT Analysis

The underlying principle for using the SWOT analysis is that it provides a progression of change and development by probing Amazon’s highs and lows. The first Amazon’s strengths is that the retailers is customer focused strategy. Amazon is a customer centric company which ensures that customer needs are fulfilled besides innovating on behalf of the customer. has a good online reputation and brand name. The third strength is that enjoys a large established user base (Ratnasingam, 2008). The company enjoys good information technology capabilities for customer relationship management. Ratnasingam (2008) says that was among the first companies to establish the model of affiliate programs. The weakness of is that online retail business has low barriers to entry and the potential of muddling its brand name by branching out beyond books. The second weakness is that online retail business has low profit margin and low cash flow.  

The opportunities and threats deal with Amazon’s external business trends. One opportunity for is the increasing number of internet connection rates and users in different parts of world such as India and China (Ratnasingam, 2008). This means that Amazon is continually penetrating foreign markets as online spending increases. The second opportunity is that Amazon has extensive experience in online marketing and the company’s continued acquisitions. The threats facing Amazon is that its products are not unique to the company hence others can copy the business. This means that Amazon will continue to face competition book stores such as Walmart, Barnes & Noble and Target. The second threat is that international competition is entering the US market from other websites such as eBay and Netflix for movies (Thomas, 2007). Another threat is increases in distribution costs and certain country regulations and legislation. It is important to that patents from supplying companies depict a high dependence on vendors.

Value Chain Analysis

Amazon’s value chain is interlinked through its primary activities of inbound logistics, operations, outbound logistics, marketing and sales. High emphasis is put on customer service by focusing on customer innovation in order to improve the convenience of the online shopping experience. The support activities within Amazon’s value chain include firm infrastructure, human resource management, technology development and good procurement and supply chain management systems (Thomas, 2007). Technology development entails patented one-click technology, meaning that customers who ordered previously are able to place an order without registering procedure. Thomas (2007) noted that Amazon uses its value chain framework to gain competitive advantage that comes from performing value chain activities at lower costs. Value chain helps Amazon to obtain a low cost position through the gaining of efficiencies.

PESTEL Analysis

The political, environmental, social, technological, legal and economic factors are constantly changing and have affected retail operations in different ways. The effect of economic factors directly affects Amazon customers who if they have less disposable income, will reduce their spending in buying from the online retailer (Thomas, 2007). Economic factors affect consumer confidence, exchange rates, foreign competition and tariff changes. All these factors are likely to affect Amazon business operations either positively or negatively (Thomas, 2007).

Social factors play an important role in retail operations. This is because changes in demand and fashion will cause Amazon to spend a great deal in renewing ranges of products. Switching from non-profitable lines to more profitable areas can require large amount of investment for Amazon (Ratnasingam, 2008). Other social factors likely to affect Amazon include demographics of the workforce and the target customers, lifestyle shifts, occupational trends and needs and economic profiles.

Technological changes have enforced significant change Amazon over the last 10 years. ICT has changed the way Amazon customers order and pay for books and other goods. Automated systems and the rise in internet connection rates globally has meant significant upgrades and investment in technology related areas by Amazon. 

Amazon is being judged on its level of environmental conduct both by governments in controlling the levels of pollution entering the environment and also by consumers through all aspects of the processes Amazon goes through to deliver goods and services. Mistakes in this area can be very costly for Amazon and result in very damaging PR coverage. Amazon should focus on environmental regulations in different countries, public opinion and environmental risk, accidents and recycling (Ratnasingam, 2008).

The political and legal factors have far-reaching powers and can cause a ripple effect on other external factors. Amazon operations are largely affected by political and legal framework in different countries. A change in corporate and business taxation can affect the spending power of Governments may choose to regulate internet businesses which are heavily concentrated. Thomas (2007) indicated that legal and regulatory compliance adds significantly to Amazons operating costs. Regulations also create barriers to entering in some markets such as China and existing industry.