Porter’s five forces for Amazon UK

Describe about the E-Business Models and Strategy for Forces for Amazon UK.

In the modern world of business, the importance of information technology and the usage of the e- commerce services cannot be ignored. To gain a significant comparative advantage, the modern companies need to follow the strategies of electronic marketing and e- enabling business model. However, in this context, the idea of porters five forces model can be discussed. The usage of information technology has its due implication on the Porter’s five forces of a company. Here, for the successful completion of the project, Amazon UK has been taken as the subject of the discussion. It is a US-based retail company, which has taken the full advantage of the global phenomena of World Wide Web. As mentioned by Ritala et al. (2014), since its establishment in 1995, Amazon has now established itself as one of the pioneering retailers of the world. Its net sales were approximate $13 billion in the first quarter of 2012 (Amazon.co.uk 2016). However, the five forces mentioned by Michael  Porter in reference to this mentioned company will be discussed, and the impact of information technology of the five forces of Amazon will also be reviewed bellow.

As opined by Rothaermel (2015), porter’s five forces create a framework for an industry analysis. Michael  E. Porter has mentioned five different forces which according to him are typically instrumental in any industry. As discussed by E. Dobbs (2014), these five forces determine the ultimate profit potential and the competitive intensity of that industry. As discussed by Veit et al. (2014), the five forces of Michael  E. Porter were “threat of new entrants,” “buyers’ bargaining power,” “threat of substitution,” “suppliers’ bargaining power” and “competitive rivalry.” This Five Forces model of Porter helps in understanding where the power lies in the business. Now, the recent trend of information technology and e-enablement has influenced the business environment worldwide. Consequently, the five selected forces have been typically influenced by this e-commerce strategy. As Amazon UK operating in the market by solely depending on this particular strategy, a discussion on five forces of this company can surely throw a light on its influence.

Amazon is operating in the internet market for almost 13 years. Almost all the modern and supreme quality technologies are under the utilization process of the company. As discussed by Ritala et al. (2014), in the UK Customer Satisfaction Index survey Amazon.com has achieved a score of 88. The risk of new entrants in this business is comparatively low. In the e- commerce business pattern, it is important for the companies to be technologically updated and advanced to get a competitive advantage. It is very tough for any new entrants to pose a threat to Amazon UK in such a context. 

Threat of the entry of new competitors

As discussed by Moser and Gassmann (2016), to throw a challenge to Amazon UK, a new entrant will need to be updated and patented technology, which has to revolutionize the way of online marketing. Amazon and its direct competitors have to devoid of that technology. The technology must be customer friendly and appealing to the majority of the customers. It is hard for a new entrant to gain the economy of scale in such a situation. Hence, it can be said that the information technology has helped the large companies to decrease the threat of the new entrants (Veit et al. 2014).

Though it can also not be ignored that the new companies have also got the chances to network with new clients, it is hard for the new companies to give a significant competition as this requires large initial investment. As discussed by Cherif and Grant (2014), as in the internet-marketing sector the buyers are virtually examining the products before buying, they tend to rely on the brand image of the companies. Here, Amazon UK receives a great advantage. When the buyers find the brands like Amazon, they generally reject the product of any new entrant in the market. It makes hard for the new companies to enter the market. Thus, electronic and web media has influenced the possibility of new entries in the market (Strauss 2016).

E-Commerce and electronic transaction procedure have influenced the consumers’ bargaining power largely. Now, the customer has a number of probable choices. In the case of any dissatisfaction, they are independent enough to switch their loyalty to a particular brand. As opined by West et al. (2015), it has made tough for the companies to hold the customer loyalty for a long time. It is the same with the company named Amazon UK. The use of the information technology and the electronic transaction procedure, have provided the customers of Amazon UK a great range of bargaining power. The consumers are open to a number of similar brands today. Hence, the companies like Amazon UK have to set the price of their product according to the market situation. They follow a competitive pricing strategy to reduce the bargaining power of the consumers (Klaus 2013).

On the other hand, the absence of the physical stores of the company has served as the blessings for the company. It has provided the company the advantage of low operation cost. With the help of the electronic media, the company can make it available to a large number of consumers. It has helped the company in two ways. First, the online availability has provided the company a greater facility of networking, and secondly, it has cut down the operation cost on a huge level. It has helped the company to reduce its price and provide a quality product at reasonable price to the customers. To gain a significant competitive advantage, it has helped the company a lot.

Consumer’s bargaining power

Figure 1: customer base of Amazon.uk

(Source: Amazon.co.uk 2016)

However, in the context of information technology, setting a pragmatic pricing strategy to reduce the consumer’s bargaining power is not enough. Amazon UK is well aware of this fact. Hence, to reduce the choice of the consumers, the company follows a strategy of excellent customer service. Low pricing with free shipping offers and membership in Amazon Prime are the strategies the company is using to reduce the buyer power (Amazon.co.uk 2016).

The utilization of information technology has influenced the Suppliers’ bargaining power too. Now, the suppliers can become a full-fledged seller as the web interface need minimal logistics. As discussed by Breaâ€ÂSolís et al. (2015), in the context of Amazon UK the Suppliers’ bargaining power is medium high. It is medium as most of the products those Amazon deals in can be obtained from any supplier around the globe. Moreover, as the company has taken the strategy of “offer everything to everyone”, it can influence the business of the smaller suppliers (Amazon.co.uk 2016). On the other hand, the absence of production plant has made the company dependable on the suppliers. It also resells the products of many other brands. Hence, these brands have a high threat of entering in the web business by themselves.

Figure 2: Porter’s five forces for Amazon UK

(Source: Amazon.co.uk 2016)

However, to obtain an advantage in this regard the company follows a strategy that is useful for both of the company and the suppliers. Collaboration and partnerships with the suppliers like Target, Borders, etc. are being helpful for both of the parties. This strategy is fulfilling the high-spirited project of “offering everything to everyone” successful (Klaus 2013). As mentioned by Ritala et al. (2014), the providers do not charge anything to Amazon until the company sells the products. Amazon pays its suppliers after 35 days of the sakes of the products. On the other hand, as mentioned by Klaus (2013), after its recent switch from Windows-based to a Linux base interface, has saved more than 15 million dollars to the company.

In the context of digital marketing as well as the growing popularity of the online retail shops, the threat of substitutes is high for the companies like Amazon UK. In spite of the fact that Amazon holds the popular patented technologies like “1 click ordering,” there are a number of popular alternative technologies and product offerings which are available with other competitors (Amazon.co.uk 2016). Moreover, in the modern business world, most of the companies know the importance of the online marketing.

Suppliers’ bargaining power

As discussed by Amit and Zott (2012), online marketing is typically gaining ground in the retail sector. With the changes in the socio-economic pattern of the world, online marketing in the retail sector is getting a huge popularity. Hence, most of the companies are making themselves available to the online sources. It is enhancing the threat of the substitute to the companies like Amazon UK (Magretta 2013). Though it cannot be said that the company is facing a severe threat of substitute in the short run, the rapid development of the information technology is surely posing a long-term threat of substitute against the company. Hence, the company is following the strategy of offering everything the customers want (Klaus 2013).

Amazon is the first company, which has launched its business operation through the web sources. Hence, a huge level of experience in this particular field has helped the company in obtaining a better competitive advantage. The experience and the patent holding of various technologies have provided the company tranquility in the market (Ivanov2015).  However, the competitive rivalry in this sector is no less. The emergence and utilization of information technology and e-enablement have this retail business hugely competitive. In the global market, some of the most significant competitors of Amazon are Barnes and Noble.com and eBay (Klaus 2013). On the other hand, the UK companies like Tesco is posing a threat to the business of Amazon UK. However, Amazon is a prime company on the internet enable retailing industry, while the companies like Tesco or Walmart are mainly in the “discount and variety stores industry” (Breaâ€ÂSolís et al. 2015). As opined by Ivanov (2015), the company is also facing competition with “Google, when the company announced their aim to compete for head to head with Amazon’s Web Services with their latest service offering, Google App Engine.”

Figure 3: Brand position and strategic map of Amazon.uk

Source: (Amazon.co.uk 2016)

It cannot be ignored that the use of information technology has increased the competition in the market for almost every industry. Now, with the help of the online interface even the start-ups have the opportunity to address a large number of buyers. Most of the established companies are opting to the strategy of online offering, as it is the ultimate future of business. The companies like Tesco, Wal-Mart, etc. that were previously physically available for the consumers are now adopting the e-enablement with a huge pace (Amit and Zott 2012).

However, the company is well aware of this situation and hence, it is following the strategy of diversification. As discussed by Barney and Ray (2015), Amazon has set the target of “offering everything to everyone” as its business motto. With the facilities of providing customer review, it is focusing on the customer service. As opined by Mithas et al. (2013), Amazon is targeting to be the “world’s most customer- centric” company, mainly in UK.

Conclusion:

Since its inception in 1995, Amazon has correctly identified the importance of the e-business strategy and information technology in gaining a strong competitive advantage.  The discussion of the porters five forces in reference to Amazon UK has clarified the influence of the information technology in the modern business process.  As Amazon UK is in the very process for more than ten years; it has experienced the influences in a distinctive way. The selected five forces typically talk about the competitive situation of an industry. Hence, it can be said that this e-enablement has made the business process more competitive than before.  Now, the buyers have more choice than ever, and the threat of the new entrants has risen. The service or the products of have more substitutes and the suppliers have an increased level of power. Hence, the companies like Amazon UK are following the strategies of low pricing, excellent customer service, strategic collaboration, etc. to gain a competitive advantage.

References:

Amazon.co.uk. 2016. Amazon.co.uk: Low Prices in Electronics, Books, Sports Equipment & more. [online] Available at: https://www.amazon.co.uk [Accessed 27 Jul. 2016].

Amit, R. and Zott, C., 2012. Creating value through business model innovation. MIT Sloan Management Review, 53(3), p.41.

Barney, J. and Ray, G.A.U.T.A.M., 2015. How information technology resources can provide a competitive advantage in customer service.Planning for Information Systems, 3(2), pp.444-460.

Breaâ€ÂSolís, H., Casadesusâ€ÂMasanell, R. and Grifellâ€ÂTatjé, E., 2015. Business model evaluation: quantifying Walmart’s sources of advantage. Strategic Entrepreneurship Journal, 9(1), pp.12-33.

Cherif, E. and Grant, D., 2014. Analysis of e-business models in real estate.Electronic Commerce Research, 14(1), pp.25-50

Dobbs, M., 2014. Guidelines for applying Porter’s five forces framework: a set of industry analysis templates.Competitiveness Review,24(1), pp.32-45.

Ivanov, I.I., 2015, July. Exploring Business-IT Nexus: Make the Most of IT-Enabled Capabilities. In International Symposium on Business Modeling and Software Design (pp. 152-170). Springer International Publishing.

Klaus, P., 2013. The case of Amazon. com: towards a conceptual framework of online customer service experience (OCSE) using the emerging consensus technique (ECT). Journal of Services Marketing, 27(6), pp.443-457.

Magretta, J., 2013. Understanding Michael Porter: The essential guide to competition and strategy. Harvard business press.

Mithas, S., Tafti, A. and Mitchell, W., 2013. How a Firm’s Competitive Environment and Digital Strategic Posture Influence Digital Business Strategy. Mis Quarterly, 37(2), pp.511-536.

Moser, D.J. and Gassmann, O., 2016, June. Innovating Platform Business Models: Insights from Major Tech-Companies. In ISPIM Innovation Symposium (p. 1). The International Society for Professional Innovation Management (ISPIM). Ward, J. and Peppard, J., 2016. The Strategic Management of Information Systems: Building a Digital Strategy. John Wiley & Sons.

Ritala, P., Golnam, A. and Wegmann, A., 2014. Coopetition-based business models: The case of Amazon. com. Industrial Marketing Management, 43(2), pp.236-249.

Rothaermel, F.T., 2015. Strategic management. McGraw-Hill.

Strauss, J., 2016. E-marketing. Routledge.

Veit, D., Clemons, E., Benlian, A., Buxmann, P., Hess, T., Kundisch, D., Leimeister, J.M., Loos, P. and Spann, M., 2014. Business models. Business & Information Systems Engineering, 6(1), pp.45-53.

West, D., Ford, J. and Ibrahim, E., 2015. Strategic marketing: creating competitive advantage. Oxford University Press.