A Case Study of Porter’s Five Forces on amazon.com
Porters value chain analysis Coursework sample
Porter’s value chain model envisages the specific activities by which firms gain sustainable competitive advantage .The value chain describes activities with in or around an organization which together creates product and service. The value chain model is used to analyze a firm internally. (Jonhson.G 2005)
The value chain shows how a firm manage its primary and support activities in order to get profit .The linkage between the activities are useful for corporate success .the linkages are flow of goods and services and information. The marketing department in Amazon gathers the information about customer taste of product and services, operations, logistics and sales follow that.
Amazon creates value by expanding its inbound and outbound logistics. As Amazon is already established in more than 60 countries its highly developed distribution network creates high value in the retail business.
Besides the distribution network the marketing activities of Amazon saves a lot of cost by using web as a marketplace. Introducing new product-lines and services to target the techno friendly customers all over the world .The marketing activities stresses on promotion of the features of the product new technology. The global emergence of increasing number of internet users proves how marketing activities create value for customers. The high-tech customer friendly services like use of email and telephone prove highly informative to the customer and help him in researching the required product .Automated order processing and confirmation, online tracking, single click purchases and payment system creates value by simplifying the payment systems. The value chain of Amazon shows that the contribution of support activities is 40% and primary activities is 60 percent.
Inbound logistics —15% marketing and sales—- 25% Services ———-20%
Coursework Sample on Porter’s 5 five forces on amazon.com
The five forces identified by porter will throw light on the intensity of competition and hence the profitability and attractiveness of the online shopping business.
The five forces models on Amazon implies that 2 forces like competitive rivalry and threat of new entrants have high influence but rest of the forces have weaker impact .We can establish from analysis that market is attractive and does not requires any special investment. The increasing number of internet users provide new markets all over the world .Amazon was established in 1997,It is the biggest online retailer ,which has brand loyalty ,distribution network and can further reduce the bargaining power of suppliers .Though facing stiff competition from the players like Google and E-bay it is still in a strong position. This is highly growing market, firm has reasonable share and has established itself as a brand .To sum up we can conclude that Amazon has plenty of strategic options.
Five forces model
Threat of new entrants (high threat )
The competition in this industry is higher, the easier is it for other companies to enter .The new entrants destroyed the market shares, prices and customer loyalty .they add a latent pressure for reaction and adjustment for the existing players like amazon.
Low barriers of entry and exit
Economy of scale yes
Investment and fixed costs low
Cost advantages of existing players medium
Brand loyalty medium
Distribution channels owned high
Low switching cost
Competitive rivalry (medium)
High competitive rivalry between existing players in term of price and customer service.
Player of same size ——-except Amazon all players are nearly of small size and growing
Players have same strategy yes
No differentiation between products, hence there is price competition yes
This market is growing rapidly due to increasing net users
Low barriers to entry yes
Bargaining power of suppliers low
· There are a lot of suppliers who want to use internet as a marketing channel
· Suppliers are fragmented so bargaining power is low
· Switching is low
· There is possibility that supplier can forward integrate by using their own website (high)
· Buying industry has higher profitability than supplying industry
· Buying industry has low barriers to entry and exit
Low threat of substitutes
Amazon targets end customer which purchases in small volumes
Bargaining power of buyers
Low: Amazon targets end customer which purchases in small volumes
Amazon’s Value chain homework
SUPPORT ACTIVITIES
· Firm infrastructure one of the large-scale retail companies to sell over the web, hit 4billion dollar online revenue, largest retailers on earth. Presence in 60 countries.
· Human resource management increasing number of employees 2000 employees
· High investment in information systems
PRIMARY ACTIVITIES
Inbound logistics and out bound logistics
Expanded its warehousing and distribution capabilities 8 warehouses, lean inventory management.
Operations
Development of new product lines and services online.
Marketing and sales
Differentiated websites (jewelry, books, travel,music,personal care)
New sites like online auctions
Promotion on internet
Lowering the prices
Focusing on reducing business intermediaries and selling directly to the customer.
Selling all the products on the same place (online Wal-Mart)
Services : Use of email and telephone ,automated order processing and confirmation ,online tracking ,single click purchases and payment system
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