Key drivers of change Technological most important aspect of Amazon’s Pestle factors: Key drivers for change: * /Internet penetration rates * Web development e-commerce * Protecting their patented software and not being imitated easily by competitors. E-commerce-Bezos understanding of e-commerce through knowledge of web users and the web that has made amazon a dominant company on the web . ’(pg 27 Saunders 1999) ,Branding of the website is important . (Pg 91 saunders) Commitment to e-commerce has to be maintained, by keeping ahead of the technology curve, Amazon’s one-click technology is important in keeping customers visiting. pg 32-33 saunders ) Porters 5 forces analysis The threat of Entry * How will new entrants into the market overcome barriers to entry * High barriers to entry are good for existing competitors and amazon. Barriers to entry are * Scale and experience Economies of scale , when Amazon reach high level production It will be hard for new entrants to match them, experience curve effects help Amazon to have learned how to do things more efficiently than new entrants.
Whilst the new entrant is building up experience it will be doing so at a higher cost than Amazon. The threat of substitutes Price/Performance ratio * Barnes and Noble, in store availability of books, although more expensive, could be more convenient to consumers, have the option of not giving over credit card details. as well as trying the product out before they purchase it. * Auto trader, HMV could potentially offer a better service as HMV, as they have stores which could be more convenient again for onsumers. * Consumers could opt to go to cinema rather than buy from Amazon for videos. Extra Industry affects Amazon will have to be aware of substitutes away from their own industry such as search engines that could set up a similar service to their own e. g Yahoo. com. The Power of Buyers Low switching costs Our result indicates that buyers explore and try a vast number of available options in their early experience of the market but tend to seek relational exchanges as their experience matures
Our finding is contrary to what is observed in popular online markets for physical goods such as eBay and Amazon: buyers are interested in maintaining recurrent business with a limited number of providers (Wolf,E,2010,Move to depth:Buyer Provider interactions in Online service Marketplaces E-service Journal, Vol 7,pg 2-14,Ebsco ) By acquiring book pages and Telebook defended consumers buyer power even more so in relevance to low switching costs ( Amazon case study) ,in 1997 they had lowered prices even further certain books had up to 40% off, in which encouraged repeat purchasing.
An associates program was launched so Amazon could help small merchants, so that they could link to Amazon. com to sell from its data base and they receive a commission from each sale. The idea behind this is so that more people would buy from Amazon and it stops Consumers from switching( The power of suppliers * Amazon created a good relationship with wholesalers and shippers from the start. * Private investment of $1. million dollars and $8 million of silicon valley at start up * $50 million worth of shares enabled an aggressive expansion of the business * Designates its maintenance of inventory to others, storage space isn’t an issue. * Amazon are dependent on wholesale distributors such as Ingram ,independent publishers and music and video companies for the stock it sells therefore saving Amazon a major cost in terms of allocation. * In 1999 Ingram provided 50% of Amazon’s book titles, barnes and noble threatened to aquire it, Amazon it would seem are dependent on these retailers. However Amazon can find another book supplier but the suppliers may become competition as they could cut the middleman out (Amazon ) and utilise forwards vertical integration by selling directly to consumers. * Amazon in a weak negotiating position with suppliers as there isn’t many book suppliers. Competitive rivalry * The industry growth rate was high, World wide web had a fast growth rate, predicted at 2,300 percent monthly * Barnes and noble could have been considered a threat as they had infrastructure as well as a online arm * E-bay only focused on online auctions, in which was only a small area of Amazon’s business model. With customer experience costs largely fixed, Amazon’s costs as a percentage of sales can shrink rapidly as they grow their business. * Amazon continued to lower prices as well as free shipping on orders over $25. (This allowing Amazon to increase their volumes of output , this leading to price wars and increased competition. * Amazon is seen as ‘Virtual’ i. e it has no brick and mortar stores like competitors ( barnes and noble ), as well as no storage costs.
Thus enabling them to invest more capital into enhancing its brand and website. * There is Low differentiation in Amazon’s industry in terms of online auctions as customers can easily switch between them and E-Bay as well as online book sales as they can switch to rivals such as Barnes and noble, although Amazon was able to undercut their rivals as they competed on price, By having no high costs in terms of storage of stock or buildings they could pass this benefit onto customers. Referring to competitor Barnes and noble’s 1999 company report they had other costs , such as rental space and the costs of opening up new stores , Barnes and Nobles costs of sales an occupancy increased from $2. 413 billion in 1998 , whereas inn 1999 it was $2. 019 million, this indicating that they had high fixed costs. And Amazon could therefore capitalize on this as their costs of sales were a lot less. * Competitors such as barnes and noble would have High exit barriers as they have a lot of assets through their stores that others may not buy.