Amazon.com Inc.’s SWOT Analysis

Published: 2021/11/04
Number of words: 3156

Contents

Abstract3
Organization Description3
Company Background4
Amazon Mission Statement4
Amazon Vision Statement5
SWOT Analysis of Amazon5
Strengths6
Weaknesses7
Opportunities9
Threats10
Discussion of findings11
Conclusion and Recommendations12
References13

Abstract

This paper employs the SWOT analysis on a top eCommerce company, Amazon, Inc. This study’s objectives resemble the SWOT analysis to build the company’s objectives more realistically. Of importance is that all ecommerce industry players should take the opportunities and advantages as fast as possible and move beyond competition, considering how technology keeps changing the industry’s landscape. Knowing the Strengths, weaknesses, opportunities, and strengths is essential to understanding the future risks with the users or customers being the source of information. Amazon Company also uses SWOT analysis in various situations such as strategic planning, initiating external and internal mutual action, and communication management. For the vase of a company like Amazon, Inc., SWOT analysis is more automated and systematic ad it is an opportunity for the company. This analysis could be used by Amazon as a brainstorming machine to solve problems and revising plans to better their systems.

Organization Description

Amazon Company is based in Seattle, Washington, United States, and has a total of 750,000 employees. Amazon is the largest company in the e-commerce industry and has offices and warehouses spread across the world. As of 2019, Amazon had 288 million sq. feet of offices and brick and motor stores. Jeff Bezos started Amazon as a bookstore in 1995 and has grown to become one of the leading companies in the online retail industry in the world. The company trades under the ticker name NASDAQ: AMZN. Based on the 2021 first quarter results announced by Amazon, the company increased its operating cash flow by 69 percent to $67.2 billion for the trailing 12 months compared to 24.3 billion for the trailing 12 months that ended March 31, 2020. Amazon has an operating income of $8.9 billion and a net income of $8.1 billion with outstanding common shares and shares that underlie stock-based awards totaling 519 million on March 31, 2021.

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Amazon expanded its services thanks to the rapid internet growth, and the company’s book stores, online retail businesses, media, and I.T. services expanded. Some of the paramount business strategies of Amazon include its global footprint, aggressive pricing strategies, obsession by customers, innovation, commitment to efficiency in operations, and long-term thinking. Amazon has started creating a formidable ground in physical stores cashier-less in the U.S. (Gold, 2019). Amazon’s concentration is on the new business market establishment for the expansion of its global supply chain network. Despite interrupting growth by the company, its generic strategy for developing excellent ideas and the creation of competitive advantages are majorly based on the internal and external factors presented in the discussed SWOT analysis.

Company Background

Amazon started as an online shop for only books before the company expanded its operations to sell software, apparel, electronics, furniture, video games, food, jewelry, and toys. The company officially went public in 1997 and started selling videos and music in 1998 before it went international with bookselling. Amazon Web Services (AWS) was started by Amazon in 2002 to provide patterns on the internet traffic to developers and marketers. The company expanded its AWS portfolio to include simple storage services and an elastic compute cloud that used the internet to rent data storage.

Amazon Mission Statement

The mission statement of Amazon is to continually improve customer experience by using technology and the internet to help consumers in discovering, finding, and purchasing anything, and empowering content creators and businesses for the maximization of company success. Amazon Company aims to be the most customer-centric company in the world, a statement echoed by the company’s executives and embodied in their daily activities. Amazon continues to push at the technological boundaries to explore digital services and infrastructure which are able to boost the economies of the countries in which they operate and improve customer experience (Robischon, N., 2017). The digital empowerment of businesses and customers by Amazon improves the standards of living for people and their productivity and economic competitiveness in a global economy.

Amazon Vision Statement

The corporate vision of Amazon is to become an organization that is centered on customers. Customers should be able to find any products they want to purchase online. Amazon’s main objective of becoming the best company globally in e-commerce is underscored in its vision statement. The conspicuous components identified in the organization’s corporate vision statement include the customer-centric approach, global reach, and to possess the widest selection of products (Chowdhury, 2016). The global reach aspect of Amazon entails international leadership in the e-commerce market with a strategic objective of global expansion. A corresponding component is customer-centric, where Amazon considers customers first in the online retail business, evidenced by the company’s stakeholder’s corporate social responsibilities. The vision statement underscores business growth efforts and broadening the product mix.

SWOT Analysis of Amazon

Strengths

Cost leadership

Innovation and Diversification

Strong brand

A large number of third party sellers

Weaknesses

Weak profitable margins

Imitable business model

Limited brick and mortar presence

 

Opportunities

Establishing physical stores in international markets

Expanding to developing markets

Self-driving technology

Threats

Cybercrime

Fierce competition

Regulatory pressure

Strengths

By effectively utilizing its strengths, Amazon.com Inc. has grown rapidly. Amazon’s three key businesses, Amazon Marketplace, Amazon Web Services (AWS), and Amazon Prime, work and support each other to generate massive profits and benefits for the company. The company bolsters its operations through these strengths. A robust brand is one of the company’s greatest advantages. This strength can be attributed to the rapid growth of the business, especially in its incubation years. Amazon has gone ahead to use this to become the most valuable brand globally and pioneers in claiming over $315.5 billion in 12 years. Confidence among the users is inspired by brand recognition, and this has enabled the achievement of substantial growth by Amazon over a short time. Amazon has also maintained its success thanks to innovativeness and diversification.

The operations at Amazon have tremendously improved the company from its initial business model of online bookselling to online retail merchandising with a wide products and services range such as Information Technology, cloud computing services, and electronics. The company is continuously creative in its additions of products and services to attract more consumers. Therefore, through diversification and innovation, the company remains competitive and well-equipped to make more profits. Cost leadership is another crucial strength that helps the company remain profitable and competitive. Amazon has remained distinctive and competitive due to its cost initiative strategy.

This technique has enabled it to establish vital partnerships with other influential organizations in providing unrivaled customer service. Its relationships with logistic providers provide a suitable platform to control costs and create a substantial value chain. Besides, selling almost everything online reduces the cost of maintaining physical stores considerably. This strategy allows the company to have economies of scale, which contribute to reduced inventory replenishment time. Amazon has a large number of third party sellers who have joined the platform to sell their merchandise, which also reveals the company’s strength and is mainly due to the high traffic volume on Amazon’s sites. Data collected from Fulfillment by Amazon (FBA) reveals over 2 billion third-party sellers affiliated to Amazon, Inc. The superior and highly efficient logistics and distribution systems by Amazon enable the company to secure and execute fast delivery of goods and products to the customers.

Weaknesses

Amazon’s weaknesses represent obstacles that hinder its business growth and expansion. Ideally, they are internal factors that impose challenges in improving or growing the business to the desired levels. The company has an easily imitable business model, with online retail businesses becoming quite common in the digital space. So imitating Amazon.s business model by rivals is easy. Already, there are a few businesses that are challenging Amazon’s dominance which include eBay, Oyster, Netflix, Barnes & Noble, Hulu, and etcetera. Arguably, the eCommerce industry has limited barriers to entry, and other firms can establish their online platforms quickly. In this way, an ordinary business model allows other firms to force a considerable challenges to other established e-commerce companies, such as Amazon. Therefore, emerging competitors make amazon’s future online market dominance shrink.

Undoubtedly, Amazon has a weak operating margin. Even though Amazon has dealt with most of its weaknesses adeptly, its profit margins remain low. The company reported a 3.8% operating profit margin in 2018 obtained from more than $51 billion in sales. This figure was the highest operating profit margin since 2016, although it is small compared to other companies, such as Facebook. The thin operating profit margin is a result of its cost leadership strategy and free delivery. Shrinking operating profit margins exposes a company to various market pressures and changes.

There have also been cases of product flops and failures, as evidenced by Amazon’s Fire Phone’s launch in the United States while there was no growth for its Kindle fire devices. Cases of tax avoidance in countries such as Japan, U.S., and U.K. also pose a weakness to Amazon, sparking negative publicity. Amazon has a limited number of brick-and-mortar stores which sometimes is a hindrance t customers who lie to shop at physical stores. With the rise of its product offerings, Amazon is finding it challenging to vet every product and guarantee the highest safety levels. Amazon has recently been ordered by the United States’ Environmental Protection Agency (EPA) to remove a broad range of pesticides and unsafe products on its platform, citing consumer safety issues. Amazon is also facing antitrust charges in the European Union for the collection and usage of third-party data without the owners’ consent. If found guilty, Amazon risks losing up to 10 percent (28 billion USD) of its 2019 annual revenue totaling 280 billion.

Opportunities

Amazon has many opportunities that it can utilize to improve its business performance and enhance the quality of its services. Opportunities in SWOT analysis represent the external forces that a firm employs to bolster its business. The first opportunity Amazon has is an expansion to developing markets. Admittedly, the company has the potential to penetrate emerging markets before other large e-commerce companies take root. Thereby obtaining a considerably stronger competitive advantage. According to Lipsman (2019), global e-commerce is expected to grow substantially in the future due to the rapid increase in internet connectivity worldwide. Therefore, Amazon has a suitable opportunity to extend its products and service to untapped markets.

Depending on e-commerce as the only business model has cost Amazon a considerable amount of profit. However, the company has an opportunity to bolster its thin operating profit margin by establishing physical stores in different parts of the world. The company has customers in nearly all parts of the world; therefore, more physical stores, in addition to Amazon Go stores, will serve them and attract more consumers. Through physical stores, Amazon will expand its loyal customer base and help them connect with the brand. Amazon has the opportunity of improving technological measures and organizational policies for the reduction of counterfeit sales. Amazon’s self-driving technology is also a great opportunity for the company, especially after their recent $1 billion acquisition of a self-driving startup Zoox Inc. which allows for leveraging of autonomous technology for exploiting the increase in demand for ride hailing services or the improvement of its delivery network (Paulico, 2019). Additionally, more such acquisitions will increase Amazon’s market share and reduce the level of competition.

Threats

Amazon encounters various threats corresponding to business operations in diversified markets and industries. Threats are primarily external factors that limit the company’s objectives to enhance its development and performance in various sectors. Competition remains a notable threat against Amazon. Firms such as Walmart, eBay, Costco, Alibaba, Microsoft, Apple, and Netflix create a robust competitive force against Amazon. E-commerce competition focuses mainly on the distribution of digital content, provision of information technology services, and selling consumer electronics (Khan et al., 2015). With more companies set to join the e-commerce industry, Amazon will have to develop more strategies to withstand strong competitive forces from such companies.

Cybercrime is also one of the pertinent threats to the growth and development of Amazon. According to Olenski (2016), over 45% of Americans have retracted from online activity due to cyber-related criminal activities. Large and small-scale businesses are losing more than $5 million in stolen data, while others have reported losses exceeding $100 million due to cyber-crime. Identity theft and hacking are also cyber-crime issues affecting consumers and businesses. Cybercriminals mostly target security, customer confidence in the industry, and the integrity of a company (Olenski, 2016). Since trust and loyalty are essential areas for digital marketers, firms should prioritize data security in a bid to build consumer’s faith. Threats emanating from the growing number of legal and regulatory pressures inhibit development and performance objectives for established technology organizations, including Amazon. Certain regions, such as the European Union, have often been changing, making technological firms experience various challenges in conducting their businesses in such environments. Hefty fines, legislation counters tax, and other intergovernmental regulations have hindered Amazon’s penetrating plans multiple markets.

Discussion of findings

Creating a competitive advantage is a strategic weapon that every business endeavors to develop to survive in today’s tough corporate world. Amazon can continue to dominate the online retail market by integrating technological transformation into its business model, boosting its financial strength, and developing strategic leadership. Technology is unquestionably a critical factor in the e-commerce industry. Amazon must continue investing in modern and digital technology to enhance customer experience and strengthen online payment avenues. Moreover, the company needs to invest in artificial intelligence and machine learning to become more competitive.

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Although Amazon has a registered impressive growth over the years, it needs to revolutionize its business model to increase its operating profit margin. Financial strength is a unique advantage as it allows organizations to make more investments, establish intense research and development strategies, and develop new products and services. In this way, Amazon will enhance its revenue generation capacity and strengthen its competitive advantage. An excellent strategic leadership will allow Amazon to identify suitable and long-term business models, making the company more competitive (Aćimović et al., 2020). Amazon will develop strategies to enhance customer experience, establish appropriate pricing techniques, and expand to new markets with reliable leaders. Therefore, Amazon will continue to dominate the e-retail industry and improve its competitive advantage through strategic leadership.

Conclusion and Recommendations

In conclusion, from the stats on revenue and sales figures of Amazon Inc., it is evident that the company is a global e-commerce and retail giant. Coupled with its cost leadership in the eCommerce industry, Amazon has managed to claim the biggest market share in the industry. The SWOT analysis clarifies Amazon’s current standing. Some of the recommendations to Amazon can implement to strengthen key areas is by strategically dealing with global controversies like tax issues to diminish negative publicity. The company also needs to enhance its strategic entry into developing countries since they carry immense untapped opportunities. The company needs to boost its marketing efforts and promotions to consolidate its market dominance.

References

Aćimović, S., Mijušković, V., & Milošević, N. (2020). Logistics aspects of goods home delivery: The case of Amazon Company. Marketing51(1), 3-11.

Chowdhury, B.N., 2016. A critical analysis of customer loyalty and customer satisfaction-a case study on Tesco Club Card (Doctoral dissertation, University of East London).

Gold, M. (2019, May 8). After a messy breakup with New York, Amazon is back with a cashier-less go store, New York Times. Retrieved from https://www.nytimes.com/2019/05/08/nyregion/amazon-go-nyc.html.

Khan, U. A., Alam, M. N., & Alam, S. (2015). A critical analysis of the internal and external environment of Amazon Inc. International Journal of Economics, Commerce and Management, 3(6), 955-961.

Lipsman, A. (2019). Global e-commerce 2019: Ecommerce continues strong gains amid global economic uncertainty, eMarketer. Retrieved from https://www.emarketer.com/content/global-ecommerce-2019.

Olenski, S. (2016, August 4). The effect of cyber-crime on online shopping, Forbes. Retrieved from https://www.forbes.com/sites/steveolenski/2016/08/03/the-effect-of-cyber-crime-on-online-shopping/#4a524ecd2b87.

Paulico, J. P. I. (2019). Legion business plan: an online clothes company (Doctoral dissertation).

Ramady, M. A. (2018). The Amazon IPO: Governance, Listing, Options, and Policy Implications. In Amazon Inc. 2030 (pp. 167-248). Springer, Cham.

Robischon, N. (2017). Why Amazon is the world’s most innovative company of 2017. Fast Company Magazine2.

Smith, K. T. (2003). The Marketing Mix Of Imc: A Move From The 4 P’s to 4 c’s. Journal of Integrated Marketing Communications, 1-3.

Šproch, F., & Nevima, J. (2021). Increasing Competitiveness Through Innovation in an Industrial Enterprise–A Case Study of the Company Massage. Advances in Science and Technology. Research Journal15(1), 110-125.

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