Competition, Social, & Economic Factors
Competition, social, and economic factors play a major role in Amazon’s success. In this section you will find some companies that are in competition with Amazon. We will also look at the demographics of the consumers. In looking at the demographics of consumers you will find what population tends to buy from amazon, along with information on the ages of the customers for Prime and Non-Prime members. After the demographics, you will find the organizational structure and the entrance and exit strategies of Amazon. The last thing that will be looked at will be the government structure and economic indicators of Amazon.
Competition
Amazon is an online retailer and one of the largest e-commerce company in the United States. The company sales wide range of products but their biggest sellers are media and electronics, so it’s no surprise they would have a host of competitors trying to push them out of the top spot.
Let’s start with the media industry. There are several key players in this field that is competing with Amazon.
• eBay
• Netflix
• Time Warner Cable
• Apple with iTunes
• Google
Electronic is another host of competitors they are up against.
• Best Buy
• Walmart
• Overstock
• Wayfair
• Zulily
It’s not hard to understand why they have so many competitors. Investopedia reported in 2017, “Amazon reported $161.15 billion in revenues; it had a market capitalization of $885.22 billion as of July 16, 2018”. (Segal, 2018) In 2016 Wal-Mart was ranked 4th in online sales reporting, “$13.7 billion compared to Amazon’s whopping $92.45 billion”. (Masters, 2016) Wal-Mark is working hard to become the first alternative to Amazon. Wal-Mark purchased Jet.com in hope that this will give them the competitive advantage over Amazon.
eBay and Amazon both do online shopping and auctioning. The main difference between the two is their business model. eBay process in the auction is just to facilitate the sale between the buyer and seller. Amazon maintain their own product in their warehouses. They do have a small of product that would be coming from a third-party seller. Investopedia reports the breakdown of the selling price, “Sellers through eBay pay an insertion fee for listing items for sale on the site, and they pay 10% of an item’s sales price back to the company, up to a maximum of $250 per item. Sellers through Amazon do not pay to list items for sale, but Amazon assesses a flat fee of $0.99 per item sold. In addition to the flat fee, Amazon keeps a percentage of the total sales price of an item, ranging from 6 to 25%”. (Investopedia, 15)
Demographics of Consumers Amazon has a wide range of consumers due to the amount of product they offer to the public. In the United States their loyal consumer base is 40 and up and seniors 60 and up find the site to be very appealing. Business Insider recruited comScore to show the breakdown of US customer for Amazon.
Figure 1
Amazon Prime is very popular for the company. Membership has steadily been increasing every year and they notice that prime members spending an average more than regular customers. The are willing to pay a membership fee of $99 every year so their product can be shipped in two-days for free. The member also allows members to access a large amount of music, movies and TV shows. BI reports, “there are 58 million Amazon Prime members worldwide, which is roughly 22% of the company’s total customer base” (Smith, 2015).
According to Epsilon, a Global Marketing Firm, Amazon shoppers in the United States tend to be wealthier and more educated than the general population, (Nanji, 2018). Epsilon also states that the demographics are the ages of 45 to 64 years old, that they are married, over half of the consumers have children, and half have a college degree, (Epsilon, n.d.). The financial part of Amazon consumers, according to Epsilon, is that the income is greater than $100K that 80% of the consumers are homeowners, half of the consumers have a $500K plus net worth, and they are three times more likely to have resources of $750K or more. The lifestyles and interests of the consumers at Amazon are more likely to have an interest in science or new technology. They are also more likely to have a travel and entertainment card, and that they have the preference to do internet research before shopping.
Organizational Structure
According to Meyer, “Amazon.com Inc.’s organizational structure enables extensive control on global e-commerce operations,” (Meyer, 2017). The organizational structure establishes how the system of interactions among members of the firm should go and how the design of the firm will be. With Amazon’s structure, it determines how managers direct and influence operational activities in various business areas, (Meyer, 2017). The organizational structure of Amazon can be classified as hierarchical, (Dudovskiy, 2018). Hierarchical business structure means that the chain of command looks like a pyramid, with a base of workers that will be supervised by the smaller level above them, and they will be supervised by the level above them, continuing to the top ranking officer which will be the President or CEO of the company, (Hierarchical, 2018). In this figure below, it will show what Amazon organizational structure looks like. Figure 2.
Entrance ; Exit Strategies
Smithson states that according to Porter’s Model, Amazon uses a generic strategy for competitive advantage, (Smithson, 2017). The generic strategy that they use is cost leadership. Cost leadership is used to minimize operational cost, which is the objective in Amazon’s generic competitive strategy, (Smithson, 2017). With this strategy, it enables the e-commerce business to offer goods and services at affordable rates and this intensive growth strategies are responsible for business growth and expansion, (Smithson, 2017). The benefits from process automation, is generally used in purchase processing, scheduling, and other operational processes, (Smithson, 2017). Amazon uses these benefits to minimize the cost of its online retail and other services.
The continuous improvement of information technology infrastructure is the strategic objective linked to Amazon’s cost leadership generic strategy in building e-commerce competitive advantages, (Smithson, 2017). Amazon.com Inc.’s mission statement and vision statement will continue to be fulfilled due to the generic strategy of cost leadership, and competitive advantages. This is especially true regarding online retail global growth and leadership. Amazon.com Inc.’s intensive growth strategies use market development, market penetration, product development, and diversification, (Smithson, 2017). With the effective implementation of its generic competitive strategy and intensive strategies for growth, has allowed Amazon.com to succeed in the global e-commerce market, (Smithson, 2017). Government Structure & Economic Indicators
The government have several roles in all businesses. Some of the things that the government regulate are the permission to form which means that they need to register with a state government to operate, (Greechie, 2018). They also enforce contracts so if one party fails to do what they said and do not meet its obligations under the contract, then the other company can take them to court by using the legal system for enforcement. The government also helps with consumer protection, employee protection, environmental protection, taxation, and investor protection (Greechie, 2018). As for Amazon, the government would do all of these.
One economic indicator for Amazon is that they saw a 39.34% year on year Revenue increase in the second quarter 2018, (CSIMarket.com, n.d.). According to (CSIMarket.com, n.d.), Amazon.com Inc outperformed the 35.46% improvement in Internet, Mail Order, and Online Shops industry, and had a 12.6% improvement in the Retail sector. The overall market growth of 6.69%, was elevated by the above average sales in Retail, Internet, Mail Order and Online Shop industries. Amazon profitability comparison is another indicator. Due to the increase in demand and cost control, Amazon.com Inc. had an increase in profitability, (CSIMarket.com, n.d.). Their operating margin grew in the 2nd Quarter from 3.78% in the 1st Quarter to 5.64% for the 2nd Quarter, (CSIMarket.com, n.d.). Amazon.com Inc. currently has a net profit margin of 4.49% and ranks number 2 in the Internet, Mail Order, and Online Shops industry. In the Retail sector they rank number 22 and they are number 884 in the S&P 500.
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