A SWOT Analysis of the e-retail giant Amazon (2016)
Online retail has grown exponentially in the last decade. At the forefront of this growth is Amazon (NASDAQ: AMZN). Its worldwide presence and popularity both have surged rapidly. 2015 ended at a very happy note for the e-retailer. It was the happiest of all the 21 years Amazon has been in business. Apart from record breaking sales and shipping to 185 countries, Amazon added 3 million new customers to Amazon prime.
Amazon’s story is amazing and apart from a huge network spread throughout the world, the shiniest part of the story is its customer service. It is also a key reason behind its rapid growth. It does not guarantee least prices. However, when it comes to convenience and delivery as well as product quality, it is the best. Stories of its excellent customer service abound. Amazon prime has been successful and so has been Kindle. There are many more strengths of Amazon listed in its SWOT analysis below:
CEO: Jeff Bezos
- A strong worldwide network of sellers.
- Brand image
- Excellent customer service
- A vast range of products
- Focus on quality and customer convenience
- Amazon has seen remarkable growth in the past few years. It has a large and strong network of third party sellers worldwide. The company has acquired a very strong brand image in a short period by being true to its promises to its customers. Amazon has proved itself excellent. It does not guarantee least prices but still there is not a major gap between its prices and the competitors.
- Customer convenience is a key focus area and it has taken an extra step in this direction by adding Amazon prime. Its customers can receive several benefits by paying an annual charge of $99. The benefits include free two days shipping on eligible purchases as well as unlimited streaming of movies and videos with Prime video. Overall, Amazon’s growing popularity is because it has engaged its customers successfully.
- Amazon’s product range is amazingly large; another major strength of the brand. It is supported by a vast number of sellers found on its global network. In 2015 it had net sales of $107 billion and a gross profit of $ 35.4 billion. Financially, Amazon is in a strong position. Its Kindle has been highly successful. In fact, Amazon is considered a pioneer in terms of excellent customer service. In the Asian countries, it has adopted a strategy suited to the needs of the local market. Thus, overall a SWOT analysis of Amazon reveals some excellent strengths. However, behind every big brand is also a big strategy and Amazon is an example of excellent strategy formulation.
- Shrinking margins
- Dealing with issues related to Chinese sellers
- Amazon has solved most of its weaknesses adeptly, even its long term debt. However, despite it, Amazon’s profit margins have remained low. It incurs huge costs on delivery. Its Prime service might help it handle some of the delivery related costs. While its gross margins improved from 2009 onwards, its operating expenses also increased.
- Amazon has let its network be flooded by the Chinese sellers. Its result has been an increase in quality related issues that the company is still dealing with. Its ‘Fire’ phone proved a flop. That was a major setback for the brand.
- Over the course of time, Amazon has registered some excellent wins. There have also been a few setbacks. However, for any brand to overcome its all weaknesses is not possible. Amazon is a risk taker but the reason Fire failed was that it did not have the fire. The result – Customers overlooked it.
- Physical stores
- Expansion through acquisitions and brand’s backward integration
- Amazon could use its physical stores to grow its reach. It sells a vast range of products online. The physical stores can help it further grow its sales. Well supplied Amazon stores, full of a large variety of products can be a major attraction for the customers.
- The brand can also expand its presence in several markets by acquiring other brands or by pushing for further backward integration.
- Diversifying its business into new areas can also help the brand see faster growth. In the Asian markets, Amazon might grow faster and needs to focus on the needs of customers there. The market is full of opportunities and Amazon is trying to reach its customers in new ways using new channels.
- Increased competitive pressure
- Price competition
- The competitive pressure against Amazon is rising. While its smartphone flopped, the number of local competitors in the Asian markets grew. The local brands like Alibaba and Flipkart despite being smaller pose a formidable threat. The threat from e-bay is also strong.
- Price competition is another area where Amazon’s sales are threatened by the competitive pricing of its rivals. Walmart is also trying to make its presence felt in the online environment. Its e-business might be moving slow, still based on the low prices, it can become a major threat in future.
Amazon can add new products to its kitty. It is an established brand name but it can better use its potential to achieve higher profits. The brand can make and sell more of its own products. Its Fire smartphone could not be successful but that must not deter Amazon. There are reasons that its smart phone failed. It was trying to offer a just sufficient product in an era when nothing is sufficient. Now, Amazon has learnt its lesson and knows what its customers expect of it. It should bring great quality products to the market like its most successful ‘Kindle’. Something just as useful and full of quality could again be a hit among the customers. Another area where it remains unbeaten is customer service. It is where it appears to be truly delivering its promise better than most others. Focusing on the Asian markets could help it generate better sales there. Another smart way of increasing sales is the use of smart stores. It seems Amazon is already planning to do something big through its grocery stores. However, it can try diversification to increase its profits and generate new sources of revenue.
[‘SWOT’ is an acronym for Strengths, weaknesses, opportunities and threats. It is a powerful strategic management tool that can help to know one’s important strengths and weaknesses and to exploit the opportunities. It can also help counter the threats. Strengths and weaknesses are internal factors and opportunities and threats external. So basically, SWOT is a tool designed to help you reduce your weaknesses and counter the threats. This can improve the business’ chances of success. Companies conduct a SWOT before they embark on a new strategy or before they make an important business move like investing in a new project.]