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Amazon.com PEST (EL) Analysis, Business Plan Example

Pages: 7

Words: 1921

Business Plan

Background

Amazon.com is one of the pioneer companies in the e-commerce industry, and it is currently the global leader in e-commerce ahead of fierce rivals, eBay. The company was established in 1994, based in Washington. The company specializes in the selling of good and commodities over the internet. Founder Jeff Bezos began the company as an online bookstore (Spector 24). However, the company’s unprecedented success necessitated growth, expansion and diversification of its product line. This included the inclusion of new categories within their product portfolio, including electronics, gifts, groceries, music, toys among other products. The company’s growth over the past two decades has led to the expansion into new markets. Amazon developed specific websites for clients based in Japan, France, Canada, Germany, UK, China and the UK (Vergara and Scholz). The company’s vision is to become the world’s largest selection as well as the most customer centric company on the earth.

At the onset, the company faced a myriad of challenges that initially inhibited its growth, development and diversification into other products. At the time, the company faced issues with the management of costs and maximization of profit. Furthermore, at the time, the economy had just experienced the implosion of the dot com bubble. The company underwent considerable restructuring during this period, leading to the company recording $5 million in profits during the 2001’s first quarter (Saunders). This consolidated the company’s business model and a diverse and successful e-commerce business model. This report aims at providing a clear picture of the different factors that affect and influence the company’s performance and growth.

Amazon’s Growth Models

Customer-centric Approach

The company has employed one major growth model that is entrenched in its vision, a customer centric approach to business operations (Stone 11). This approach places the customer at the center of the company’s financial and economic success. This is because the online industry provides clients with variety. A customer-centric approach has helped the business forge its position as the leader in e-commerce in the United Kingdom as well as globally.

Pricing

Since the major restructures done during the dot com bubble burst, Amazon focused on developing a global clientele base by offering competitive prices, relative to what is available in the market. Being a pioneer in the industry, Amazon has opted for a price building strategy where the customers are provided with the option of obtaining several services for one inclusive price (Schepp and Schepp). This helps the business in evading the risk of having stale goods while adding appeal to customers purchasing related services from one provider. This also considerably increases the number of connections that the business has with its clients.

This pricing strategy is influenced by;

  • What image does the company want to be associated with its service?
  • What is the competition that the company faces in the industry?
  • Are economic conditions in the area of operation particularly good or poor?
  • What pricing and marketing strategies are compatible with the business’ other characteristics (location, service reputation, promotions, etc. (Spector)
  • Are there legal factors to consider when establishing price?

Criteria for Business Growth Models

The company has opted to apply this two business growth models for a number of reasons. The primary reasons for the development of these business growth models stems from the company’s need o curve out its own niche within the UK market.

Price

Pricing is currently a determinant of business success with the United Kingdom. With the adjustments made in taxes recently, most of Amazon’s clients and prospective clients have less disposable income for expenditure (Spector). As such, there is considerable need for cost minimization to enhance competitive pricing and as such increase the company’s market share. Recent competition from the rapid growth and development eBay outside the UK market only serves to increase the need for the best price possible relative to the company’s operational costs.

A recent survey showed that Amazon’s pricing strategy is one of the pivotal pillars of its current success. Should the company raise its prices, it would realize a considerable loss of clients as competitors look to gain an advantage over the company within the United Kingdom (Seitz). This resistance to changes in price considerably limits the company’s ability to increase profitability by imposing increases in operational costs on consumers. However, the company focuses on reducing operational costs to the minimum to allow for their current competitive advantage.

Customer-centric Approach

Amazon has a vision of becoming the world’s most customer-centric company. For this reason, the company has placed the customer at the center of its operations, seeking to realize full customer satisfaction as opposed to rapid business growth and development (Seybold 19). This approach specifically benefited the firm during the dot com bubble when most online business collapsed. Surviving the dot com bubble was essential in helping the company develop a huge market share by developing a customer-centric approach.

PESTEL Analysis

PESTEL analysis is a useful tool in defining the prevailing and future trends within the political (P) economical (E), social (S), technological (T), environmental (E) and legal (L) environments. These five factors define movements and events in the company’s external environment. This is crucial in measuring business performance relative to the external environment.

Political

  • The government continues to formulate laws that serve to liberalize the telecom industry, promote the use of e-commerce and legalize all aspects of the industry(Combe). This creates a situation where the company’s clientele and the market receives internet services at a much cheaper costs.
  • Considerable investments by most governments in national Information Communication Technology (ICT) Structures. This also serves to increase internet speeds for internet users, as well as reduce costs.
  • Relaxation of North American and European Union e-retailing competition policies. This serves to help the company expand into new markets in rapid manner(Gosnell).

Economic

  • The United Kingdom’s online retail sales expected to grow by 21.0% in 2015 and by 18.6% in 2016. This is expected to increase the company’s customer base(Thamhain).
  • Currency fluctuation in various currency pairs. This would directly affect customer’s ability to pay for the company’s products and services.
  • The UK has actively controlled interest rates. This affects customer spending habits in the company’s UK market.
  • Reduced consumer spending in the American and Asian markets. This has seen considerable decrease in the company’s sales within these markets. This affects profitability realized within these markets.
  • Social media offers low costs in managing and running the customer care department. Management of such platforms can be effectively accomplished at the comfort of an employee’s cell phone(Trout 21). It requires little man power and resources. It can be an important factor in reducing the company’s costs.

Social

  • Social Media introduced a new platform through which individuals could communicate instantly regardless of the distance between them. Web strategies to help them gain a foothold within the social media platforms, growing its customer base. Since the e-commerce industry is a customer-centric industry, the company’s robust web presence exposes the company to new clientele on a daily basis.
  • Social media has become the primary source of communication in the 21st century, even surpassing traditional phone calls. This offers a platform through which the company can inform its existing and potential clientele of its products and/or services. Successful Fortune 500 companies use these networks to gain an advantage in the market(Sclie, Rheinboldt and Waesche).
  • Financial risk and product category risk reduction. E-commerce has been associated with numerous risks, including financial and product risk. In order to increase their customer base, the company has to considerably reduce financial and product risk.

Technological

  • Internet access has led to the development and enhancement of broadcasting, telecommunications and information technologies(O’Dell and Hubert 35). Technologies such as fiber internet cables have considerably increased access to the internet as well as internet speed. This has increased the frequency and use of the internet, increasing the company’s client base.
  • Development of high speed networks has considerably improved the usability of media applications(Miller 42). This has allowed the company to realize an increase in media-rich content sales by making this content available to the general public.

Environmental

  • The move towards green technology by most online businesses through the installation of energy efficient servers(Fisk 21). The company would have to incur the cost of installing new energy efficient servers or alternatively outsource this function to a third party. This relevant to the company’s vision to become the world’s most customer-centric company.
  • The company currently provides cloud computing solutions to its customers. This significantly reduces the need for electronic devices such as hard disks and flash disks. This enhances the company’s profile as a green company.

Legal

  • General lack of a uniform global legal framework to regulate and control the e-commerce industry. The e-commerce market in the United States is governed by the Federal Trade Commission while it is governed by the Data Protection Act in the United Kingdom.

Summary

The political, economic, social and technological aspects of the company’s external environment all depict underlying opportunities that Amazon.com could exploit to its advantage (Funk). The UK e-commerce market is a rapidly growing market with continual growth as a result of technological innovations that increase accessibility to the company’s products and services. Amazon.com has undertaken a number of initiative that ensure the company mitigates operational costs while maintain its social responsibility to its clients.

The company has a considerable presence within the UK market. The legal framework within the country allows for the company to operate within ethical bounds defined within the Data Protection Act. This ensures the customers any sensitive information shared with Amazon.com is kept confidential. The considerable advancement made with regards to e-commerce and social media would expand the company’s accessibility to its customers. This also allows the company to develop a much stronger web presence. There is an underlying marketing opportunity within social media.

Customer care has evolved from the traditional call centers to the use of social media. Social media offers a spontaneous, conversational and less controlled environment through which the company can communicate with its clients, solving their problems or queries on their products and services.

Works Cited

Combe, Collin. Introduction to e-business : management and strategy. Amsterdam: Butterworth-Heinemann, 2008. Print.

Fisk, Peter. People, planet, profit : how to embrace sustainability for innovation and business growth. London: Kogan Page, 2010. Print.

Funk, Tom. Web 2.0 and beyond : understanding the new online business models, trends, and technologies. Westport: Praeger, 2009. Print.

Gosnell, Denise. Professional Web APIs : Google, eBay, Amazon.com, MapPoint, FedEx. Indianapolis: Wiley, 2005. Print.

Miller, Michael. Selling online 2.0 : migrating from eBay to Amazon, Craigslist, and your own e-commerce website. Indianapolis: Que, 2009. Print.

O’Dell, Carla S and Cindy Hubert. The new edge in knowledge : how knowledge management is changing the way we do business. Hoboken: Wiley, 2011. Print.

Saunders, Rebecca. Business the Amazon.com way : secrets of the world’s most astonishing Web business. Oxford: Capstone, 2001. Print.

Schepp, Brad and Debra Schepp. Amazon top seller secrets : insider tips from Amazon’s most successful sellers. New York: American Management Association, 2009. Print.

Sclie, Erik, Jorg Rheinboldt and Niko M Waesche. Simply seven : seven ways to create a sustainable internet business. Basingstoke: Palgrave Macmillan, 2011. Print.

Seitz, Patrick. “Amazon Prime memberships poised to tumble with price hike.” 12 Febraury 2014. Investor’s Business Daily. Internet Source. 8 March 2015. <http://news.investors.com/021214-689798-amazon-faces-resistance-to-prime-price-increase.htm?ven=yahoocp&src=aurlled&ven=yahoo>.

Seybold, Patricia B. Customers.com : how to create a profitable business strategy for the Internet and beyond. Hamilton: Summaries, 2010. Print.

Spector, Robert. Amazon.com : get big fast ; inside the revolutionary business model that changed the world. Hamilton: Summaries, 2012. Print.

Stone, Brad. The everything store : Jeff Bezos and the age of Amazon. New York: Little, Brown and Company, 2013. Print.

Thamhain, Hans J. Managing technology-based projects : tools, techniques, people, and business processes. Hoboken: John Wiley & Sons, 2014. Print.

Trout, Jack. The new positioning : the latest on the world’s #1 business strategy. Hamilton: Summaries, 2010. Print.

Vergara, Walter and Sebastian Scholz. Assessment of the risk of Amazon dieback. Washington: World Bank, 2011. Print.

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