Amazon has experienced several ups and downs from its inception, but today, it stands out as one of the top companies globally.
A SWOT analysis reviews the strengths, weaknesses, opportunities, and threats a business is exposed to. In this piece, we will look at Amazon’s SWOT analysis and take a deep dive into some of the things that make Amazon a standout performer in the otherwise competitive technology industry today.
Amazon is an American Multinational Technology company based in Seattle, Washington, US. Jeff Bezos founded it on July 5, 1994. As of December 2020, the company had employed 1,298,000 employees all over the world.
The public company operates in many niches like digital distribution, e-commerce, consumer electronics, cloud computing, and AI. At the moment, Amazon is the fourth most prominent company globally regarding market value. It falls third in the hierarchy of valuable brands around the globe.
In 2020, the multi-national company had a net income of $21.331 billion and net revenue of $383.064 billion. As of February 2021, the company had a market cap of $1.65 trillion. Its primary competitors are Google Play store, Walmart, Netflix, eBay, Alibaba, Tesco, and Flipkart.
Amazon has more than 100 million subscribers and 310 million active users worldwide. When he started the company, Jeff Bezos set it out as a bookstore. Over the years, it has grown to become a top online retailer selling everything from A to Z, as displayed in its logo.
As is with all businesses, Amazon has its strong points, which have made it a top online retailer.
Strong Brand Name
Amazon is a global e-commerce giant. Nearly everyone knows Amazon or has heard of the name somewhere. Amazon has a successful brand image and a strong position in the market. It firmly entrenches itself as the dominant online retailing marketplace in America, with its close rival being Alibaba.
The firm brand name and position could be attributed to its corporate ethos of robust efficiencies. Such are present in the course of its operations; Amazon holds 45% of the e-commerce market share in North America.
Innovation and Differentiation
Amazon knows how to stand out from the pack. It brings innovative additions and creative ideas to its service offerings and product line. A while back, it introduced the Withings Aura Smart Sleep System and the ambitious drone delivery service. These and other innovative ideas are what set it ahead of the competition as they continuously find impressive ways to solve their customer’s pain points.
Amazon sells everything online. It does not incur any costs for maintaining physical retail stores. The company uses its economies of scale to lower its replenishment time and control its costs.
Besides, it collaborates with different companies to build a solid value chain system, which helps maintain a low-cost structure.
Global and Local Reach
Amazon has a strategy that requires it to go global and act locally. By partnering with local supply chain companies, it competes favorably with domestic e-commerce rivals.
Amazon takes time to study a specific geographical location’s needs and rolls out services tailored for the people living there. For instance, in India, it came up with a campaign named Aur Dikhao. This campaign depicts ordinary-looking Indians in different situations where they want more choices. It worked well to propel people from India to search for more of its products.
Amazon runs three main business models; Amazon Prime, Amazon Web Services, and Amazon Marketplace. All these three are crucial and work holistically for the benefit of the company. They generate significant profits and advantages for the company.
Excellent Distribution and Logistics Systems
Amazon has adopted a highly efficient distribution and logistics system. It has fixed rates for different delivery periods. Consequently, it executes secure, reliable, and fast delivery of products and goods to its customers.
Wide Selection of Merchandise
Amazon has an extensive product mix. The wide variety attracts online customers to make purchases from them instead of other online retailers.
No company is perfect, and Amazon has its share of weaknesses that derail its progress in some instances. They include;
Great Focus on North American Market
A larger percentage of Amazon’s focus is on the North American market. This leaves its competitors with the freedom to acquire other emerging markets. The international marketplace keeps on expanding, and with the global rise of internet connectivity, technological penetration, and income per capita, it can prove to be a huge downside.
Amazon is deeply entrenched in shipping and logistics. Even if most customers pay for the delivery of an item, Amazon often includes free shipping in a number of its products. Keeping in mind that Amazon has assigned third-party companies the shipping role, it cannot do much to control this part of the revenue model.
Amazon, therefore, incurs a loss of revenue due to the free shipping feature. The risk of fluctuating costs when shipping also leaves the company at a loss. In 2020, the shipping costs rose from $37.9 billion to 61.1 billion.
Working Conditions of Amazon Staff
Amazon has been in the spotlight for its labor practices and policies. This is even after increasing the minimum wage to $15 per hour. Amazon warehouses have placed increasingly burdensome and stringent working conditions on its staff to ensure goods are delivered on time. The pressure becomes even more during peak times like Black Friday and holiday seasons.
The workplace injury rates at warehouses operated by Amazon are the highest in the USA. Amazon has been accused severally of imposing practices that exploit the staff. According to Reveal, Amazon had an injury rate of 7.7% in every 100 workers in 2019.
Most online buyers rely on reviews to verify the deliverable and authenticity of a product. It is these reviews that have been giving Amazon a competitive advantage. You could find a product on Amazon with a few hundred reviews while the same product in a competing platform has tens of them.
But, most of these reviews are fraudulent. The third-party sellers and the top independent sellers at Amazon are known for deploying dishonest tactics. CNBC says Amazon has got rid of over 20,000 product reviews.
Profit Is a Problem
Unarguably, the revenues at Amazon are the largest in the world. Still, the company has a weakness in garnering profits. The most profitable unit in the company is Amazon Web Services. If AWS experienced a huge issue that affects its profitability, then the whole company will feel the weight of the negative impact; talk about carrying all your eggs in one basket.
The opportunities are the external factors it can exploit for its benefit and profit. Amazon’s opportunities include;
New markets are coming up. Such opportunities can help Amazon broaden its market share. Maybe this is what will make Amazon the most extensive company in the world market. With an expanded market, Amazon can increase its volumes and stamp its authority as the largest e-commerce company globally.
Not so long ago, Amazon brought up the idea of a podcast system. They plan to merge the podcast system with their existing music platform- the Amazon music platform. This will place them in a position to compete with music platforms like Spotify. Also, this can be an excellent complementary service to Amazon’s Alexa.
The major cloud service providers are Google, Microsoft, and of course, Amazon. Many businesses realize how cost-effective, scalable and flexible cloud computing is and switch to it. The trend of working from home has also led to an increase in the revenue service providers receive. Since cloud computing is here to stay, Amazon should capitalize on it.
Customers are starting to order more groceries online frequently. Amazon should use this chance to make headway as physical stores try to catch up. According to a survey by eMarketer, 62% of grocery customers rely on Amazon, then Walmart and Target.
Some of the external factors that Amazon should be wary about include;
Cybercrime is the biggest threat to Amazon’s success. The company is a huge target of identity theft and hacking. Amazon holds customers’ crucial data like home addresses and credit card numbers. A data breach would leave the data of its consumers exposed. Amazon has to ease consumer concerns quickly on its site. It should see to it that online security and privacy are upheld as cybercriminals remain innovative and always come up with new exploits.
Lawsuits from Rivals
Amazon has aggressive pricing strategies. The company has been the subject of multiple lawsuits from competitors and publishers across the globe. This is particularly due to their cost leadership strategy that is at times deemed unfair by competitors.
Amazon faces competition from local online retailers who are more nimble and agile than their strategies and operations. This means that even if Amazon is in pursuit of a global approach, it cannot lose sight of its local market conditions.
Also, there are some areas Amazon is lagging. In the world of digital streaming, Amazon is way below Netflix. Other companies like HBO Max, Disney, and Apple TV are also coming closer. Amazon has also ventured into self-driving electric cars. In 2014, the company got itself Zoox– an autonomous driving startup-at $1 billion. When compared with Tesla, Zoox is way behind. Such competition in select niches can prove to be overwhelming in the long run and derail Amazon’s progress.
The authorities have made a lot of noise about controlling the giant that Amazon is proving to be.
As if that’s not enough, they are also receiving criticism due to their profit from licensing their facial recognition software. Amazon is coming up with a regulation on facial recognition, but it will not prohibit them from selling this technology to suppressive countries like China. They need to find a way to manage these legal issues as it takes one to bring a company back to its knees.
Question: Who are Amazon’s competitors?
Answer: Amazon competes head-to-head for the market with some of the largest companies in the world. It generates its revenue from five major sources; Amazon Web services, subscription services, third-party seller services, physical stores, and online stores.
The online store segment competes with Etsy, Overstock, and Wayfair, while in the physical store’s area, it competes with Walmart, Target, Costco, and Best Buy. It also offers subscription services where it competes with big names like Netflix, iTunes, and Google.
Question: Why is Amazon so successful?
Answer: Amazon is the most successful retailer in the western world. This is because the company has built an excellent customer experience thanks to the famous Flywheel strategy. When consumers go to online sites to purchase items, they always look for a large selection, fast delivery, and low price. Amazon offers all these, a reason why they are successful.
Question: Does Amazon offer price adjustment in 2021?
Answer: Amazon stopped its price adjustment and price match policy in 2018. They do not offer price protection or price match services to their customers. But, you can save money by purchasing at Amazon using their most recent facility; price guarantee on pre-orders.
Pre-orders are items you can order before they are launched in the market. You are assured of getting an item even if the market has a high demand for the same. You can get a pre-order price guarantee for physical objects and digital media and content.
Take Away from Amazon SWOT Analysis
It is easy to assume large companies like Amazon have everything in order and are immune to just about anything. However, you cannot make this guess without an in-depth analysis, most notably using the SWOT framework.
Amazon has shown resilience in an environment never lacking disruption and change. Amazon ensures that it has entrenched itself as a market leader for decades by investing in its future and providing a hardened efficiency in operations. With the changing times, only time can tell whether its futureproofing will pay dividends. If you run a business, borrow a leaf from how large companies handle the different elements of their SWOT analysis, as these are vital for success.