Porter’s Five Forces Analysis of Amazon

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STUDENT ID:IUU19BBA061 SHAILEE PARMAR
Overview: Porter’s Five Forces
Analysis of Amazon
 Amazon.com is an American multinational
technology company based in Seattle.

 Amazon was founded by Jeff Bezos in

Bellevue, Washington, on July 5, 1994.

 Amazon’s prime focus is on e-commerce

industry and online retail market. However,
the company also focuses on live streaming,
cloud computing, and artificial intelligence.
Following is a detailed Porter’s Five Forces
Analysis of Amazon:

The five forces are:

 Threat of new entrants

 Bargaining power of buyers
 Threat of substitute
 Bargaining power of suppliers
 Competitive rivalry
1) Threat of New Entrant – Low
No doubt it is easy to start an online retail store or an e-
commerce website on the internet, but it would be
difficult for any brand to take on a giant such as
Amazon.

1) Switching Costs: It is easy to enter the e-commerce

industry, and also it is easy to gain competitors,
customers, because of the low switching costs in the
market.

For any other brand, it would require billions of dollar

investment and, years of patience, to directly compete
with Amazon.
 2) Economies of scale: Amazon has an advantage
over other brands on economies of scale because of
the reputation of being the largest internet retailer in
the market.

 Although new players can comfortably enter the

market, they cannot potentially use economies of
scale in their favor at the same extent as Amazon.

 3) Customer Loyalty: Amazon gets the advantage of

being the first big player in the e-commerce industry.
2) Bargaining power of buyers – High
 Amazon highly emphasize on customer satisfaction
and aims in providing high value to its customers.

 Amazon runs a customer-centric approach in its e-

commerce business. It guarantees that the
company’s products are of high quality and,
received on time.

 Customers generally have high bargaining power

because of the intense competition in the e-
commerce industry.
 Customers of Amazon has high bargaining power for
household products, Online streaming services, Amazon
fire TV stick, Kindle because of the availability of
substitute products and high competition.

 But customers have low bargaining power for products

with less competition or whose alternatives are not
available. Amazon Web Services is one such product with a
lack of choices for the buyers.

 Thus, based on Porter’s Five Forces Analysis of Amazon,

the company must give great importance to the customer
to maintain success in the long run.
3) Threat of substitute – High
 Amazon competes with substitutes in the online
retail as well as with the offline retail market.

 The biggest hurdle that Amazon faces is low

switching cost in the industry, as customers can
easily change from Amazon to other retailers.

 As Amazon does not sell unique products, and

most of the products are retail products, so giving
the best customer experience becomes a
necessity for the company.
 And a single bad experience will drive the
customers away from Amazon because of the
easy availability of substitutes at a cheap rate.

 Thus, the High threat of substitute in the

porter’s five forces analysis of amazon shows
that Amazon highly focuses on customer
experience to attain success in the online
retail industry.
4) Bargaining Power of Suppliers –
Low to Moderate
 Suppliers provide Amazon with the products that
it needs for its e-commerce business.

 The influence of suppliers in the e-commerce

business is more because without them, the
retailers will not be able to serve their customers.

 But Amazon is the most prominent player in the

industry and has the upper hand over its
suppliers.
 If Amazon sells a product whose suppliers are in small
proportion, then the power suppliers increase
moderately, because there is less competition among
the suppliers.

 Amazon strictly emphasIZE on the ethical working of

its suppliers, and it is tough for the suppliers can even
think of the forward integration in the supply chain.

 So, based on the porter’s five forces analysis of

Amazon, the external factors show us that suppliers
have low to moderate power in the industry.
5) Competitive Rivalry – Moderate to
High
 Amazon competes against strong competitors and, the rivalry
in the online retail industry is high.

 Because in recent years, the number of players entering the

industry has increased with many retailers, small scale brands,
and startups are starting to sell their products online.

 The main competitors of Amazon are Walmart , Flipkart,

Alibaba, eBay and many more. All these players give intense
competition to Amazon.

 Low switching cost and readily available substitutes put more

pressure on Amazon because customers can transfer from one
to retailer to other at low cost.
 So, Amazon invests a large amount of
providing high-quality products and services
to its customers and gains advantage on
other players.

 Because no other player in the market can

invest such a large amount as Amazon does.
So, Amazon has consistently retained its
position of being the market leader of the e-
commerce industry.
THANK YOU