Amazon Porter’s Five Forces Analysis

Porter’s Five Forces analytical framework developed by Michael Porter (1979)[1] represents five individual forces that shape the overall extent of competition in the industry. The essence of Amazon Porter’s Five Forces is represented in figure below:

Amazon Porter's Five Forces Analysis

Amazon Porter’s Five Forces

Threat of new entrants into online retail business is significant. Although there are certain industry entry barriers such as the economy of scale and expected retaliation from current market players, potential new market entrants may base their competitive advantage on innovative features and capabilities of their service offering or an innovative business model in general. In other words, innovation and creativity may play an instrumental role in terms of reducing the impact of industry entry barriers and the absence of switching costs for consumers further increases the threat of new entrants.

Moreover, new market entrants will not have problems with access to distribution channels due to the readily available courier services such as DHL, TNT, UPS and others. Time of entry also can be mentioned as a significant factor increasing the threat of new entrants due to increasing popularity of online shopping.

Threat of substitute products or services is substantial. There is a wide range of direct and indirect substitution for many types of products and services offered by Amazon. Direct substitutions for Amazon services include traditional physical stores. Other websites dedicated to the sales of specific product categories such as for electronic products, for music and Barnes and Noble for literature represent a direct substitute for Amazon marketplace. Catalogue-format retail, on the other hand, can be mentioned as indirect substitution for Amazon. Switching costs for the substitution is usually not significant for the majority of products and services and the propensity of buyers to go for substitution may be great due to an impact of a combination of factors.

Bargaining power of Amazon buyers is great in general. At the same time, it is important to clarify that for Amazon, the extent of buyer bargaining power varies across customer categories depending on the nature of products and services being consumed. Customers who purchase from Amazon marketplace possess the highest bargaining power because they are able to switch to a competition or substitute products and services and they are price sensitive to a significant extent. Moreover, buyer’s ability to go for substitute website may be great due to highly intensive competition in the marketplace.

Buyers of Amazon Web Services (AWS), on the other hand, have less bargaining power compared to buyers from Amazon Marketplace power due to the presence of switching costs to an alternative service provider. Sellers on Amazon Marketplace as another category of Amazon customers do not yield a substantial bargaining power because of a lack of alternatives to Amazon and the company’s leadership position as a global online retailer. Inc. Report contains a full analysis of Amazon Porter’s Five Forces Analysis. The report illustrates the application of the major analytical strategic frameworks in business studies such as SWOT, PESTEL, Value Chain analysis and McKinsey 7S Model on Amazon. Moreover, the report contains analyses of Amazon leadership, business strategy, organizational structure and organizational culture. The report also comprises discussions of Amazon marketing strategy and addresses issues of corporate social responsibility. Inc. Report

[1] Porter, M. (1979) “How Competitive Forces Shape Strategy” Harvard Business Review