SWOT Analysis of Amazon | The Amazon Business Model
Amazon is the world’s largest Internet retailer. Starting out in 1995, the company had humble beginnings as Jeff Bezos‘ small book store. The company has since grown to a powerhouse with more than 360 offices in 39 countries.
Amazon recorded net sales of more than $280 billion and a net profit of more than $11 billion in its 2019 annual report. The majority of their revenue, 50%, came from their online marketplace.
Amazon sells products and services to customers in North and South America, Europe, Africa, and Asia through their websites and delivers them all through companies such as UPS or FedEx.
What Is Amazon’s Business Model?
The Amazon Business Model
Amazon, widely regarded as the world’s largest online retailer, operates a complex business model. First and foremost, the company offers products directly to customers. A percentage of items are sold to customers at a small markup via Amazon’s online storefront, and inventory is stored in the company’s vast network of warehouses. Most customers visit the company’s website because the goods are less costly and easily available for purchase and delivery.
In addition to direct sales, Amazon offers a forum for other retailers to offer goods to customers. Products sold through Amazon’s partner retailers are frequently less popular or more expensive products, allowing Amazon to avoid retaining slow-moving inventory that could dilute profit. Though Amazon does not charge its retailer partners a fee to list products for sale, the company does keep a portion of the purchase price as commission.
Amazon also has a subscription-based business model with its Amazon Prime service and a small electronics product line. Customers who have a Prime account pay an annual fee to receive free two-day or same-day delivery on qualifying goods as well as access to streaming media such as digital music or movies. Amazon also makes money by selling its e-reader, the Kindle, and the e-book and mobile app purchases available to Kindle owners.
SWOT Analysis of Amazon
What are Amazon’s Strengths?
Amazon has a huge product line from many different categories, including electronics, clothes, and household items. They also have what may be the most extensive inventory on the web. Amazon is one of the largest retailers in the US and also one of only a few without any physical stores. This allows them to sell products more cheaply than competitors, which are more constrained by brick-and-mortar costs.
Amazon is well known for having very competitive pricing with higher quality goods than other retailers while still delivering these goods very efficiently and almost instantly. This is very useful because it allows Amazon to compete with some of the top companies in the world, such as Wal-Mart and Target.
Amazon is also extremely efficient, and its delivery system has improved over time to allow for more efficient fulfillment. In addition to a large network of warehouses, Amazon is also one of the largest mail-order companies in the US. The company often uses this system to offer free shipping to customers for orders over a certain dollar value. This is an effective way to draw in new customers by offering a service that many competitors do not offer.
Besides, Amazon offers advertising and delivery through other sellers. This allows it to reach customers in the local market without making any direct investments in physical stores. Amazon has also started offering an advertising program for its Kindle devices, allowing users on Android and Apple devices to view advertisements on the device instead of an internet browser.
Amazon has huge customer service based on reviews from a wide variety of sources. Their employees are trained to deal with every question and are given incentives such as bonuses based on performance.
The company also has a great return policy that allows customers to easily replace items if they don’t meet customers’ needs or expectations. Amazon also allows users to review products with the “Verified Purchase” tag, which shows on each product’s page, giving more credibility to other users of that product.
Amazon is also not afraid to lower prices if a competitor does so, which makes them very competitive in their industry. The process of shopping on Amazon is also very easy and convenient. Users can easily search for products using either a manual search, which allows the user to enter each product manually into the search page or use the “search inside the book” feature. They can also filter through items by brand names and shipping options. Once a user has found an item they want to purchase, they can use one of their payment methods, including a credit card or bank account.
What are Amazon’s Weaknesses?
Amazon is a highly competitive company, with many competitors offering similar products at a lower price. Amazon’s competitors include Wal-Mart, Target, Best Buy, Sears, and many others. Amazon has to be competitive in order to maintain its market share. This could lead to reduced profit margins over the long term.
Other problems with Amazon include a potential conflict of interest with the company’s sale of books and media products. While many customers purchase these products from Amazon because of its low prices, some people have accused the company of offering favorable treatment to get customers to buy its other products more effectively.
Some people may also be disappointed by Amazon as it does not always have the lowest prices in its industry, and parts of its site may not work correctly at times of necessity.
Another weakness is that Amazon is only focused on online shopping, which could cause them to lose customers who prefer to shop in person.
The company may also have difficulty with the low margins of books and media and prohibiting vendors from selling on their website, which may lead to a decrease in sales.
What are Amazon Opportunities?
One advantage Amazon has over other companies in some industries is that it can take full advantage of the internet. Consumers can go online to quickly and easily search for virtually any product they want, rather than waste time driving around stores looking for the right product. Amazon’s massive selection, including books and media products, gives them a distinct advantage over traditional bookstores in this regard.
Amazon has many ways they can expand their business and increase profit. The company can expand into new geographical areas by building more warehouses and distribution centers. The company can also increase profits if they continue to improve their website to the point where customers are more likely to buy items on Amazon rather than at other retailers.
Amazon has also expanded into selling things other than books and media, such as clothing, jewelry, electronics, and furniture. Amazon could also help expand into new markets by creating more language versions of their website and allowing sellers worldwide to sell on their website.
What are Amazon Threats?
Amazon faces threats from other retailers. Many competitors have started websites that offer similar items at even lower prices or offer discounts on items through their other physical stores. Loss of this market share could lead to reduced profit margins.
Changes to Amazon’s business model may also lead to increased competition and lower profit margins. The company has shown an interest in developing more e-commerce services, including advertising, music streaming, and even video streaming services. This puts Amazon into direct competition with its own customers. While the company could potentially earn a large profit on these services, it would effectively be competing against those customers.
Amazon is subject to new technologies in the marketplace as everyone has access to the internet. The company is also vulnerable to foreign competition if they are not careful.
Amazon may also be prone to lawsuits from customers who believe they were wronged and don’t want their money back, leading to a great loss for the company.
The company could also be pressured by competitors in its industry who may want Amazon out of their territory, causing them to fall behind in their industry and lose customers due to increased competition.
Alternatives Analysis of Amazon
- Bargain shoppers prefer Wal-Mart and Target for lower prices
- Customers who want to shop online also prefer the lower prices of Wal-Mart and Target, which means that they will continue to get more customers because they can offer lower prices than other companies.
- High-end customers tend to purchase more expensive items, meaning that Amazon can lose these customers if they provide lower quality services.
- Amazon is a company in the growing electronic market, which means that there is less room for growth due to many competitors in the market.
- eBay and Craigslist are being used by more and more people as alternatives to Amazon because people can sell their personal items for a higher price than what they paid for them.
- Target uses a similar business model, but they have an advantage over Amazon because they already have physical stores. This allows them to reach more customers through both online and physical means.
Amazon should continue to improve its customer service by keeping track of customer feedback and implementing changes based on this. The company should also work on improving the usability of their site so that it better supports e-commerce and would make the life of a first-time shopper much easier. The company should also continue to expand into new markets, which could help boost profits.