Capstone Project - Part II

Amazon.com, Inc. is an American corporation based in Seattle that focuses on e-commerce through its online retail store. The company is ranked as the biggest online retail store in the world, with several physical stores geographically located. The company also provides services like a digital advertisement, cloud computing, groceries, prescription drugs, movies, and television through its Amazon Pride Video platform. The company has different competitors from different categories of the services they offer. They have competitors from their online stores, physical stores, subscription services, third-party seller services, and web services. All these competitors bring different challenges to their categories.

A PESTEL analysis would be able to give the impact of economic, social, political, technological, and environmental factors. This will be used as a tool to monitor the external marketing environment and its effect on Amazon. This is effective in accessing the right targeted market for the growth of the company as adverts can be directed to the right group of customers. The company is targeting youths aged between 13-17 with spending money, and this analysis will be useful in segmenting the target market.

Competition Analysis

Amazon started its business as online booksellers before expanding its business into electronics, foodstuffs, movies, groceries, among others. The company's expansion has made it dominate the U.S market with 50% dominance of the e-business. Its competitors differ with the various segments the company has diversified into. The competitors in e-commerce include eBay, Walmart, Home Depot, Etsy, Kroger, and Alibaba. Amazon's dominance in this segment is due to its strong financial position that enabled the company to expand its business. Walmart and eBay are the biggest competitors in the e-commerce segment. In China, the company is facing immense competition with a market share of only 1% as companies like Alibaba and Pinduoduo dominating the e-commerce segment.

Competitors in the brick and mortar segment include Walmart and Costco, with Walmart being the leading retail company in brick and mortar. Amazon and Walmart are the largest retailers in the world, with each company trying to outgrow the other in various areas of business. Walmart has expanded its retail stores worldwide and is increasing its market share in e-commerce through mergers and acquisitions. Walmart is the largest competitor in the field of brick and mortar started with physical stores before diversifying into online stores. The number of products the company offers is around 4 million in comparison to Amazon's 250 million as the company keeps on adding 50,000 products a day. Walmart's investment in physical stores has seen it grow its physical stores to over 11,000 stores. Amazon's presence is felt online, as it has limited its physical outlets to the United States. However, the company has redeemed itself by ensuring citizens of over 180 countries can access their products from their online platform.

Amazon has also diversified in the streaming media segment, where it faces competition from companies like Netflix. Amazon Prime, which is Amazon's media company, competes with Netflix in streaming media, where Netflix, with over 150 million subscribers globally, can provide movies, series, and documentaries to its subscribers. Amazon Prime offers streaming videos, movies, and reading books. The difference between the two is that Netflix charges differently for video quality and the number of devices, whereas Amazon Prime does not.

Economic Factors of the Industry

Amazon.com, Inc. is one of the biggest tech companies in the world, and it is placed among the four big tech companies, which are Google, Facebook, and Apple. It is the world's largest online retail store and the biggest internet company in the world by revenue. The company is also the second-largest private employer in the U.S. There are over ten firms in the e-commerce industry, both based within the U.S and globally. The online retail stores include companies like Walmart, Apple, Alibaba, Homedeport.com, Bestbuy.com, Jindong, eBay, Rakuten, Inc., and Zalando. Amazon leads as the largest online retailer due to its annual average of $230.43 billion. Jindong and Alibaba rival Amazon in the Asian market as both companies are based in China while in the U.S. Walmart, Apple.com, and Homedeport.com rival the company.

The various segments that the company has diversified into, like cloud computing, digital advertising, and web services, have different competitors like Microsoft for web services and cloud computing and Walmart in the brick and mortar segment.

Amazon's revenue has been growing in the past decade, with the last three years, the company reporting an average of $230.43 billion. The company reported $177.87 billion in 2017, $232.89 in 2018, and $280.52 in 2019 as the revenue. The company commands a market share of 48% in the U.S. while its competitors like Apple account for 10-15%, Bestbuy.com 5-10%, and Walmart 5%. Its main rival in the U.S. Walmart has been growing and increasing its market share as it posted a revenue of $20.91 billion as of 2018. The company has employed over 560,000 employees and is ranked as the second-largest private employer in the U.S.

Various economic factors affect the online retail industries, with the common ones being interest rates, inflation, wages, and demand for consumer goods. Prices of commodities affect inflation and the rate of spending on customers. The high inflation rate will reduce the spending power of consumers as any excess income is depleted after spending on necessities like food, rent, and clothing. Interest rates also affect the purchasing power by customers as higher interest rates reduce the amount of spending on secondary commodities. Employment factors like wages affect the cost of sales and, in the end, affecting the price of the product. Consumers are likely to enjoy lower rates of commodities where the cost of sales is low because when the cost of sales is high, the cost of the high overheads is reflected in the final price.

Societal Impacts of the Industry

In a survey among tech companies in the U.S, Amazon was ranked as having the most positive impact in society. This is because of the Amazon effect, which is the ongoing disruption of the retail business that sees even small businesses benefiting from the profits. Small businesses have been able to help from Amazon by increasing their customer base after listing their products. With over 20,000 low and medium-sized companies listing their products in Amazon, they can benefit in the sales and also create jobs. The Amazon effect has both a positive and negative impact on society due to its disruption of the way people shop. The ripple effect of this effect has created jobs, increased investments, killed inflation through its low overheads and undercutting of prices, and has been a significant facilitator of both small and medium-sized businesses.

E-commerce has grown at a fast rate with advancements in applications and online technologies. This has made it easier for consumers to transact online worldwide and have access to commodities which previously could not be accessed. The advancement has also created employment in areas where the products are supplied. On the other side, it has increased cases of fraud with credit cards and websites. Companies like Amazon are striving due to implementing procedures for faster delivery of commodities, which is not the same with other companies. The lack of personal touch makes it difficult to trust these companies fully.

Political Environment of the Industry

Various laws affect the e-commerce industry both globally and within the U.S. E-commerce laws like the recent regulations in India that led to Amazon and Flipkart pulling out of India. This had a significant effect on the company, which had invested more than $5 billion in the economy. And also, the workers lost their jobs because of the company leaving India. Tax laws are different in various countries like in the U.S goods are displayed exclusive of VAT while in Australia, it is the reverse where assets are displayed inclusive of VAT. Amazon succeeds because it can ship a customer's product within the specified period. Shipping restrictions on certain items will, however, affect the operations of the company. Labor laws affect both the company and employees in the industry. The company has over 570,000 employees worldwide, and different countries have different labor laws that will affect the company and its employees.

Worldwide the political environment has a significant effect on investments and how businesses are conducted. Labor laws and trade laws have the most significant impact on the E-commerce industry, with companies trying to find countries that have favorable laws. Labor laws tend to mediate between employers and employees with substantial requirements focusing on minimum wages, overtime pay, and allowances. Any increase in wages will increase the cost of business for these companies. Trade laws that affect technology and technology use and the mode of transacting will also affect the industry.

Technologies Used in the Industry

Since its inception in 1995, Amazon has been innovative in developing technologies to keep up with other tech giants. The company has the three largest Linux database with over 24TB. The company's data warehouse has over 25 HP servers with four CPUs per node that run Oracle 9i database software. The company uses different technologies that run their various departments. The sales and Support use App Annie, CRM Adoption, and Zoho CRM, while the marketing uses App Nexus, Fiksu, and Mail Chimp. The finance department uses SAP Concur and Square while HR uses ADP Payroll and Behance. Google Analytics is used for analytics. Technology changes that are happening in the e-commerce industry that also affect the operations on Amazon. The changes include the use of smartphones in online shopping, product visualization e-Wallet technology for payments of online services, mobile Apps, and Artificial Intelligence. The growth of mobile phone technology and, in particular, smartphones will likely affect the sales at Amazon as it will make it easier for more people to access their services. This will go hand in hand with mobile Apps and e-Wallet for quick and easy access and payments.

The industry, in general, has benefited from the various advancements in technology and communication. The most significant technological advancement in the industry is the rise of social media. The development of social networking sites like Facebook, Instagram, and Twitter has changed entirely how companies interact with their customers, changed the purchasing habits of consumers and how companies advertise and promote their products. Information about products has been made available in situations where it was hard to get such information. The impact of social networking sites has helped the industry with the rise of new online retailers.

The number of online users keeps increasing daily, with an estimated 320 million internet users being added annually. This ever-increasing number presents potential customers for these companies in the industry. Companies have to develop advertisements and marketing strategies to increase their market share. It is easier to interact with customers offering insights on the company and its products. It is also easier to provide instant feedback where it is required as companies boast of a huge fan base on the social networking sites. Advertisement and marketing have also become cheaper when compared to using the old communication channels like television and newspapers as the companies can contact consumers directly.

Research best explains the relationship between social media and online spending carried out in 2007, where 10,192 people representing the American population were monitored on online purchase records, web-browsing history, and heterogeneity. In conclusion, it was found that social media increase e-commerce in the long-term because of the engagement of users in social media over some time increase the probability of purchasing from an online retailer. The study showed that social media and online shopping are friends and foes at the same time. The substitution effect makes the use of social media to have a short term relationship with online shopping. Still, the continuous engagement of social media by the user will increase the probability of the user purchasing on e-commerce sites.

The advancement of mobile technology has increased the number of users owning smartphones in the world. According to the latest data from GSMA intelligence, it is estimated that there are 5.19 billion mobile phone users in the world. This number keeps growing annually as the number of users who can access the internet on their devices. It also estimated out of these mobile users, 62% of smartphone users have made purchases using their mobile phones over the past six months. This has made it possible for companies to create Applications where consumers can easily access their products. The development of eWallet technology is trying to increase security features to protect consumers from cases of fraud. These advancements have made it easy to transact online, and users have the option of a variety of companies to choose from.

Artificial Intelligence (AI) and Analytics are the new technologies changing the e-commerce industry with the capability to predict consumer behavior patterns. This is in the interest of personalization, where companies are trying to create a shopping experience that is based on personal preferences. This is after studies showed that consumers tend to ignore offers that are not personalized. To understand this, the company has to understand the consumer's behavior and preferences. This is done by capturing every online action and saving it to create a big pool of information which is analyzed by AI and machine learning analytics. The end product being the desires and expectations of the consumer.

Consumers view feedback as one crucial factor for them to continue dealing with the company in future transactions. There is a new concept that has created and opened up a two-way conversation between consumers and companies. Chatbots are marketing tools that can handle multiple conversations at the same time. They can provide consumers with the needed answers while also selling the brand of the company. Live chats allow the customer service team to communicate with customers through live messaging. This gives a personal touch that most consumers desire before making purchases. Live chats can be configured to provide auto answers based on customer behavior. Messaging Apps are also marketing tools that can be used in communicating with consumers to promote the brand while offering feedback to queries.

Ecological and Environmental Issues of the Industry

E-commerce is providing a quick way in which goods are produced and exchanged globally. This has led to the production of low-cost products as companies try to find efficient ways in which they can increase productivity at minimal costs. Customers can order these products from any corner of the world, and the company delivers in the shortest time possible to retain customers without consideration of the environmental impact. Amazon has a two-day free shipping policy that harms the environment. The number of online shoppers has been increasing over the years, and this means an increase in shipping, which requires more cars and trucks that are used to deliver the packages and more packaging waste. This has increased noise pollution, air pollution, and cardboard to our landfills. This efficiency in delivery is encouraging more shoppers online and increasing the number of shipments being made.

The demand for products through the internet has been increasing annually, with the number of internet users and mobile phone owners increasing. Mobile phone companies keep growing as the production of mobile phones is rising to meet the demand for mobile phones. This is increasing the number of shipments made, and the packaging is involved. It also increases the adverse environmental effects like harmful radiation and air pollution.

This is a sustainable industry, and the environmental impact can be mitigated as people as still using vehicles to go to stores when all they can do is wait for their package to arrive. Packages a-8 e consolidated into one delivery, and this reduces the number of vehicles on the road and reducing both noise and air pollution. The companies can also use the internet to create awareness of protecting the environment. The same internet that is increasing the value of e-commerce can be used in creating awareness, and it is likely to be useful as it will reach billions of people.

References

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John Dudovskiy. (2018). Amazon PESTEL Analysis. Research Methodology. Retrieved from https://research-methodology.net/amazon-pestel-analysis/

Saheli Roy Choudhury. (2019). If you hold Amazon shares, here's what you need to know about India's e-commerce law. CNBC. Retrieved from https://www.cnbc.com/2019/02/05/amazon-how-india-ecommerce-law-will-affect-the-retailer.html

Nicole Nguyen. (2018). The Hidden Environmental Cost of Amazon Prime's Free, Fast Shipping. BuzzFeed News. Retrieved from https://www.buzzfeednews.com/article/nicolenguyen/environmental-impact-of-amazon-prime

Emily Chasan. (2019). Amazon to Disclose More Details on Environmental Impact. TTNEWS. Retrieved from https://www.ttnews.com/articles/amazon-disclose-more-details-environmental-impact

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