A business analysis project for Amazon.com

A employment epitome project for virago.com openingBusiness analysis, a forge of finding the needs and problems in melodic downslope and generating solutions to cater to those problems. These Solutions should focus to achieve improvements in the process, incorpo ration of fundamental lawal change, preparation and study to set a system of operation that is result oriented and effective. thither be numerous tools and techniques utilize dep demiseing on the situation and requirement a couple of(prenominal) are PESTEL, PORTERs model, SWOT analysis, HEPTALYSIS, MOST, CATWOE, DeBonos six thinking hats, MoSCoW, five whys, VPEC-T and much than just tho few of the above tools are apply, real frequently in critical analysis at the sign stages.ABSTRACTIn this bailiwick we analyze as how virago.com has been performing off late, using the tools menti wizd above. The advantages and disadvantages Amazon.com has over their competitors, where they view been lagging, their pecun iary performance and strategic approach. Critical analysis will be through on their business environment and strategic approach to set off any possible shortf each(prenominal)s and to provide with appropriate recommendations for improvements. Internal and external analysis will be under engrossn to go under their merchandiseing strategy, their response to orbicular e-retail industry. companionship PROFILEAmazon.com based in Washington and found by Jeff Bezos in 1994 is global leader in e-commerce and it was the first company to introduce the theory of copeing replete(p)s on the Internet. Initially Amazon.com started as an on gillyflower book line and its success take Amazon to diversify into some other products such as gifts, music, electronics, groceries, toys and many more than. credibly today there is no product that Amazon.com doesnt sell. Amazon.com has developed different gain portal sites for different countries such as Canada, UK, Germany, France, China and Japa n.Amazon.com was named after(prenominal) worlds largest river Amazon and was assigned with a logo of an arrow starting from A to Z representing the node satisfaction as the highest priority and fill their store houses with e genuinely product in the alphabet.Amazon.com was open for trading under NASDAQ with a symbolisation AMZN for the first time on 15 may, 1997 by issuing initial public offering at a scathe of US $ 18/share.Amazon.com in its early stages was not very successful and did not parent any receiptss, which made investors rethink about their portfolio, major business and process restructuring was required they had to cut d declare their approachs to enlarge the profits and were secure up from diversifying into more products, however Amazon.com survived the dot com bubble in 2000 which was the heart and soul priming coat for many e- businesses to close down and this was the turning point for Amazon.com after which they lowestly in the fourth can, 2001 they mad e their first profit which begetd r stillues of more than a billion$ and $ 5million profits in just 1 quarter. This take Amazon.com to prove to the world that their business model was profit adequate and samewise they fashionableized online shop which was recognized by time magazine and awarded Jeff as the business individual of the year.1.3. MISSION VISION STATEMENTSAmazon.com visionOur vision is to be earths most customer centric company to build a place where people tramp come to find and dis brood anything they might want to buy online. (Amazon.com, 2010) preceding(prenominal) statement reflects that amazon.com wants to be global leader in e-retailing business by providing the select products at affordable price using in vogue(p) engineering to build the customer database and gain their committal towards the brand thereby give to the stakeh anileers interests and generating profits to the company. Expand themselves all over and build a practical(prenominal) findet place where customers groundwork shop comfortably from at home. summary2.1. EXERNAL ANALYSISThe external environment also referred to as the macro-environment, plays a very important role in the operations of any business. Key environmental factors such as political, economical, neighborly, technological, sound, etc. affect the organisations at various levels. It has start out the need of the hour to consider the potential impact of the external factors on the individual organisations. (Johnson et al, 2006).2.1.1 PESTEL analysisPESTEL analysis is conducted to determine current and future archs in political, economical, social, legal, environmental and technological environments, might influence the performance of business and what measures to be taken to avoid any shortfalls.PESTELFactorsKey PointsRelevance to Amazon.comPolitical governing body policies incorporate argument and promotion by liberalizing telecom and e-commerce legislation change magnitude in affordability and profit custom.Investing in matter ICT infrastructures by giving medication (Euro monitor)Reliable, faster and wagerer earnings usage for the national users.Relaxation of disputation policies in industry as compared to heavy industries in EU and northeast Ameri atomic number 50 regionsExpansion of markets at greater a pace by mergers and acquisitions.EconomicTo govern inflation, interest rates varied which slows down the consumer expending in UK.Off late spending has seen a downfall in US and jump out in Asiatic markets due to economic ontogeny main reason being the credit crunch and tightening the trapping loan (The Times online, 2008)Opens the gates to other global markets to such as India and china.Between 2006 and 2011 e-retailing grows horrendously by rising gross revenue over one C%. This outgrowth is backed by plus in the physical body of profit users in US, which has increase approximately by 85% after 2000. (Euromonitor world-wide from national statistic s)Increase in potential customers for Amazon.comThe annual disposable income exceeds US$5,000. by 2011 covering around 620 million households of these majority will be in Asia- Pacific next to western Europe. (Euro monitor International from national statistics)Increase in potential customers for Amazon.com leading to the concept of globalization.SocialPopularity and change magnitude use of online social networking.Added advantage to market the product and the websiteInterface on tap(predicate) for users to shop and the increase in number of products lead to drop in online shopping.Has to come up with a solution to reduce the security and financial risks to users.Growth of internet from 2002 to 2011 is 288.7%. 28.9% of world population use the internet (Internet beingness Stats, 2009)Huge market uncommitted to exploit and establish.TechnologicalInnovation of up-to-the-minute technologies increased broadcasting, internet access at cheaper cost.Increase in number of users of pro ficient devices such as mobile, iPods, TV, led for increase in internet access for online shopping.Innovations and development of high-speed internet services (broadband) has increased usage rich media applications.Rich media applications are easily available to shoppers on internet.environmentalAwareness about pollution and global warming.Reduced travel and more shopping online.Corporate social responsibility and global pressure to go green.Can incorporate concept of green within postage and packaging, methods. profoundNo standard regulations governing e-retailing covering entire globe. Eg. Federal alternate commission in USA and data protection act in UK.Should be well aware of both domestic and international legal laws.European E-retailing coachiveCould impact the picky continental growth of e-retailing considering exact regulations (Jacobson, 2008 as cited in Zugelder et al, 1999).The invention of electronic signatures Law.Removes traditional legal methodologies and instate more secure and transparent legal environment.Summary of PESTELPESTEL factors indicate attractive global market to be exploited by Amazon.com. Asian markets have reflected tremendous growth opportunities in recent past. Advancement and usage of internet for social networking has led to immature opportunities to be exploited. Amazon.com should support environment friendly actions as increased importance is been given to environment these days, also to be a true global company Amazon.com has to incorporate single global strategy which involves legalities common to all of the globe.2.1.2 Industry competitor analysis (PORTERs Model)For any organisation the industry and competitor analysis is important as it comes handy for businesses to reckon the competitive forces, market status, factors influencing, competitive strategic implementations.Porters Five Forces analysis is used to assess the attractiveness of different industries, and therefore, it crapper help in illustrating the so urces of contender in a particular industry (Johnson et al, 2006).Porters five forcesHigh pitiablePower of suppliersSuppliers retain the control as few brands and special products increase the cost down the network. For example Harry Potter books are grievous bodily harm from publisher which is an advantage for Amazon.comE- Retailing sets a stage and gear ups it much easier for businesses to sell products directly to consumers without any third party in- amid.Power of suppliers bob up if the control of certain type of products rests with one supplier than fragmented.Products available easily pay off low power to suppliers and they have to act to a mower margin.Wider the market, wider is the stretch for suppliers thereby increasing number of suppliers.Power of buyerIncreased market rivalry has increased the power of buyers. Increase in number of online stores and comparability sites makes e-retailing business even more difficult.Threat of sweet entrantsInitial uppercase requ ired for such a business is very low as it doesnt involve any account and storage costs and will only need to implement technologyStrong brand image incorporates good customer relations and trust.Since the competition is very tight the suppliers who emphasize on economies of scale and consider business turnover over profits make more business and profits in the long runleaders in the online retail industry hold the advantage of customer loyalty and database while giving edge over the cost.Threat of SubstitutesLatest market factors such as feel, touch, hear physical stores makes an effect.One of the major threats to Amazon.com is online rentals quite of purchase as posed by texbookflix.com, bookrenter.com which reduces cost and pile of fight to a major extent.Internet is a global marketplace where consumers can get information and products which are much break in fiber and from overseas online for no or very little cost.E-libraries, $ and pound shops mark greater threat nowaday s.Mail orders, network marketing, catalogues although not very popular and effective yet pose threat to online buyingCompetitive argument try engine plays a major role at the consumer end for it acts as interface betwixt seller and buyer which generates opportunities and PR to other e-retailers.Due to low initial investment costs there are a numerous affiliate online stores which are smaller still increase the competition.Summary of key findings from Porters Five ForcesThe competition in e-retailing industry is intense. thither are number of small organizations adding frequently making the situation even worse. Main competitors to Amazon.com are BN and E-bay.The threat posed by small players and new entrants who can equally argue directly with Amazon.com is very low.When consumers consider prices of goods they also consider brand image and if they are reliable, most of customers expect quality service than just quantity and lower priced service.2.1.3 Competitor analysis / Benchma rkingAmazon.com has a wide product range and equally wide number of websites that compete with Amazon.com. Most of the e-retailers concentrate on introducing variety of products in the current available market or entering the new markets across the globe or both in order to verify economies of scale which helps catch up with the pace of e-commerce industry. If we consider how alter the product line is and the geo graphical markets catered, eBay poses direct competition to Amazon.com. However Amazon.com is the market leader in current trend and they have immediate urgency to expand both their product line and geographical reach to remain as leaders.As we can get wind in the above graph, in 2006 Amazon.coms growth rate as compared to that of walmart was very low because walmart was a strong brand by then and had advantages of cross channel synergies and in-store pick up. In 2007 we observe the amazon getting close at hand(predicate) to walmarts growth rateas they diversified into products such as music, cds, dvds, mp3 players and more due to increased competition from these players walmart has been losing its market share continuously and however once can see that by 2008 Amazon.com is almost overtaken the walmart by providing with various offers such as free talking to and customer reviews.(Source Data monitor)The above table shows stupefy of Amazon.com that they are more diversified into the product line and geographically well spread. Companies like apple, hp, and dell do online retailing only for focused group of products. However store based companies grew very strongly in 2008, but due to economical, hit not too many companies was able to survive. Amazon.com did by lowering delivery charges and provided with best offers. They also introduced ad-free TV and own download service and film streaming service in 2008 to trounce all of their competitors.Through competitor analysis it can be think thatBN.com is the leading competitor to Amazon in lifesty le goods and books. However, Amazon has a diversified product range.Wal-Mart.com has almost similar prices as compared to Amazon but they have better product range such as pharmacy, pic printing and etc.Ebay.com also has a wider product range and better geographical reach but their concept is different to Amazon.comMore competitive threat posed by Tesco, Wal-Mart as they have physical stores and eBay has better geographical reach, but however Amazon.com has option to develop the strategic alliances as they did in Japan with Lawson to capture the market.Amazon.com has to design its strategies to address these competitive threats.2.1.4 world-wide internet trendsInternet Usage china, US, Germany, India, Brazil, Japan are amongst the top 5 countries where internet is used the most Amazon.com has made its impact in all the above countries except for India. This implies and directs Amazon.com to exploit hidden opportunity in Asian market and huge business potential for future. Graph bel ow shows the popularity of internet in the 21st century, which indicates the future of e-commerce as trends keep ever-changing.CUsersWELCOMEDesktoptop202010.jpeg(Source Worldinternetstats.com)The graph below shows the dominance of Amazon.com sector wise. The balloon shows of all the business done by amazon.com majority has been in internet retailing direct selling, vend and home shopping is almost void. This reflects the influence of internet on the business of Amazon.com. It is also seen below emerging markets and present markets where currently Amazon.com has its presence. Of all the retail sales jimmy Amazon.com holds a very small share but then future trends look brighter as the CAGR expected is highest in India by 2011. This lays a pathway to Amazon.com as to establish themselves without any delay in India.(Source Data monitor)(Source Data monitor)2.2. INTERNAL ANALYSISInternal analysis can be conducted to determine relationship between the organizations available resources and its application to generate value proposition to the customer, it can also be used to determine the limitations, advantages and disadvantages within the organizations.2.2.1 The Value ChainThe value chain analysis helps find the effectiveness of actions that makes organizations standout from their competitors and take a lead i.e. activities that are difficult to duplicate. Applying the material laid by Amit and Zott (2001) analytical objective of value chain is attaining of performance cost economies value creation. Amazon.com focuses on reducing the costs in creating crotchety value to its customers.Support ActivitiesValue creationFirm Infrastructure completely of the business units are provided with central customer data warehouse and planning functions from headquarters.Human Resource ManagementAmazon.com employees enjoy benefits such as personal credit line grants, relocation allowances, paidTime off medical. Such an approach invites warehouses to be in cheaper locatio ns yet attract skilled labour.Technology DevelopmentAmazon.com implements latest technology to leverage opportunities in digital sales such as videos, music, eBooks (The Economist, August 2006) Being able to digitize media for online download or for Search inside the book service.Usage of hardware systems to reduce cost of support and compatibilityProcurementUsing the SBU-Book bank to maintain inventory of digital copies of books so as to make it available readily for customers on- pack and reduce time of delivery(The Economist, August 2008).Usage of recyclable cardboards for packaging.Primary ActivitiesInbound logistics big-chested portent technology ensures no or very returns of goods to suppliers.Collection of customer feedback and experiences to defragment inventory and delivery controls.OperationsSecure and fast online payment systems.Employ 24/7 warehouse services to meet consumer demands.OutboundlogisticsBuilt in close proximity of a robust transport system e.g. Bedfordshir e fulfilment centre located next to M1.Ability to collate orders from around said(prenominal) locations. merchandise SalesLive customer interaction to offer sufficient products at discounted prices and product mix, leaving customer feel more valued.Robust shipping price calculation and shipping all the products for the price of one. benefitFree consumer friendly returns policy within 30 days on unsatisfaction, inviting consumers to try more new products.Provision to select between old and new products with price comparison2.2.2 fiscal analysisIn Q4 2009, Amazon reported 42%, $9.52b rise in sales as compared to oecumenical sales of preceding year which was $24.51b, a mere 28% rise under the economic pressure they also benefitted from the investments into customer services in Q3 however rise in their revenues all over the world doesnt allude high profit margins. As compared to the consistent rise in sales, the profits have been fluctuating, however their margins are very low as compared to the turnover, reason being the economies of scale and competition.(Source GMID)Amazon.com did see a drastic rise in number of active customers in latter half of 2009, in the final quarter the average revenue/ customer rise more than $90, a mere 63% hike as compared to previous quarters.However rise in sales and number of active customers also rise their expenses significantly except for technology costs. $274m, 84% more as compared to previous quarter was spent on marketing activities. They invested money on paid see engine marketing, search engine optimization and content development. Also they entered into price war with their competitors to tie-up consumers by reducing their prices of electronic goods persuading consumers to buy from them which raised(a) the revenues and number of customers.Amazon Global Revenue and Active Customers 2009(www.365daysofretail.com)Amazon 2009 Expenses Fulfillment, Technology, and Marketing(www.365daysofretail.com)Below shows a summary of balance sheet and income statements for 10 years, as we can observe amazon.com has been adding value to its stakeholders year on year where EPS has rised to 2.04 from 1.49 previous year. Amazon.com has been very consistent ear on tear however between 2005-2006 their EBIT dropped because they had high budget on marketing and investment in systems which allowed them to incumbrance ahead of competitors.CUsersWELCOMEDesktop11.bmpCUsersWELCOMEDesktop12.bmp(www.msnfinance.com)Debt, Capital and gearing ratio indicates the ratio of debt to capital invested. 82% of the finance was from borrowing in 2005 which reduced to 68% in 2006 and has further reduced dramatically. Debts lead to the interest payments decreasing the profit margin, however if the cost of debt is less than capital cost then one can opt for debt, but Amazon has been continuously reducing their debt cost year o year and is just $109m in 2009. New projects has to be financed which emphasizes amazon.com to borrow, this can be justified by the data where interest cover has increased regularly concluding amazon.com ability to pay interest by 33.1 times is profitable.Amazon has huge financial reserves and can used for innovative research and development programs and technological implementations where they can incorporate single global strategy and also penetrate more geographic markets to give value to the stakeholders and customers.2.3 SUMMARY OF ANALYSIS2.3.1 SWOT analysisFrom a fine Internal and external analysis we can conclude and summarize the Amazon.com strengths, weakness, threats and opportunities from the pursuit SWOT analysis.StrengthsGlobally recognised brandResearch and development programmes geographical presenceCustomer focussed visionDiversified product lineIncorporation of latest technologyAmazon.com affiliate and merchant Program exceedingly skilled employee baseBest inventory and logistics.Huge economies of scaleWeaknessesNo physical storesLower profit margin due to high competiti onLow cash flowsLower market share in countries like India and china.OpportunitiesTremendous growth in digital downloadsPopularity of social networkingIncrease of online shoppers in Asian marketsOpen options for expansion via MA.Increase in e sales and growth of e-retailingAdvancement of digital technologyRise in consumer spending across the globeThreatsVastly dependent on vendorsHuge competition as it requires low capitalApplicable Patent regulations.Piracy difficult business vision.CONCLUSION RECOMMENDATIONS3.1 CONCLUSIONSAnalysis toolKey pointstrategic essencePESTELRise in number of internet users.High priority to environmental issuesVarious government policies aiding now than before.Rise in internet usage opens new markets like china and India.Environmental issues can be utilized to advantage by incorporating proper CSR.Legal and government policies ordinarily are havoc.Porters 5 forcesRise in competition levels taking into stipulation the porters five forces.Amazon.com has t he competitive advantage and the value proposition.CompetitionCompetition from new entrants and stores are growing at a very high pace and geographically.Amazon.com strategy and diversified business focus leading to innovation should be implemented.Future internet trendsUSA, China, Japan, Germany, Brazil and India are the top internet users between 2006-2011.Amazon.com has a presence in all these countries except in India.The value chainAmazon.com is equipped with global IT, high investments in technology and overbearing logistics with a centralized management.This stands out Amazon.com from other players in the market thereof they should hold the competitive advantage of brand image.Resource Based figureBiggest asset of Amazon.com is customer base, web personalization and value proposition they offer to their customer. expend the available resources, technology and global strategic reach to outplay competitors.Financial AnalysisRise in revenue every year and %CAGR growth has not led to high profits.Manage costs, resources and economies of scale more in effect to generate more profits3.2 RECOMMENDATIONSLong-term focusInternet retailing presents a challenge to traditional retailing to see increased investments from store based retailers such as wal-mart making it more crucial for amazon.com to maintain a long term vision and invest in innovation, customer experience, diversified product range in spite of profit maximisation expectations.Exploit New MarketsAmazon.com should consider entering into more new markets in particular Asian where the buying power, standard of living and the demand has rised dramatically over past few years as global economic changes take place.Downloads ExpansionAmazons core business in future will be digital downloads, although they were latecomer in the field of film, music, TV downloads they have to cater to the demand in a highly competitive market along with their diversified product line. Also they have to concentrate on eBook s media division.Sensitivity to changing variablesIt is very important for amazon.com to be sensitive to the minor particulars such as changing trends, tastes, preferences of consumers from time to time as the purchasing power and changing lifestyles generate more demand leaving companies like Amazon.com to respond so such a market research and imagination will be an advantage.Build selling opportunitiesAmazon.com should seek ways to sell products to customers with less havoc, straight off and securely as they did in text message selling without internet. In order to achieve this they need to have high end technical skills. Recently released kindle can also be used as a tool to increase the download sales.