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Amazon Porters 5 Forces
Amazon Porters 5 Forces
Using Porter’s five forces explain how the internet/world wide web is making
retailing industries less “attractive” for retailing players.
Introduction
Since early 1980s, Michael Porter’s Five Forces (Porter, 1980) has brought
breakthroughs to the conventional business strategy concepts, and has
become the “bible” guide for leaders from nearly every business and industry
to perform effective strategic analysis. The Five Forces model is generic
enough and applicable to explain the behaviour of many different markets.
In this article we will show this by employing Porter’s five forces to analyse how
the development of Internet and e-Business is affecting the existing retailing
industries.
Since the Internet became part of our daily life in the late 1990s, the
development of the technology has enormously shortened the distance
between people and provided niches for new forms of business. Successful
examples such as Amazon.com and Dell have significant implications to the
potentials for e-Retail businesses to take over the market shares of their
traditional retailing competitors. This phenomenon can be explained using
Porter’s five forces:
Supplier Power
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Moreover, publishers have limited amount of productions and are less likely
to set up bookshops by themselves; it is also less likely for them to acquire
existing bookshops (either retailing ones or online ones) due to cost
effectiveness, therefore there is no much threat of forward integration.
Buyer Power
Amazon.com started its business in the form of a website, and its customers
are visitors and potential visitors to the Web site and its competitors’ sites
(Kyle, 2002). One of the advantages for the business to take the form of a
website over conventional retailing approach is to minimise the running cost
of renting and opening stores to sell books, and hence the books they sell
can be priced lower than other non-website competitors to balance out the
postal fee expenses. Another important advantage is to provide a 24-hour,
with no physical location limitation and customisable book-search service to
customers. The effectiveness of this selling model yields savings on auxiliary
costs (such as transportation time and costs) and hassles, where buyers
may become less price sensitive to postal fees of different delivery options
and even minor price gaps of the books with all these advantages are taken
into account.
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Threats of Substitutes
The way how e-Retail business works today creates a lot of substitute
threats to conventional retailing players. Amazon.com itself started as a
substitute of conventional bookstore – it provides other means and sources
for the same products, services, or information (Kyle, 2002) as its retailing
competitors provide.
Barriers to entry
Most businesses in UK and also the rest of the world are SMEs and even
self-employed businesses (EIM, 2000). It is not uncommon that even unskilled
or old people can set up a little retail business such as take-away or
second-hand fashion shops fairly easily. Therefore the conventional retailing
markets are easy to enter in general.
Rivalry
The rival intensity of the conventional retail markets is high because there
are usually a large number of retailers competing to each other for the same
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Business Studies – Business Policy CSE3, 0010028
source of customers, but it may not be the same for e-Retail markets. In the
Amazon.com case, its competitors include The Waterstones, WH Smith, The
Books Etc., The Borders, and many other smaller bookshops, but not many
of them have as well-established and automated online system as
Amazon.com’s.
Conclusions
As discussed above, conventional retailing businesses have low entry and exit
barriers which yield low but stable returns; e-Retail businesses with high entry
and exit barriers, on the other hand, can generate higher but riskier returns.
References
Conklin, D. W.; Tapp, L. (May/Jun 2000); The Creative Web, Ivey Business
Journal Vol. 64 Issue 5
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Business Studies – Business Policy CSE3, 0010028
Hax, A.; Wilde II, D. (August 2001); The Delta Model: discovering new sources
of profitability in a networked economy, European Management Journal,
Volume 19, Issue 4, August 2001, Pages 379-391
Kyle, Bobette (2002); Strategies for Your Web Site Marketing Plan, Web Site
Marketing Plan (available at
http://www.websitemarketingplan.com/strategies.htm)
Bibliography
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