Question

2. ( AMAZON)

Consider your firm’s competitive position and

how it has responded to shifts in the external

or internal environments. What major strategic

change should the firm seriously consider implementing to avoid inertia? Or if the firm is already

facing inertia, what can it do to break it?

Answer 1

Amazon’s competitive position can be analyzed in the light of Five Forces analysis.

Threat of entry is medium in the online retail industry because sunk costs are low when compared to other industries. While there is an apparent simplicity of entering this industry incumbents like Amazon have a clear competitive advantage and this deters many players from entering the industry.

Threat of substitutes is also medium. This is because switching costs are low and also the elasticity of demand is low. So an increase in demand will not affect the market price of the product and incremental demand from a potential substitute will be easily absorbed.

Bargaining powers of buyers is not very high as they remain segmented, are numerous and are from different categories.

Bargaining powers of suppliers is low because as there are wide variety of diversified suppliers present in the industry.

There is high intensity of rivalry and this leads to low margins.

Considering the above market structure Amazon has a strong competitive position and it maintenance its hold by making use of an integrated strategy. It follows a middle strategy which is a combination of cost leadership and differentiation. This enables Amazon to allow offering products at low prices while still being considered a unique place to buy different types of products from.

Amazon has responded well to shifts in the external environments. Amazon has responded well by making innovations like delivery through drones etc. and these innovations ensures that Amazon is able to adapt to the changes and leverage them by offering solutions that more tangibly meet the requirements of its customers. The external environment is also becoming more competitive with Walmart entering the on-line business and Amazon is responding to this through inorganic expansion.

To avoid inertia Amazon should focus on providing the maximized level of convenience to its customers. It should regularly analyze its product price and product breadth and make changes as and when necessary. While the company is still not facing inertia it can avoid facing it in future by making use of the technological power that it has to implement an agile methodology in all its activities. This will help them to evolve with the market.