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Five Competitive Forces in "Amazon"

Another theory that helps understand the possibility and intensity of competition is the one proposed by Michael Porter. Michael Porter (2008, p.80) proposes that five competitive forces which have to be kept track of, and understood to survive and grow in business turf are: (1)rivalry among existing competitors, (2) customers, (3) suppliers, (4) substitute products, and (5) new entrants.

I will examine the position of Amazon from each of these standpoints. Firstly, rivalry from existing firms like Wal-Mart and Barnes and Noble which are watching the growth of Amazon may intensify their competition. They are already selling online with a considerable degree of success. Furthermore, Wal-Mart, a leviathan firm, can invest resources much larger than what Amazon can, and thus, the fiercest competition stares Amazon in its face. Secondly, in regards to what kind of competitive pressure the customers can exert on Amazon, it can be safely stated that they are widely dispersed and interested only in effective delivery of value at the best prices. Their unionisation against Amazon is the least possible move and may never be a threat, more so, when Amazon has set about giving its best for a memorable ‘customer experience’. Thirdly, suppliers may start similar ventures. For example, Toys’R’Us which once undertook to stay away from online trading was permitted by the court to operate an independent online retailing facility. Similarly, many of the firms currently supplying the merchandize like electronics, beauty products, jewelry, sports goods and so on may start their own online retailing, or work with another rival of Amazon, unless Amazon takes care of their survival and growth needs. Fourthly, competition from substitute services is another possibility. The value proposition of Amazon, shopping the best from home, may face paradigmatic changes. One possibility, albeit remote, is that customers may like to travel and shop physically either to relax or meet people or choose things by touching the merchandise. Amazon has to be wary of these needs, and while innovating, Amazon has to integrate these aspects into their offerings. Fifthly and finally, new companies may enter online retailing business to offer the same product lines. If Amazon has built a set of inimitable and sustainable competitive advantages that gives unique value to customers, the threat from new entrants will not be as fierce as it will be when such strategic approach is lacking.

Internal analysis, which represents, among other things, an understanding of a company’s own strengths, guides the company in choosing what direction it has to take. Competencies, which are internal to a firm, are very decisive in its success.

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