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Bargaining power of suppliers in online retail industry

Michael Porter developed the Five Forces Analysis model as a tool for the external analysis of firms. In the case of Amazon, the external factors define the conditions of the e-commerce industry environment, with focus on the online retail market. The company remains the biggest player in this market.

Bargaining Power Of Suppliers | Porter’s Five Forces Model

To keep this position in the long term, Amazon must regularly evaluate the external factors in the online retail industry environment, such as through the use of tools like the Five Forces Analysis model. Five Forces Analysis of Walmart ].

Five Forces Analysis of the Fashion Retail Industry

The global scope of the e-commerce business also exposes Amazon to a diverse set of external forces. Thus, the company must ensure that it remains resilient amid changes in the conditions of the online retail industry environment. Competitive rivalry or competition strong force Bargaining power of buyers or customers strong force Bargaining power of suppliers moderate force Threat of substitutes or substitution strong force Threat of new entrants or new entry weak force Recommendations.

It is recommended that the company must address the strong force of competitive rivalry by emphasizing competitive advantage and strengths of the e-commerce organization.

  1. The diamond supply chain is vast including processes such exploration, mining, sorting, cutting and polishing, jewelry manufacturing, and even retailing. The high availability of substitutes and the low costs of their product offerings further increase the influence of substitutes against the company.
  2. Fast Food chains can simply pick other suppliers in industries where suppliers are manifold.
  3. If there are strong end users who can exert power over the organization in favor of a supplier This can be the case in labor situations.
  4. In all of these cases, the bargaining power of suppliers is high to demand premium prices and set their own timelines.

For example, the company must continue boosting its brand image, which is among the strongest in the industry. Another recommendation is for Amazon to counteract the threat of substitution by making its service more attractive.

For example, the company must continue enhancing the usability of its website to optimize user experience. Competitive Rivalry or Competition with Amazon.

Strong Force Amazon competes against strong competitors. In the case of Amazon. High aggressiveness of firms strong force High availability of substitutes strong force Low switching costs strong force Retail firms are generally aggressive, and they exert a strong competitive force against each other. Amazon also experiences the strong force of substitutes because of their high availability.

Other brick-and-mortar bookstores and smaller retailers also compete against Amazon. Furthermore, low switching costs impose a strong force on the company.

Low switching costs correspond to low barriers for consumers to transfer from one retailer to another, or from one company to a substitute provider. The following external factors support the strong intensity of the bargaining power of customers in affecting Amazon: High quality of information strong force Low switching costs strong force High availability of substitutes strong force Consumers have access to high quality information regarding the services of online retailers and the products they sell.

This external factor affects Amazon. In relation, the low switching costs make it easy for consumers to transfer from Amazon to other firms, such as Walmart. Also, the high availability of substitutes further empowers consumers to shift from one retailer to another. The external factors in this aspect of the Five Forces Analysis show that Amazon must consider the strong bargaining power of buyers as a major factor in addressing business challenges in the online retail industry environment.

Amazon experiences the moderate intensity of the bargaining power of suppliers based on the following external factors: Small population of suppliers strong force Moderate forward integration moderate force Moderate size of suppliers moderate force The small population empowers suppliers to impose a strong force on Amazon.

Moderate forward integration equates to a moderate degree of control that suppliers have in the sale of their products to firms like Amazon.

Moreover, the moderate size of most equipment manufacturers limits their influence on the company. Based on this aspect of the Five Forces Analysis of Amazon, the external factors emphasize the moderate significance of suppliers as a strategic determinant in the online retail industry environment.

In the case of Amazon, the following external factors support the strong intensity of the threat of substitution: The low switching costs show that customers can easily transfer from the company to other retailers. bargaining power of suppliers in online retail industry

Five Forces Analysis of the Ecommerce Industry

For example, consumers can easily decide to buy from Walmart stores or other retail establishments instead of buying from Amazon. The high availability of substitutes and the low costs of their product offerings further increase the influence of substitutes against the company. Thus, the external factors in this aspect of the Five Forces Analysis of Amazon.

This condition is due to low switching costs, or the low negative effects of transferring from one provider to another. However, the high cost of brand development in online retail weakens the influence of new entrants on the performance of Amazon. For example, it would take years and billions of dollars to create a strong brand that directly competes with the Amazon brand.

In addition, Amazon benefits from high economies of scale that make its e-commerce business strong. As such, new entrants need to achieve similarly high economies of scale to compete against the company. Copyright by Panmore Institute - All rights reserved. Educators, Researchers, and Students: