Amazon: Sustainable Competitive Advantage

Subject: Case Studies
Pages: 4
Words: 1257
Reading time:
5 min
Study level: Master

Introduction

Modern technology and globalization, the transition of most economies to a market economy, and the prevalence of capitalism have changed business values. The number of competitors for each company is growing, and industries need to transform production and sales to remain competitive in the global marketplace. Several analytics and business models have been developed and put into practice by companies to stay ahead of the curve. For any business, it is vitally important to remain relevant and in demand, not to disappear, and to attract new customers and grow. In other words, firms must gain a sustainable competitive advantage.

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Sustainable competitive advantage

To begin with, it is necessary to analyze what the term Sustainable Competitive Advantage is. This notion is meant the time-proof value, the value created by the company for its consumers, within a single market, based on a specific combination of resources and abilities, which competitors cannot replicate for a long time. It is also the result of a rational variety of exceptional resources and capabilities of value to consumers, which are extremely limited and difficult to replicate (Parniangtong, 2017). It is not so much about the capabilities and resources themselves but the uniqueness and sustainability of their combinations. Firms that use such combinations focus on collective learning and coordination of all employees in building specific collaborative competencies (Nassos & Avlonas, 2020).

The longevity of competitive advantage depends on the speed with which the resources and capabilities on which it is based depreciate or become obsolete. The goal of sustainable competitive advantage is to give the holder a market advantage among competitors and often market primacy. A sustained competitive advantage enables a business to maintain and improve its competitive position in the marketplace and survive against competitors (Nassos & Avlonas, 2020). As mentioned above, several analytics and business models have been developed for this purpose, and one of the most effective is Porter’s model of the five forces of competition.

Five forces model

Porter’s five competitive forces model is used to understand the structure of an industry, analyze its attractiveness in terms of profitability, evaluate the competition, and develop a business strategy; created by Michael Porter at Harvard Business School in 1979 (Perera, 2020). The purpose of the model is for an organization to find an area in which it is protected from competitive forces or to create a unique business model and earn higher profits than the industry average.

An analysis of competitive forces

  • Bargaining power of suppliers – how strong is the position of suppliers, how many potential suppliers exist and are they able to dictate prices and raise prices (Nassos & Avlonas, 2020)?
  • Bargaining power of buyers – how strong is the position of buyers? Can they demand lower prices? Can they join together and make joint purchases?
  • Rivalry among the players – is there intense competition among the players, a leading player, a dominant group, or is everyone equal in strength and size (Nassos & Avlonas, 2020)?
  • Entry of competitors – how easily can new players enter the market, the barriers to entry in the industry, and how easily can they compete?
  • The threat of substitutes – how easy is it to substitute a product or service at a lower price and more functionality?

Using the five forces of porter to analyse how amazon can achieve a sustainable competitive advantage

Amazon is one of the largest relay companies, shipping and selling all over the world. The industry has gained customers’ trust and is widely known because of the detailed product information on its website, low prices, and free shipping. Amazon has 586 stores as of July 2020, making it one of the most potent market players on par with eBay and Yahoo (“Number of physical retail stores owned by Amazon from December 2018 and July 2020”, 2021).

Reasons for using the five forces model

This model will help Amazon’s analytics professionals control the areas they monitor:

  • Analyse competitors working in the same niche, and calculate their strengths and weaknesses;
  • Understand the dependence of certain factors on Amazon’s profitability and success;
  • Determine and control the level of competition in the market.

How will the threat of new entrants help amazon achieve a sustained competitive advantage?

Amazon has been known to excel at selling a variety of products and shipping them efficiently around the world almost since its inception. Nevertheless, the industry needs to retain its customers, as other companies may outbid them. To gain a sustainable competitive advantage, it is necessary to take benefit of the cost advantage of products and product differentiation (Ennew et al., 2017). Although eBay and Yahoo are doing a good job, if Amazon continues its unique policy in this area, it will deter customers and increase overall loyalty (Our Company, 2021). The complexity of the factors related to supply and product licensing and the legal aspects will help prevent new competitors from entering this niche.

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Bargaining Power of Supplier

Amazon uses many different suppliers that are standardized according to specific criteria, and in this area lies the company’s main advantage. This ensures Amazon’s ability to touch anywhere in the world without incurring losses. Another aspect of this advantage is that because of the industry’s significant influence and strong reputation, a large number of suppliers are willing to cooperate with the company, and replacing a supplier in some instances is not tricky for Amazon (Cavallone, 2017).

The bargaining power of buyers

Amazon’s calling card is free shipping, responsive support, and a quality control service that is very easy to interact with (Top stories, 2021). This creates a substantial competitive advantage for Amazon over eBay and Yahoo. Buyers themselves help Amazon innovate and improve services and set precedents that allow the industry to highlight important factors for customers, which the company then emphasizes. This interconnectedness and interdependence make customers want to turn to Amazon, and the company itself can control what customers want.

Rivalry among existing firms

To gain a competitive advantage, Amazon needs to carefully monitor supply and demand quantities for different product categories to prevent oversupply or shortage of the products in demand. Also, the industry can analyze the direction of individual states, such as Canada or Mexico, where Amazon has its marketplaces, which will make it much more difficult for customers to switch to a competitor. Each product offered by the company is unique, which prevents high competition in producing certain types of goods.

Threat of substitute

The flow of substitute products in the amazon niche is very high. Still, the substitution of products offered by this company is quite challenging to accomplish because of their uniqueness and the detailed description of each product (Ike, 2018). The customer can always be fully acquainted with all the information he needs about a particular product, which prevents the customer from switching to a substitute. This crucial point allows Amazon to reinforce the advantage of its products over eBay or Yahoo.

Conclusion

Despite the vastness and large scale of amazon’s activities, the five forces model fits seamlessly into this niche. This is because the entire industry is structured and under precise control from all sides. In addition, through its innovations and advantages, Amazon has earned a high level of popularity and trust, which fulfills the task of customer retention (Kavoura et al., 2017). Using this model, Amazon can maintain existing benefits and strengthen them and add new ones. The competition in which Amazon operates is exceptionally high, so the company needs to carefully analyze all the forces that the model includes to develop and compete effectively and successfully.

References

Cavallone, M. (2017). Marketing and customer loyalty. The extra step approach. Springer International Publishing.

Ennew, C., & Waite N., & Waite, R. (2017). Financial services marketing. An international guide to principles and practice. Taylor & Francis.

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Ike, L. (2018). Marketing. Traditional, digital and integrated. Xlibris UK.

Kavoura, A, & Sakas D. P., & Tomaras, P. (Eds.). (2017). Strategic innovative marketing. Springer International Publishing.

Nassos, G. P., & Avlonas N. (2020). Practical sustainability strategies. Wiley.

Number of physical retail stores owned by Amazon from December 2018 and July 2020. (2021). Statista. Web.

Our Company. (2021). eBay. Web.

Parniangtong, S. (2017). Competitive advantage of customer centricity. Springer Singapore.

Perera, R. (2020). Understanding Porter’s five forces analysis. Independently Published.

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Top stories. (2021). Amazon. Web.