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Five-fore analysis of B2C industry and Amazon’s market valuation Essay

Amazon is an American commerce company that sells electronic products and used for business-to-customer (B2C) transactions. It began its business as an online bookstore, and is developing to selling many other electronic innovations.

Five-force Analysis of B2C industry
i) Threat of New Entry

Nowadays, Internet is becoming more popular and it is a simple step to develop business and company structure online in a short period of time. Setting up business online is yet simple but practical, companies can make good use of the advantages to create incredible results for its own companies. With inexpensive set-up cost and capital requirements, it is easy to attract new entries into this market. Especially for some products which already have real products and resources, they can use their existing materials and expand the business to online. All these can proof that it is an easy market to enter and the threat of new entry to B2C industry is high.

ii) Bargaining Power of Suppliers

Since there are many publishers in the market, substitutes are available and B2C industry faces only low switching costs when it changes suppliers. Since there are no physical stores in B2C industry, changing suppliers does not matter for them to continue their business. Besides, most of the customers go to online retailing websites to compare some products with similar functions but not a certain brand, so those retail companies do not think that the input offers by their suppliers are necessary to affect the sales. Moreover, usually B2C companies would order large volume of purchase, so suppliers treat them as important customers. Because of these, the bargaining power of its suppliers is low.

iii) Bargaining Power of Buyers

The bargaining power of buyers of B2C industry is medium. As there is a large availability of products with limited difference from its competitors, consumers will have higher power to switch to other competitors easily. Also, when people change to other companies, they do not involve high cost to enjoy similar products or services. However, when people purchase online, they usually purchase in a low volume, this may lower the bargaining power of buyers. Apart from this, usually the bargaining power is really high when people are concentrated and there are only few of them. Yet, there is large number of buyers in this market and mostly, people are scattered in different time and locations to buy online.

iv) Threats of Substitute Products or Services

Although there are many substitutes to replace each company in the B2C industry, and consumers have low switching cost to the substitutes, the threat of substitutes of B2C is high. Even in the online platform, there are many different companies for customers to choose. Not only the substitutes sold online, substitutes sold in physical stores can also increase the threats of the substitutes. In addition, when customers can find some online shops which sell products with lower price, customers would shift to those shops since they would think that they can purchase products with similar quality even the prices are different.

iv) Rivalry Among Existing Competitors

The rivalry among the existing firms in this market is high. Though there are only few major commerce companies in this field and have been existing for a long time, the market is still competitive. With the development of advanced technology and wide spread of Internet application, there is high growth rate of e-commerce industry and this will increase the competition of this industry.

Value Chain of Amazon

Value chain can be divided into nine activities and each of them can affect the revenue of company.

i) Inbound Logistics
Amazon can gather information of customers’ experiences efficiently as it highly reduced returns to its suppliers.

ii) Operations
As it has 24hour warehouse, its easy and fast operation and system can meet high demand of customers.

iii) Outbound Logistics
Amazon has the ability to sum up orders bounds for some locations.

iv) Marketing & Sales
Since the delivery is only based on single transaction, the delivery is free and it reduces the price of some suggested products.

v) Firm Infrastructure
With a single platform, Amazon has a strong technological infrastructure to help the management of the company.

vi) Human Resources Management
Amazon put a greater force on human resources management. It hired trained professionals to work for the company to help its development.

vii) Technology Development
Amazon has high investment in technology development such as Kindle to support daily operations and growth.

viii) Procurement
Amazon can purchase raw materials or useful products from the supplier at a low price which can help reduce the production cost.

ix) Service
Amazon has a policy of free returns within 30 days, which allows people to make a possible change of the products after purchase. From the above information, I do think that Amazon can outperform and operation efficiently in this market since its development is all-round and can meet market needs.

Marketing Valuation of Amazon
As using NASDAQ as an indicator for the performance of online retailing industry, the stock value of Amazon.com has an increasing rate much higher than that of NASDAQ. It means that Amazon perform outstandingly in this industry for many activities. From the results in the part mentioned above, Amazon has such a stock price is proper as it really can adapt the market situation and can outperform its competitors.

( 2012 , 8) .Value Chain Analysis Of Amazon Researchomatic .Retrieved 8 , 2012, from http://www.researchomatic.com/essay/Value-Chain-Analysis-Of-Amazon-145094.aspx





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