The threat of new entrants into the online shoe/apparel market is relatively small due to the fact that Zappos is such an established brand and has specialized their business model. It would be far too expensive for a new company to copy the characteristics of Zappos including their next day delivery and large overhead. The fact that Zappos was losing money initially illustrates this difficulty. Another issue that would create a high barrier to entry is Zappos commitment to the consumer through overnight shipping.
Zappos stated that the overnight shipping caused them to leave their warehouses open for the entire day. Any other company would be at a competitive disadvantage if they didn’t match this business practice. In all the way Zappos does business creates too high a barrier to entry for threats of new entry to be high; for that reason we would rate it 2 OF 5.
We would rate substitutes at 3 OF 5, being that the threat is somewhat average.
With the uniqueness of Zappos, not many stores can match such a shopping experience service as Zappos. The reason we ranked the threat of substitutes at 3 of 5 is because there are Brick and Mortar Stores that may be used as substitutes of Zappos. These specialty stores are not up to Zappos standards, but at the same time their specialization with certain products make them a threat to Zappos. The whole person-to-person contact can have a big advantage in terms of customer service. Zappos answers by extraordinary customer service, which really makes the average consumer feel as if they are special and are in contact with a real person.
The rivalry with existing firms for Zappos is fair, we gave it a rating of 3.5 OF 5. A main competitor for online retail is Amazon; however Amazon recently bought out Zappos. Since their largest competitor is now a sister company, the main competition Zappos faces are highly specialized online retailers – such as Karmaloop and EastBay. These competitors pose a threat to some of Zappos’ sections such as athletic shoes, sporting goods, accessories, and apparel.
Both of these sites offer free shipping as well, so that takes away one of Zappos’ main competitive advantages. Zappos still has the premier customer service. Currently their biggest rival is eBay, eBay offers everything that Zappos does, and sometimes at a lower price. However since eBay is an auction site, it cannot guarantee a set price or free shipping like Zappos can. Customer service is where Zappos sets itself apart from its competition, offering a 365 day return policy and 24/7 call center hours based in the US.
We rated the bargaining power of suppliers at a 5 OF 5 because Zappos has a lot of leverage. A reason behind this is Zappos couldn’t function effectively without a cooperative supplier since they are a distribution company. If the supplier decided that they wanted more money per shipment then Zappos most likely comply. Taking the resources to find new supplies can be very costly. Also, they may not be able to find a supplier that can offer them the same variety of brands and styles that the current supplier does. Another way the supplier has bargaining power is that there are other companies like Amazon or Overstock.com that they could choose to do business with if Zappos isn’t satisfying their needs. The supplier is possibly the most crucial link in the value chain for Zappos and for this reason they have a lot of bargaining power with Zappos.
There are two aspects we can look at the bargaining power of customers. (1) Zappos is customer service based and the customers know that. If the customers lose their power, Zappos may lose customers. (2) Customer’s do not have many direct substitutes. Shoes are a necessity and here are few options like Zappos for buying shoes online. In essence they lose a bit of their power by this fact. Chances are if the customer does not like brick and mortar stores (physical shopping) they will still need to purchase from Zappos but it opens up gap then of which a new entrant may try to take advantage. Keeping both those aspects in mind, the bargaining power of customers can be considered intermediate; thus a rating of 3 OF 5.
Zappos has created a very structural attractive company. There is a lot of room for growth with the recent purchase by Amazon.
First prepare a Five Force Analysis of how Zappos operates using Michael Porter’s framework. Provide a short, direct and to the point analysis of each of the five forces as well as a CONCLUSION about the overall structural attractiveness of the industry in which your company operates. Substantiate your analysis with DATA.
Secondly, present an overall SWOT analysis of Zappos, discuss the implications of the analysis for future strategic options the company might address. You may use a narrative style or diagram for each of the industry forces and your SWOT analysis. In all cases you must PROVIDE A SCALE of how you rate each force in terms of its effect on the industry’s competitiveness now and in the future, e.g. High/Medium/Low and Increasing/Decreasing/ Staying the Same. The objective of this case is for you to understand how the choices a company makes about its resources and capabilities will affect its strategic viability.
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