If you are after a thorough SWOT analysis of Amazon’s business to get an insight into the company’s strengths, weaknesses, opportunities, and threats, there are a number of factors listed below. If you’d like to learn more, keep reading!
What is Amazon’s Swot Analysis In 2022?
Amazon’s SWOT analysis highlights the company’s strengths in creating a strong brand name while maintaining cost leadership and global expansion strategies. However, the analysis also reveals Amazon’s weaknesses in maintaining a limited physical presence and thin profit margins. Additionally, the analysis presents the company’s opportunities in expanding its footprints including threats such as aggressive competition in 2022.
If you want to gain more insight into Amazon’s SWOT analysis, including its strengths, weaknesses, opportunities, and threats, keep reading for more useful facts!
What Strengths Does Amazon Have?
Amazon’s strengths refer to the internal strategic factors or forces that define the capabilities and dynamics in the company’s management and business operations.
The strengths reveal the company’s competitive advantage, including reasons behind the company’s success.
Amazon’s strengths include the following factors:
- Strong brand name and image
- Large merchandise selection
- A massive number of third-party sellers
- Business diversity
- Use of rapid technological innovation
- Cost leadership strategy
- Global expansion strategies
- Strategic acquisitions and collaborations
- Efficient supply chain
1. Strong Brand Name and Image
Currently considered the world’s most valuable brand, Amazon has managed to build itself a strong foothold with a successful brand name and image.
The company has continuously offered its customers efficiency, which resulted in consumer reliance and confidence in the giant e-commerce retailer.
As a result, the company has maintained a strong brand image within the market.
2. Large Merchandise Selection
Amazon appeals to more customers due to its large merchandise selection and a huge offering in its product portfolio.
According to ScrapeHero, Amazon offers customers millions of products in different categories, including books, computers and accessories, home and kitchen, beauty, and personal care, among others.
The company owns an extensive product mix that supports customer presence, making most consumers prefer shopping at Amazon rather than other online retailers.
3. Huge Number of Third-Party Sellers
Apart from Amazon’s products, the Amazon Marketplace comprises a large number of third-party sellers.
Many third-party sellers have joined Amazon’s platform to promote and sell their own merchandise.
According to Fulfillment by Amazon (FBA), third-party sellers have the opportunity to interact with Amazon’s customers and grow their business safely.
Consequently, Amazon gains from the third-party sellers while it continues to increase the product mix through its website.
4. Business Diversity
Amazon runs three diverse business units, i.e., Amazon Prime, Amazon Web Services, and Amazon Workplace, that helps generate the company’s net revenue.
These three units run independent business models and contribute holistically for the company’s benefit.
5. Use of Rapid Technological Innovation
Amazon’s ability to make rapid technological innovations strengthens the company’s ability to respond to trends and the latest technology.
The company frequently brings on board innovative additions and creative ideas to its wide selection of products and services to create brand differentiation.
For instance, the innovation of the Withings Aura Smart Sleep System and the drone delivery services have been among Amazon’s innovative programs that create brand differentiation.
6. Cost Leadership Strategy
Amazon drives a cost leadership strategy that helps the company maintain low costs and offer products at competitive prices.
Moreover, Amazon uses a competitive pricing strategy and differential pricing to ensure it offers its customers the best possible prices.
The competitive pricing is made possible by the company’s web-based business model and the efficiency of its operations.
As such, prices can be adjusted depending on the product category, time, and season.
Amazon also leads a differential pricing strategy that allows for different pricing of items depending on the market.
Furthermore, the company maintains online operations to evade costs incurred in renting out physical stores.
7. Global Expansion Strategies
Amazon’s global expansion strategies have immensely contributed to the company’s success and are hence considered as one of the company’s strengths.
The company employs a “Go global & act local” strategy to establish itself as a dominant player in foreign markets outside the United States.
As such, the company fights off domestic competition in different demographics by leveraging its logistic capabilities while creating tailored offerings according to the market situations.
8. Strategic Acquisitions and Collaborations
Amazon completes strategic acquisitions to penetrate foreign markets further. In fact, the company has made huge profits through the successful acquisitions of online retailers such as Junglee.com, Woot.com, Zappos.com, and IMBD.com.
Furthermore, the retailer partners with local supply chain companies to compete with other e-commerce rivals in the domestic market.
The strategic alliance with Evi Technologies and successful acquisition of Whole Foods have offered Amazon a significant competitive advantage in product placement and distribution.
9. Efficient Supply Chain
Amazon has established and maintained an efficient supply chain management with a superior logistics and distribution system.
The company provides fixed rates for different delivery times as well as free shipping options for Amazon Prime members.
The company strives to manage its inventory in order to satisfy customer delivery options and offers options such as one-day delivery, Prime delivery, first-class delivery, and free-supersaver delivery.
What are Amazon’s Weaknesses?
Amazon’s weaknesses include the internal factors that derail the progress of the business.
Even though Amazon has held great authority in the retail sector, it bears weaknesses that may hinder it from achieving its full potential.
Amazon weaknesses include:
- Thin profit margins
- Product flops and failures
- Tax avoidance issues
- Limited brick-and-mortar presence
- Poor working conditions for employees
- Reports on fraudulent reviews
1. Thin Profit Margins
Even though Amazon has been doing tremendously well in the e-commerce business, the company is delivering very low margins.
According to research by McKinsey, e-commerce companies like Amazon spend more on warehousing/ shipping expenses and on-site advertising, which generates lower margins than physical stores.
For instance, Amazon announced revenue of $53.2 billion in the second quarter of this current financial year, a figure that is below the market forecast for 2021 of $57 billion.
2. Product Flops and Failures
Amazon’s most significant weaknesses include the flops and failures of products intended to increase the company’s revenue.
Some Amazon products that were discontinued due to product flops include the Fire Phone, Amazon Local, Amazon Restaurants, Amazon Destinations, and Endless.com.
These failures cost the company a lot of money, forcing Amazon to strategize on how to make up for lost money.
For instance, the discontinuation of Amazon Fire phones in 2014 led to a loss of approximately $170 million.
3. Tax Avoidance Issues
Several tech giant retailers have often been accused of tax avoidance by jurisdictions and international authorities, and Amazon itself has gained a bad reputation for poor tax conduct.
According to research that evaluates the different tax practices of companies, Amazon pays fewer taxes as compared to its net profit and gross revenue.
For instance, Fair Tax Mark reveals that Amazon has paid $3.4 billion in income taxes in the US, despite a net profit of $26.8 billion on $960.5 billion in revenue over the last decade.
4. Lack of Brick-And-Mortar Presence
Amazon has a limited physical presence, hindering customers who prefer to purchase items from physical stores.
Therefore, other retailers such as Walmart, which have started to invest more in online operations, may create aggressive competition for Amazon due to their more familiar business structure.
5. Poor Working Conditions for Employees
Amazon has been in the spotlight for poor working conditions for its employees. Even after increasing the minimum wage to $15, there have been claims of faults in the company’s labor practices and policies.
Amazon warehouses are reported to put in place the stringiest working conditions on its staff to ensure that deliveries are fast and efficient.
In addition to the work pressure, Amazon is reported to have the highest injury rates in the US, with as much as an injury rate of 7.7% for every 100 workers.
6. Reports on Fraudulent Reviews
To verify the authenticity and deliverables of a product, most customers often rely on online reviews before making a purchase decision.
Unfortunately, many third-party sellers on Amazon provide fraudulent reviews, making it difficult for customers to determine the authenticity of products from the reviews.
The deployment of dishonest tactics discourages customers from purchasing items on Amazon’s websites.
What are Amazon’s Opportunities?
Amazon’s opportunities include the external factors that can be used to the company’s advantage for more profits.
Amazon’s opportunities include the following:
- Expanding to physical stores
- Global expansions
- Strategic acquisitions
- Cloud computing ventures
1. Expanding to Physical Stores
Even though there are increased preferences for online shopping, market analysts believe that physical stores have not been entirely replaced yet.
As such, Amazon has hinted at plans to set up physical retail stores in the US to beef up its revenue from the sales of household items, electronics, and clothing.
With these expansion plans, Amazon is expected to introduce better shopping experiences with the help of innovative technologies to expand the present Amazon Go stores and its line of grocery stores.
2. Global Expansions
Amazon has the opportunity to expand its e-commerce operations in more countries across the globe.
Amazon is currently concentrated in North America, a section that generates a majority of the company’s revenue.
However, the company has revealed an increase in international net sales during the first quarter of this year, posing an opportunity for Amazon to explore more foreign markets.
In response to increased opportunities in foreign markets, Amazon has recently launched its e-commerce websites in Poland, Egypt, and Singapore.
The entry into Egypt has replaced Souq.com, a local e-commerce platform, while Singapore’s entry paves the way for penetrating emerging Southeast Asian economies like Vietnam and Indonesia.
3. Strategic Acquisitions
For Amazon to grow beyond its limits, strategic acquisitions could go a long way towards expanding the company’s business operations.
The company can explore merger and acquisition strategies through innovation in order to expand into new business models.
Just like Amazon’s acquisition of Whole Foods Market, the company can hugely increase its footprints by strategic acquisitions.
4. Cloud Computing Ventures
Most businesses have acknowledged how cloud computing is cost-effective, scalable, and flexible in the recent past.
The current trend of working from home has also increased business opportunities in cloud computing.
As such, Amazon should capitalize on cloud computing ventures to increase the company’s profits.
What are Amazon’s Threats?
Amazon’s threats include the external factors that can negatively affect or hinder the company’s business operations.
Below are some of the threats faced by the company:
- Aggressive competition
- Antitrust investigations and lawsuits
- Fake reviews by merchants
- Government regulations
1. Aggressive Competition
Amazon’s different business segments are currently facing aggressive competition from giant companies such as Walmart, Google, eBay, and Netflix.
Amazon’s e-commerce operations face competition from Walmart, which has been rapidly growing its online presence, and other online retailers like Alibaba and Otto Group.
Although Amazon Web Services (AWS) has established itself as a market leader, a market share of 32% Microsoft Azure and Google Cloud with market shares of 20% and 9%, respectively, are fast catching up.
2. Antitrust Investigations and Lawsuits
In recent years, investigations and lawsuits have hindered the company’s general growth prospects.
For instance, in 2020, Amazon faced an antitrust probe by the European Commission, which was launched under claims of possibly using big data to abuse its market position in European markets.
The US government also launched an antitrust lawsuit against the company over claims for unlawfully crushing its competition.
Amidst these regulations, the company also faces multiple discrimination lawsuits from its employees.
3. Fake Reviews From Merchants
Amazon faces great threats resulting from reports of merchants creating fake reviews and better ratings by hijacking abandoned product pages and duping customers into making purchases.
Due to this fact, most customers become wary of buying items with good reviews due to the perception that they may be inauthentic.
4. Government Regulations
Some government regulations may hinder Amazon’s business operations from reaching their full potential.
For example, the government of India once banned the sales of non-essential goods on Amazon, resulting in a loss of $398 million.
Such policy shifts may become the company’s threat in both domestic and international markets.
To know more, you can also see our posts on whether or not Amazon is a non-profit organization, Amazon’s slogan, and who are Amazon’s biggest competitors.
Amazon’s SWOT analysis highlights the factors that accelerate and hinder the growth of the business.
This analysis helps the management to make decisions that would enhance key success areas, minimize the weaknesses, seize the opportunities and prevent the adverse effects of looming threats.