In assessing the competitive position of a large online trader, we would use the five forces analysis of Michael E. Porter. The assessment would compare Amazon as an online bookstore against its online and conventional competitors. Potential Entrants The online bookstore industry that Amazon has pioneered in was, at first, very hard to penetrate. There were different barriers such as distributing capabilities and the variety of the selection offered that are supposed to be hurdled.
Although it is relatively easy to set up an e-Shop, however e-Shops such as Amazon now have very sophisticated websites and considerable investment in their supply chain infrastructure. Amazon successfully solved these tricky parameters as being the first one to get into the whole idea of online retail. With being the first, they had the luxury to set what were the norms for the industry. Factors that may lower these barrier tactics would be a wider selection and the ability to go to an actual bookstore to exchange or return books or other products.
This network of “actual” retail spaces makes it easier for the consumer to return or exchange the products they were not satisfied with. They also have brand name recognition (Amazon is currently the best recognized brand on the net). Setting up a large, general purpose, online bookstore and getting customers to know about that bookstore and to use it is not going to be easy and is not going to be cheap. These handicaps of Amazon were the basis for the emergence of book retail giants Barnes & Noble and Borders in the online shopping industry. Most of the large, conventional book retailers have now set up online bookstores.
They had the advantage that they could use their existing supply chain arrangements to feed the online bookstore. They have not achieved the brand name recognition of Amazon. It is perhaps doubtful that we will see many or any new entrants into this market, the costs of matching the infrastructure and brand recognition of Amazon are just too great. So the potential entrants were low. Industry Competitors The major competitors of Amazon are Barnes & Noble and Borders. Barnes & Noble is a retail giant offering books and CDs both in their outlets all over the country.
It opened their online industry in 1997 and has become the fourth largest e-commerce sites today. Focused largely on the sale of books, music, software, magazines, prints, posters, and related products, the company has capitalized on the recognized brand value of the Barnes & Noble name to become the second largest, and one of the fastest growing, online distributors of books. Their “advantage” to Amazon is the brand name and the availability of actual retail outlets in which consumers could go in to exchange or return products easily. They also have an established book selection based in their retail operations.
Borders were another multi-media retail store found in major cities around the country. Started out as a small bookshop in the college town of Ann Arbor, Michigan, it has since expanded into one of the finest bookstores. In 1992, Borders was bought by the Kmart group which further flourished the company into a Multi Media Giant with a wide selection of Audio, Video and Books found throughout the United States. The online Bookstore industry have become a fierce business which involves discounts, varied selections and fast delivery in which all three companies are challenging each other.
So we can conclude that industry competition was intense. Bargaining Power of Buyers The consumers of this industry can be found in every corner of the population. These are mostly people who have had some form of higher education and have access to the Internet and computers. The segment of online shoppers has increased dramatically in recent years due to the convenience of shopping in the comforts of the home and the accessibility of the Internet. These developments have made it easier for consumers to log on and buy on the Internet.
Consumers also tend to compare prices among the retail leaders such that buyers are able to buy products with very big discounts compared to ones bought in “actual” retail outlets. The bargaining power of the consumer is based on the competitive strategies of each active firm in the industry. Thus, consumers can challenge one firm for charging more than the other one such that the firm will beat the price of the competing firm. Bargaining Power of Suppliers Amazon’s suppliers range from the publishing and media houses to electronics’ manufacturers.
Amazon buys all their books, videos and audio CDs from the multimedia houses and publishing giants such as Time Warner, Doubleday etc. Amazon also has alliances with other bookstores to cover orders that they cannot serve. In the past, the book trade has, traditionally been a close sector with the retail price of books being set by the publishers and fairly standard trade discounts on that price being offered to both large and small retailers. Over recent years this position has been challenged by large retailers, e. g. supermarkets, seeking volume discounts on popular titles.
This position has been pushed further by Amazon with aggressive demands for discounting from the publishers. . The suppliers are not in a strong position to resist. Some and the booksellers had simply stopped stocking their titles. Thus bargaining power of suppliers was low. Threats of Substitutes The substitutes for Amazon and other online bookstores are the “actual” book retailers and music stores such as Barnes & Nobles, Virgin Megastore, CD Warehouses, Sam Goody and other small mom-and-pop outlets. With the rise of online retail, there would be little impact from these substitutes.
One impact would be some consumers who would like to hold or listen to their purchases prior to buying and those who are into the whole “shopping experience”. Therefore threats of substitutes were quite low. Conclusion After analyzing online bookstore industry, we can conclude that the degree of competitive intensity was in the moderate level. The online bookstore industry would still be attractive and had an opportunity to make a profit since it is quite difficult for new competitors to enter this industry, low bargaining power of suppliers, and low substitute products.
However, there was intense competition among existing competitors and high bargaining power of buyers. The company who want to be successful in this industry should have been widely recognized by potential customers, have user-friendly interface, and better customer services. Customer Analysis Segmentation Customers in the online retail industry can be roughly segmented into 2 groups which are individual customers and business customers.