The e-commerce sector has achieved tremendous popularity throughout the world. This popularity can be credited to the faster internet, high smartphone penetration, and recently the emergence of COVID which caused a fear among the general public to visit physical stores. All these reasons combined have popularized online shopping. The major company that has accrued the benefits to establish a leadership position is Amazon.
As most of us already know, Amazon is headed by Jeff Bezos who is an iconic entrepreneur and is regularly involved in the discovery of new products and technologies. Currently, Amazon is worth high with a market capitalization of more than $1 trillion. The company serves customers throughout the world from its online platform and it also has started to build physical stores in the US with the unique cashier-less concept to provide ease in shopping to the customers.
The companies need to formulate strategies while expanding into new markets or while increasing their business in the existing markets. The strategy formulation can be effectively done by conducting a PESTLE analysis and this article would analyze the political, economic, social, technological, environmental, and legal components prevailing in the market of the US and China and what impact they can have on the e-retail industry. Besides, if you want to learn about the PESTLE analysis tool in detail, you should definitely read our all-inclusive PESTLE Analysis Guide.
For now, let us proceed with the PESTLE Analysis of Amazon
Table of Contents
An engaging PESTLE Analysis of Amazon
Political factors affecting Amazon
The US is among the top economies of the world. In fact, the US can be termed as a hot destination for conducting business because of the adequate support from the government. Recently, at the time of COVID businesses were assisted with financial as well as other required support. Furthermore, taking into account the decline in the income of most companies, the federal government of the US has initiated a positive step recently by reducing the corporate tax rate from 35% to 21%. Moreover, the companies currently operating or looking to expand their base in the US can highly benefit from the fact that the country has free trade agreements with many nations and has also entered into double tax avoidance agreements with close to 90 nations, meaning that the companies would be charged no or little tax for the income generated in the source countries. Hence, this can have a positive impact on the financials of the company.
To add, the positive news for the e-commerce players is that the government is serious about stopping organized crime and has made it mandatory for the e-commerce players to verify the third party sellers by sourcing the government ID, tax ID, and bank account information, and contact information from them. This would help in reducing fraud and the image of the online retailers would not hamper (CNBC, 2021).
Besides, the other major market for retailers in terms of the consumer base is India. The recent decision by the government of India wherein the companies are not allowed to conduct flask sales for marketing and selling their products and companies are also not allowed to advertise those sellers offering discounts. This could have an impact on their advertising business and revenues as well. Further, the companies are also not allowed to sell the products of the company in which they have the shareholding and this could act as a major loss-making decision for some companies (The Economic Times, 2021).
Economic factors affecting Amazon
The number of transactions for e-commerce is growing in the US which is evident from the fact that as per the Census Bureau of the Department of Commerce, the Q1 of 2022 witnessed an increase of 2.4% in sales over the last quarter and the total sales amounted to a whopping $250 billion.
However, the per capita income in India is declining and in 2021, according to the Business Standard, it was below the pre-COVID level, highlighting the decline in the purchasing power of the customers which would ultimately impact the sales of the retail companies. Furthermore, the stats from the White House favor the retail companies as in 2021, there was a huge increase in the income level of the people because of the rise in the employment level. The positive news from this is that there was a more than a 10% increase in the income level in the income of the people in the bottom 50%.
This is an opportune time for e-commerce retailers to optimize their return on investment given that economies are recovering from the slump brought by the COVID-19 pandemic and the projected growth of the e-commerce industry is promising.
Besides, the revenue projections of the E-Commerce industry in the US are illustrated in the graphic below
Social factors affecting Amazon
As per the report of the World Economic Forum, the customers prefer the use of both technologies as well as a personal visit to stores for purchasing the products. The number of people preferring in-store shopping amounts to 46% while there is a huge demand for ordering through different gadgets as well, 34% of people like to order online via PC, 38% via tablet, and 44% via smartphone. Alongside, the smart home voice assistants are also popular among the buyers with 42% of people preferring to order online via smart home voice assistants such as Amazon Echo, Google Home, and Samsung SmartThing.
Further, after the COVID more people have been shifting to online shopping which can be substantiated by the fact that in 2021, e-commerce sales in the US grew by 50.5% over 2019 (Goldberg, 2022). Hence, this presents an excellent opportunity for the companies that have an adequate online presence and further, they must also ensure that they have an abundant number of physical stores as well to cater to people of all segments.
Further, in India, there has been a shift in buying behavior over a period of time because of an increase in awareness about the environment. Around 62% of Indians are preferring to pay the premium price for buying sustainable products. This signifies the need for the companies to adopt sustainable practices which can be in the form of eliminating the use of plastic or delivering the products through green vehicles.
Technological factors affecting Amazon
The US is considered one of the largest spenders on Research and Development. The companies spend around $500 billion researching various new products and technologies to enhance the efficiency of their respective industry (Edwards, 2021). The various trends that are shaping the retail industry, especially the e-commerce segment include the facility of personalized product recommendations on the website as well as the app. The recommendations are provided to customers by tracking their shopping behavior.
Further, many companies are concerned about the rise in expenses nowadays which can be reduced by introducing chatbots. These chatbots are conversation robots that have the ability to interact with the customer just like the customer service representatives. Hence, implementing this technology would enable the companies to function without needing many customer service representatives.
In addition, the emergence of voice assistants like Alexa and Chromecast have provided more options to the customers for ordering and now they can order from their devices just by speaking. The thing that is lacking while shopping online is the personal touch and this problem can be solved by the companies by implementing augmented reality wherein the customers can be provided the options to visualize the products and get their real feelings. This can be beneficial to the companies as customers would be more confident and satisfied while making the purchases, hence it would reduce the chances of cancellations or returns.
Furthermore, the trend of blockchain is gaining trend for recording transactions and moreover, the digitization of the payment system minimizes the chances of fraud. Moreover, the delivery system has been made much more efficient with the introduction of the drone facility. With this, the courier can be sent speedily (Lastovetska, 2021).
The gist of the matter is that to make the most of the emerging technologies in the industry, companies would need great clarity on their change management approach.
Legal factors affecting Amazon
The anti-competitive practices in the US are forbidden by law and as per the Department of Justice are governed by two acts namely The Sherman Act under which the companies are not allowed to indulge in price fixation or rig bids. Further, the Clayton Act prohibits the companies from indulging in mergers and acquisitions that hinder the spirit of competition in the market and would allow the companies to create a monopoly for themselves.
The merger that would result in an increase in the prices of the goods for the customers would require approval from the Antitrust Division and also the Federal Trade Commission.
Further, the California government passed the California Consumer Privacy Act in 2018 which empowers the customers with the right to know why their personal information is to be collected and even the customers now have the right to delete or opt out of the sale of their personal information. This decision would make marketing more difficult for the companies because of the laminations with regard to the use of the customer’s personal data (Banta, n.d.).
Besides, the Indian government passed the Consumer Protection Act in 2019 wherein the companies are liable to pay compensation or damages for a product that is of inferior quality or if it harms the customer in any way. Hence, the companies must be careful while designing or selling the products to avoid financial penalties.
Environmental factors affecting Amazon
The retailers emit lots of carbon emissions from their operations through excessive use of energy and use of plastic for packaging and carry bags along with dumping the solid wastes in landfills. Various state governments in the US such as New Mexico and Oregon have banned the use of single-use plastic bags less than 2.25mm in thickness.
This means that the companies would have to search for new suppliers of bags. Further, the federal government of the US has announced a national recycling strategy wherein companies are required to recycle the waste rather than dispose of it (Shewmake, 2021). It is time that leaders show transformational leadership capabilities to make their businesses far more sustainable and environment friendly to acquire a competitive advantage
To conclude, the retailers stand out as an excellent chance to enhance their presence, especially in the e-commerce segment because of the change in the consumer dynamics wherein more and more people have started preferring shopping through online channels because of the risk of COVID. The companies need to be cautious about the fact that the customers are shifting toward sustainable shopping behavior, so they must also adopt green business practices to gain the trust of the consumers. Besides, if you want to analyze the internal strengths and weaknesses of the company, you can go through our intelligible Amazon SWOT Analysis. The analysis will provide you fruitful insights into the internal strengths and weaknesses of the company along with the threats and opportunities prevailing in the external business environment.
Banta, R. California Consumer Privacy Act (CCPA). oag.ca.gov. Retrieved 2 August 2022, from https://oag.ca.gov/privacy/ccpa#:~:text=The%20California%20Consumer%20Privacy%20Act,how%20to%20implement%20the%20law.
CNBC. (2021). Major U.S. retailers urge action by Congress on online sales of stolen and counterfeit goods. www.cnbc.com. Retrieved 2 August 2022, from https://www.cnbc.com/2021/12/09/major-us-retailers-urge-action-by-congress-on-online-sales-of-stolen-and-counterfeit-goods.html.
Edwards, C. (2021). Useful Stats: Business R&D expenditures by state and source of funding, 2019. /ssti.org. Retrieved 2 August 2022, from https://ssti.org/blog/useful-stats-business-rd-expenditures-state-and-source-funding-2019.
Goldberg, J. (2022). E-Commerce Sales Grew 50% to $870 Billion During The Pandemic. www.forbes.com. Retrieved 2 August 2022, from https://www.forbes.com/sites/jasongoldberg/2022/02/18/e-commerce-sales-grew-50-to-870-billion-during-the-pandemic/?sh=15ada3454e83.
Lastovetska, A. (2021). Future of E-Commerce: Innovations to Watch Out For. mlsdev.com. Retrieved 2 August 2022, from https://mlsdev.com/blog/future-of-e-commerce-innovations-to-watch-out-for-new.
The Economic Times. (2021). New India e-commerce rules and their impact, explained. economictimes.indiatimes.com. Retrieved 2 August 2022, from https://economictimes.indiatimes.com/tech/trendspotting/new-india-e-commerce-rules-and-their-impact-explained/articleshow/83914653.cms?from=mdr.