Amazon PESTEL Analysis In A Nutshell

Amazon’s future success is influenced by Political (new regulations and potential breakups of the company), Economic (new global economic dynamics influencing e-commerce adoption), Social (changing consumer behavior at a global level), Technological (new technological challenges, like last-mile delivery at scale), Environmental (enabling sustainable operations), and Legal (compliance with international laws).

Table of Contents

Amazon PESTEL Analysis Introduction

This article will evaluate the global retail giant Amazon in the context of a PESTEL Analysis.

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A PESTEL analysis is a framework businesses can use to assess the external (macro) factors of the environment they operate in.

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PESTEL is an acronym of the following external factors:

P – Political.
E – Economic.
S – Social.
T – Technological.
E – Environmental.
L – Legal.

Amazon PESTEL Analysis

Let’s now perform a PESTEL Analysis on Amazon, addressing each factor in more detail.

Political

Political factors encompass the level of governmental intervention in an economy.

This may include policy decisions relating to foreign trade and tax or laws relating to labor or the environment.

As a global retailer, Amazon is not immune to political factors.

Politically stable western countries with similar laws to the USA offer Amazon expansion opportunities.

However, the company has faced stiff competition in China where the government tends to back Chinese e-commerce companies.

Economic

amazon-business-model — Amazon has a diversified business model. In 2023, Amazon generated nearly $575 billion in revenues while it posted a net profit of over $30 billion. Online stores contributed over 40% of Amazon revenues. Third-party Seller Services and Physical Stores generated the remaining. Amazon AWS, Subscription Services, and Advertising revenues play a significant role within Amazon as fast-growing segments.

Economic factors are those that directly impact the performance of the economy.

In turn, these factors influence the profitability of an organization.

Economic factors may include unemployment rates, raw material costs, and foreign exchange rates.

In the wake of the coronavirus pandemic, Amazon has benefitted tremendously from economic stimulus measures that have increased consumer discretionary income.

However, this income has also allowed competitors to enter the market.

Social

Social factors describe the general beliefs and attitudes of a population, most often related to cultural and demographical trends.

These factors ultimately determine and then drive consumer behavior.

With the shift toward convenient, fast, and contactless delivery, Amazon has again taken advantage.

Savvy and computer literate millennial consumers are also driving huge growth in mobile shopping as the availability of 5G networks increases.

Technological

This describes the rate of technological innovation and development and how it might influence a given market.

amazon-vision-statement-mission-statement (1) — Amazon’s mission statement is to “serve consumers through online and physical stores and focus on selection, price, and convenience.” Amazon’s vision statement is “to be Earth’s most customer-centric company, where customers can find and discover anything they might want to buy online, and endeavors to offer its customers the lowest possible prices.”

Digital technology is often the focus, but non-tech companies also look for advances in distribution, manufacturing, and logistics.

Amazon is highly innovative within the retail sector.

The company has invested heavily in drones to deliver parcels.

It has also created an unattended locker system called Amazon Hub so that consumers can receive parcels when it is convenient for them to do so.

Environmental

In the 21st century, environmental factors are becoming increasingly prevalent.

They encompass such things as carbon footprint, waste disposal, and sustainable access to raw materials.

Climate change has also meant that businesses must be more adaptable to frequent natural disasters.

As Amazon’s distribution network grows, the company must sustainably address its greenhouse gas emissions.

In the United States, Amazon Prime is particularly polluting because of the promise of 1 or 2-day delivery.

Legal

Large organizations that operate in many countries must have a detailed understanding of the laws applicable to each.

This is especially true in countries where employment, consumer, tax, and trade law directly impacts on business operations.

Amazon has had to deal with legal challenges regarding its tendency to subvert tax law and move profits into tax havens such as Luxembourg.

The company was also recently investigated by the US Federal Trade Commission for misleading discount claims on over 1000 of its products.

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Key takeaways:

The PESTEL analysis is a tool that businesses use to analyze macro-environmental factors that have the potential to impact on performance.
PESTEL is an acronym for six factors: political, economic, social, technological, environmental, and legal.
As a large, global retail company, Amazon has been able to take advantage of the shift toward convenient and contactless consumer goods delivery. However, it’s global reach also leaves it vulnerable to sustainability trends and investigation for tax evasion.

Key Highlights

Amazon’s Future Success and PESTEL Analysis:
- Amazon’s future success is influenced by a range of external factors, including Political, Economic, Social, Technological, Environmental, and Legal factors.
- These factors can have significant impacts on Amazon’s operations, growth, and profitability.
Introduction to PESTEL Analysis:
- A PESTEL analysis is a framework used by businesses to assess macro-environmental factors that affect their operations.
- It helps businesses identify potential threats and weaknesses and gain a broader understanding of the marketing environment.
PESTEL Acronym Explained:
- PESTEL stands for Political, Economic, Social, Technological, Environmental, and Legal factors.
- These factors collectively impact a company’s performance and strategy.
Political Factors:
- Political factors refer to governmental intervention in the economy, including policies related to trade, tax, labor, and the environment.
- Amazon’s global reach exposes it to varying political conditions, such as favorable expansion opportunities in stable western countries and competition challenges in regions like China.
Economic Factors:
- Economic factors encompass elements that directly affect an economy’s performance and subsequently influence a company’s profitability.
- Amazon’s diversified business model includes various revenue sources, with online stores, AWS, and other segments contributing to its revenue mix. Economic stimulus measures and increased consumer income from the pandemic have benefited Amazon while also inviting new competition.
Social Factors:
- Social factors encompass cultural and demographic trends that shape consumer beliefs and behaviors.
- Amazon has capitalized on the shift towards convenient and fast delivery, especially with tech-savvy millennial consumers and the rise of mobile shopping due to improved networks like 5G.
Technological Factors:
- Technological factors focus on the pace of innovation and how it impacts markets.
- Amazon’s commitment to customer-centricity and convenience drives its investment in technological advancements like drone deliveries and unattended locker systems.
Environmental Factors:
- Environmental factors, increasingly relevant in the 21st century, include sustainability, carbon footprint, waste management, and adapting to natural disasters.
- Amazon faces challenges in sustainability as its distribution network expands, particularly concerning greenhouse gas emissions and fast delivery promises.
Legal Factors:
- Legal factors pertain to understanding and complying with laws in various countries, especially in areas such as employment, consumer protection, tax, and trade.
- Amazon has faced legal issues related to tax evasion and misleading discount claims on its products, highlighting the complexities of operating across jurisdictions.
Key Takeaways:
- PESTEL analysis is a tool to assess macro-environmental factors’ potential impact on a company’s performance.
- Amazon’s ability to adapt to changing consumer preferences and embrace technological innovation has been instrumental in its success.
- However, the company also faces challenges related to sustainability, legal compliance, and competition in various markets.