amazon-pestel-analysis

Amazon PESTEL Analysis In A Nutshell

Amazon 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).

Amazon PESTEL Analysis Introduction

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

Read Next: Amazon Business Model

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

pestel-analysis
The PESTEL analysis is a framework that can help marketers assess whether macro-economic factors are affecting an organization. This is a critical step that helps organizations identify potential threats and weaknesses that can be used in other frameworks such as SWOT or to gain a broader and better understanding of the overall marketing environment.

Read Next: Amazon Business Model

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 2021 Amazon posted over $469 billion in revenues and over $33 billion in net profits. Online stores contributed to over 47% of Amazon revenues, Third-party Seller Services,  Amazon AWS, Subscription Services, Advertising revenues and Physical Stores.

Economic factors are those that directly impact on 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.

Read Next: Amazon Business Model

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.

Read also: Amazon Business Model, Amazon SWOT Analysis, SWOT Analysis

Connected to Amazon Business Model

Amazon Business Model

amazon-business-model
Amazon has a diversified business model. In 2021 Amazon posted over $469 billion in revenues and over $33 billion in net profits. Online stores contributed to over 47% of Amazon revenues, Third-party Seller Services,  Amazon AWS, Subscription Services, Advertising revenues, and Physical Stores.

Amazon Mission Statement

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.” 

Customer Obsession

customer-obsession
In the Amazon Shareholders’ Letter for 2018, Jeff Bezos analyzed the Amazon business model, and it also focused on a few key lessons that Amazon as a company has learned over the years. These lessons are fundamental for any entrepreneur, of small or large organization to understand the pitfalls to avoid to run a successful company!

Amazon Revenues

amazon-revenue-model
Amazon has a business model with many moving parts. With the e-commerce platform which generated over $222 billion in 2021, followed by third-party stores services which generated over $103 billion, Amazon AWS, which generated over $62 billion, Amazon advertising which generated over $31 billion and Amazon Prime which also generated over $31 billion, and physical stores which generated over $17 billion.

Amazon Cash Conversion

cash-conversion-cycle-amazon

Working Backwards

working-backwards
The Amazon Working Backwards Method is a product development methodology that advocates building a product based on customer needs. The Amazon Working Backwards Method gained traction after notable Amazon employee Ian McAllister shared the company’s product development approach on Quora. McAllister noted that the method seeks “to work backwards from the customer, rather than starting with an idea for a product and trying to bolt customers onto it.”

Amazon Flywheel

amazon-flywheel
The Amazon Flywheel or Amazon Virtuous Cycle is a strategy that leverages on customer experience to drive traffic to the platform and third-party sellers. That improves the selections of goods, and Amazon further improves its cost structure so it can decrease prices which spins the flywheel.

Jeff Bezos Day One

jeff-bezos-day-1
In the letter to shareholders in 2016, Jeff Bezos addressed a topic he had been thinking quite profoundly in the last decades as he led Amazon: Day 1. As Jeff Bezos put it “Day 2 is stasis. Followed by irrelevance. Followed by excruciating, painful decline. Followed by death. And that is why it is always Day 1.”

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