The internet has changed the way of doing business. And the way consumers make their purchasing decisions. Because of the internet now we can see an increase in long distance purchases made by consumers as there are no geographical barriers. The one of the first companies to take advantage of this is Zappos. com. Zappos. com is an online shoe store that sells all kinds of men and women’s shoes, from dress shoes to casual shoes, to athletic shoes, and the like. They also sell a growing range of accessories including designer handbags, belts, wallets, socks, and even diaper bags.
In July 2009, the company sells its stocks worth $1. 2 billion to Zappos. com. Since its founding in 1999, Zappos. com has grown to be the largest online shoe store. In this assignment we discuss how the company can use strategies such as SWOT analysis, 5Forces Analysis, PEST Analysis, Porter’s Generic model and the Company Culture to achieve success in global business. M. E. Porters 5 Forces analysis will help to do an industry analysis. It will give us a clear idea about the strengths of industry 5 forces. This will determine the eventual profit potential of the industry.
5. 1 Competitive Rivalry An initial point to analyze the industry is to look at competitive rivalry. If entry to an industry is easy then competitive rivalry is high. If it is easy for consumers to move to a substitute product for example from tea to coffee then once more the competitive rivalry will be high. Competitive rivalry is medium to high for Zappos. com. There are many players in the online shoe market such as “endless, shoebuy. com and PIPERLIME”. Because of this there is a high head to head competition between these players.
There is a high fixed and storage cost of the industry because of the firms have to store inventories in their warehouses for ready delivery. Zappos. com has the advantage over other players because they have the biggest storage warehouse and the biggest inventory, so they are able to provide a next day delivery service to their customers. Also consumers have a choice of purchasing shoes from bricks and mortar store which comprise of 90% of all the sales. 5. 2 Threat Of New Entrance New entrants to an industry can lift the level of competition, and reduce its attractiveness. The threat of new entrants largely depends on the barriers to entry.
High entry barriers exist in some industries, whereas other industries are very easy to enter. Threat of entrance in e-business industry is very high, because of the low set up cost. But Zappos. com has the advantage of been in the online market for more than 10 years and also they have a very well placed distribution system covering all over the world. Also they have the capital investment to try new innovative business strategies such as free shipping both ways. Also Zappos. com has the advantage of having a customer orientated organizational culture, because of this Zappos.
com is having a loyal customer base. Zappos. com brand name is very well recognized in business so new comers will face it hard to compete with this well established brand. 5. 3 Bargaining Power Of Buyers The bargaining power of buyer is very important in that buyers can influence prices to go down, demand higher quality products or services, these will cause loss of industry profits. Buyers can put more power when they are large number of buyers, the product is a major part of the buyer’s costs or purchases, the products are standard within an industry, and there is low changing or switching costs.
The bargaining power of buyer’s changes with time and a company’s competitive strategy . Bargaining power of buyers are very high in online business, because buyers are having more choices and they can instantly compare prices between Zappos. com and their competitors. So Zappos. com should have strategies in plays to retain their customers. Zappos. com has the customer loyalty because of their value addition on their products and more customer friendly business strategy (365 day return policy). Also they introduce customer loyalty programe for their loyal customers. Also Zappos. com guaranteed low price than their competitors. 5.
4 Bargaining Power Of Suppliers Suppliers can insert great deal of pressure over an industry as they can influence price increases and product quality. A supplier group exerts even more power over an industry if it has few suppliers, there are no substitute products for the supplier’s product and their product is vital to the industry to survive. These factors are usually out of the control of the company but strategy can change the power of suppliers. Bargaining power of suppliers is very low in online business. Because Zappos. com having more alternative suppliers in the market. So they can dictate terms with their suppliers.
This is an advantage for Zappos. com, because they can charge a low price to customers by having products cheaper from suppliers. Suppliers also want to do business with Zappos. com because their fair trading policies such as guaranteed price for suppliers and on time payment policy. 5. 5 Threat Of Substitute Products Substitute products are the usual result of industry competition; they will restrict the profitability inside the industry. A substitute product is a product that can do the same purpose as the product that the industry is producing. Threat of substitute products for Zappos. com main product line (footwear) is low.
Also all the main suppliers are willing to work together with Zappos. com. Furthermore Zappos. com has a very high loyal customer base. So the customer switching rate is very low for Zappos. com 6. 0 PEST Analysis Of Zappos. Com An organization’s success is depending on factors operating in its internal and external environment; an organization can boost its success by following strategies which influence these factors to its advantage. An established organization will not only recognize existing factors but also forecast future changes, so that it can take advantage of changes in the environments in which it do its business.
PEST analysis is concentrating the key external environmental influences on a business. PEST stands for the Political, Economic, Social and Technological factors that could influence the strategic decision making of a business. Understanding PEST influences is a very good way of identifying the external environment in which a business operates. On the other hand, it must be followed up by strategies of how a business can find solutions for these influences caused by external environment. 6. 1 Political Environment First component of a PEST analysis is an understanding of the political factors.
Political factors affect organizations behavior in different ways. Political factors can generate advantages and benefits for organisations. As well as they can create obligations and responsibilities on organisations. Political factors include the following types of instrument: – Legal factors such as the minimum wage or anti discrimination laws. – Business code of conduct – Market regulations – Trade agreements, tariffs or restrictions – Tax levies and tax breaks Non compliance with legal obligations will put penalties such as fines, negative publicity and imprisonment.
Unsuccessful business codes and practices will frequently lead to governments introducing new laws and regulations to control the actions covered by the business codes and practices. Zappos. com has to understand the rules and regulations of countries they are doing their business. Because of the Laws and regulations are different from country to country. As an example; google. com has been banned in China for governmental decision arguing that Google threatens the community and national market with unsuitable contents in his data bases. In addition, Google has lost potential market, as China could be, due to political decisions.
Economic Environment The second component of a PEST analysis is having a good understanding of economic factors. All businesses are influenced by national and global economic conditions. National and global interest rate and fiscal policy will be determining economic conditions. The status of the economy decides how consumers, suppliers and other organisational stakeholders such as suppliers and creditors act in the society. Because of today’s economic recession countries will have to face high unemployment rates, low spending power of consumers and low stakeholder confidence.
Zappos. com has been affected by this economic recession, because in most cases, customers prefer to buy in their neighborhood stores, than going online. Customers favor following the normal commercial process of going to the store, paying the product and having it immediately than going online, giving their bank details and waiting for a number of days to obtain the product. But Zappos. com implements a low pricing strategy and next day delivery strategy to keep attracting customers to their web site.