External Factors Evaluation Matrix of Amazon.com

External Factors Evaluation Matrix (EFE) Key External Factors

Weighted scores

Weights

Rating

0.0 to 1.0

1 to 4

0.06 0.06 0.13 0.1 0.08 0.08

3 4 3 2 4 3

0.18 0.24 0.39 0.2 0.32 0.24

0.03 0.03

4 2

0.12 0.06

Threats 9. eBay, Barnes & Nobles, OLX and Book-A-Million, etc.

0.15

3

0.45

10. Possible rejection to on-line sales in international markets due to introduction of new taxes 11. Increase in competition due to low market entry barriers

0.03 0.12

3 2

0.09 0.24

12. Impact of Government regulations and instability on internet products and sales in international economies 13. Strong U.S.D will hurt the value of international currencies 14. Baby Boomer's lack of computer literacy

0.05 0.03 0.05

3 2 4

0.15 0.06 0.2

Opportunities 1. Increasing the number of buyers over the Internet 2. Positive changes in book selling business and market 3. Growth of Internet users; predominantly in international markets 4. E-commerce expansion in Asia and the Pacific 5. Increasing product categories 6. 29% expected increase in online retail sales in 2006 7. Young people's acceptability of new technology and innovative ideas 8. Weak Dollar will help the value of International currency

Totals 1 What Weights mean: 0.0 = least important; 1.0 = most important What Ratings mean: 1 = the response is poor; 2 = response is average; 3 = response is above average;

2.94

4 = the response is superior

An External factors evaluation model is based upon the external audit and evaluates key external factors that affect a firm and also studies how well a firm responds to these factors. In our evaluation of Amazon we found the following factors that affect Amazon’s business and profitability. Based on the weight assigned it can be concluded that the growth of internet users, the heavy weight, stiff and the ever growing competition are perhaps the most important factors in online retail industry, having a high affect on Amazon’s business. A weighted score of 2.94 (above average and midpoint 2.5) shows that the Amazon.con has been able to manipulate the opportunities and have been able to counter threats and is doing rather well but its business isn’t still great. Amazon can still manipulate the opportunities and counter the threats that it has failed to do i.e. Amazon has not been able to work well with the foreign exchange market and it has not been able to expand its business activities in Asia.

Internal Factors Evaluation Matrix (IFE) Key Internal Factors

Internal Strengths 1. Strong brand name 2. Corporate Culture 3. High quality management team 4. Customer Support Services 5. Effective post sales services 6. Developed and upgraded technology: Software and Hardware 7. High shipping Quality

Weights 0.0 to 1.0

Weighted Rating Scores 1 to 4

0.15 0.1 0.07 0.1 0.1 0.05 0.08

4 4 3 4 4 3 4

0.6 0.4 0.21 0.4 0.4 0.15 0.32

0.1

1

0.1

9. Risk associated with unrelated diversification 10. Certain products that are offered have high shipping costs

0.1 0.05

2 1

0.2 0.05

11. Company offering free shipping might affect future financial outcome 12. Lack of website with Custom languages

0.05 0.05

2 2

0.1 0.1

Internal Weaknesses 8. Gradual decrease in profit from 2004-2006

Totals 1 What Weights mean: 0.0 = least important; 1.0 = most important What Ratings mean: 1 = major weakness; 2 = minor weakness; 3 = minor strength; 4 = major strength

3.03

Internal factors evaluation matrix (IFE) is a tool that uses internal audit’s report to analyze a firm’s internal strengths and weaknesses. An IFE matrix gives important information and helps in strategy formulation. The main strengths of online retail market in which Amazon operates is the strong brand names and recognition also corporate culture and sales and post sales services are of relative importance, too. The major weakness of this industry is the risk associated with venturing into retailing of products that are unrelated and high shipping cost related to some products. The weighted score of 3.03 (which is greater than 2.5) shows a strong internal position but there are still issues to be sorted out. As in case of Amazon due to high product diversification and venturing into new product markets costs have been high and though net sales have increased since 2004 the net income has significantly decreased. Amazon’s website lacks an important aspect of having different languages for different regions have also a significant impact on their sales as well over the years.

Competitive Profile Matrix (CPM) Firm 1: AMAZON.com Critical Success Factors 1. Marketing Positioning 2. Price competitiveness 3. Financial Position 4. Consumer Loyalty 5. Brand Awareness 6. Service Quality 7. Global Expansion 8. Customer Service and Support 9. Organizational structure 10. Product Diversity 11. Website Design and Contents

Firm: Barnes & Noble

Firm 3: Borders Group

Weights: Rating: Weighted Rating: Weighted Rating: Weighted 0.0 to 1.0 1 to 4 Score 1 to 4 score 1 to 4 Score 0.1 4 0.4 3 0.3 2 0.2 0.05 4 0.2 3 0.15 3 0.15 0.1 2 0.2 3 0.3 2 0.2 0.12 4 0.48 3 0.36 3 0.36 0.12 4 0.48 4 0.48 2 0.24 0.1 4 0.4 4 0.4 3 0.3 0.08 4 0.32 2 0.16 3 0.24 0.1 0.05 0.08

4 3 3

0.4 0.15 0.24

3 3 2

0.3 0.15 0.16

2 3 2

0.2 0.15 0.16

0.1

4

0.4

4

0.4

3

0.3

1

3.67

3.16

What Weights mean: 0.0 = least important; 1.0 = most important What Ratings mean: 1 = major weakness; 2 = minor weakness; 3 = minor strength; 4 = major strength The Competitive Profile Matrix (CPM) identifies the sample firm’s major competitors and its performance in relation to these competitors. The CPM unlike EFE and IFF uses both internal and external factors so the factors included in CPM are called critical success factors. The rating and weighted scores in CPM have the same meaning as EFE and IFE. In case of Amazon.com the most important factors in reference to success are consumer loyalty and brand awareness although other factors are of much importance, too. But these two factors are truly critical to a firm’s success in the online retailer market. Here Amazon.com is compare to its competitors from the book retails. The main competitors of amazon.com are Barnes & Nobles and borders group. In comparison to its competitors Amazon is fairly good. It according to our competitive analysis holds a weighted score of 3.67 which is clearly above average and impressive though Amazon still needs to work on its financial position and decrease its costs and increase profitability.

2.5