Five Forces Analysis of the Ecommerce Industry

Author- | Posted- | Updated: October 8, 2018 |

    Ecommerce Industry Five Forces Analysis

The Ecommerce industry has flourished at an impressive rate during the last few years. The reasons include growing economic activity around the world and the growth of technology. Both these factors have an important influence on the growth of the e-retail industry.  Particularly, it is in the US and Asia Pacific where the rate of growth is expected to remain the highest in the near future. Some of the major players in the industry include Amazon, Ali-Baba, E-bay and Flipkart.  Apart from it Walmart and Costco have also made their foray into e-retail. Moreover, the growing use of mobile technology has also proved favourable for the industry and led to an increase in revenue and profits.

With new local and global players entering the industry, the level of competition has also grown. The major global players like Amazon and E-bay have made significant investments in technology to provide their customers with a personalized shopping experience. This is a Porter’s Five Force analysis of the Ecommerce industry. The Porter’s five forces model deals with the factors that affect an industry’s attractiveness and competitiveness. These five forces are there in every market and industry and determine its attractiveness.

Bargaining power of suppliers:

In the Ecommerce industry, the bargaining power of the suppliers is generally low to moderate. The reason is that the rules are set by the brand and the suppliers have to follow the code of conduct set by them. Most of the ecommerce brands are highly cautious regarding their supplier relationships and set a code of conduct related to quality, labor and wages as well as sustainability. Despite the number of players in the industry having grown, the suppliers do not have too many options and therefore are bound by the rules that the brands have set. It is why the Ecommerce brands have the upper hand and the bargaining power of the suppliers is low. Some of the suppliers may have some bargaining power because of their size and quality.

Bargaining power of the buyers:

The bargaining power of the buyers is moderately high in the ecommerce industry. It is because several small and big brands ha e cropped up and there is hardly any switching cost for the customers. Today’s customer is well informed and has every piece of information available at a single click. Apart from it some of the physical retail brands have also entered the commerce market and the physical retail market itself adds to pressures. Most of the brands are trying very hard to retain every customer and for this purpose they make very large investments in technology and customer service.  Due to all these factors the bargaining power of the buyers is moderately high the factors that can moderate their bargaining power include brand image, quality of products and service and prices.

Threat of substitute products:

There two main threats in terms of substitutes for the Ecommerce brands.  The first are the competing e-retail businesses and the second are the physical retailers. Brands try to earn a competitive advantage through low prices, better quality of products or through a better overall customer experience.  For the customers there are no switching costs and they can easily switch from one e-retailer to another or from ecommerce to physical retail.

Threat of new entrants:

The threat of new entrants is low to moderate in the ecommerce industry. This is because there is a need for large investment in technology, human resources and marketing. The barriers to entry are moderately high.  One can enter with enough capita. However, the difficulty is in terms of building brand image and trust with the customers. So, the overall threat from the new entrants gets moderated.

Rivalry in the industry:

The level of rivalry in the industry is high because of the large number of players. The number of local and global brands in the ecommerce market has grown and this has also led to higher competition. Apart from Amazon, Ebay, and Alibaba, there are several other local brands like Flipkart, Coles etc along with some of the retail brands like Walmart and Costco. So, the overall rivalry between these brands gets to be very high.

 

Abhijeet Pratap

Abhijeet has been blogging on educational topics and business research since 2016. He graduated with a Hons. in English literature from BRABU and an MBA from the Asia-Pacific Institute of Management, New Delhi. He likes to blog and share his knowledge and research in business management, marketing, literature and other areas with his readers.