Question

What are the pros and cons of the Amazon effect ? Which companies were affected with Amazon’s rise to power ?

Answer 1

Amazon effect refers to the phenomenon in which the effect of e-commerce business, especially online retail is observed on other traditional business models. The major player in e-commerce, Amazon has a presence around the globe, and it plays a crucial role in changing the buying patterns of the consumers, so it is known as the Amazon effect.

Pros of Amazon effect:

• ‘Amazon effect’ has decreased the prices of consumer goods, which has increased the significance of quality products at lower prices.
• Due to the Amazon effect, the bargaining power of buyers has improved.
• Another major benefit is that consumers can get almost every product online with convenience. So many new products and businesses are gaining importance. For instance, the importance of supply chain management and inventory management is increased significantly.
• The stores use technology to predict customer buying patterns and fulfill their needs accordingly.

Cons of Amazon effect:

• The slashed prices of products and convenience have resulted in shutting down many street-based stores around the globe.
• The retail stores need to stock more than enough variety, as the customers want more variety of products in physical stores.
• The retail stores need to invest in online selling for survival, which increases the cost of maintaining the stock and delivery of the products. The retail stores have to work for a lower margin or shut down the business.

The companies affected due to the rise of Amazon:

1. Traditional Brick and mortar stores: Traditional Bricks and Mortar stores have to bear a high cost to manage the inventory, so the giant supermarkets are managing the just-in-time inventory concepts using the different business models.
2. The companies of supply chain management and logistics management: The presence of companies that are involved in logistics management is elevated due to the frequent requirement for transportation of products. Third-Party Logistics companies play a crucial role in the management of the operations.
3. Technology companies: The technology used in different stores and Amazon has impacted the technology companies related to artificial intelligence, big data, SAS, and other tech companies.
4. Manufacturing companies: Any company that produces a product (whether a consumer goods or books) is impacted due to the ‘Amazon effect’, as the companies need to produce the products at a lower cost and deliver the best possible quality.