Brand Loyalty and Customer

Satisfaction in Online Retailing

Company: A Case Study On “Amazon”

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 Table of Contents

1. Abstract
2. Background of E-Commerce
3. History and background of Amazon
4. Review of Literature
5. E-Commerce Evolution
6. Case Study – Amazon
7. Amazon Progression
8. Amazon's Competitor
9. PESTEL Framework Analysis
Political
Environment
Social
Economic
Legal
10.Conclusions and Future Trend
11.Conclusion on PESTEL affecting Amazon
12.Challenges of E-commerce
13.Future Trend
14.References
Articles References
Website References
 Abstract

Electronic commerce or E-commerce allows consumers to electronically

exchange goods and services with no barriers of time or distance. More
customers moved from traditional purchase to e-commerce because it is
often faster and cheaper. Besides, e-commerce offers more convenience
and flexible for customization option of products and services. Amazon
began as a small startup with a big vision and has revolutionized its present
in ecommerce business over the past 20 years more than any other
company. Amazon was chosen as a case study since it has changed the way
people shop online with its e-commerce evolution over the decades. In
Amazon case study, like any other businesses regardless of traditional or
online, are often affected by external factors. These factors are changing
the way businesses operate and how the industry evolves. Political,
Environment, Social, Technology, Economic and Legal (PESTEL) framework
is a tool that is used to identify these external factors that affects the
condition of a business organization or industry’s macro-environment.
Amazon sells a great deal of consumer goods, the other main feature that
puts the company on another level is the multi-leveled e-commerce
strategy it employs. It provides services to four primary customer sets:
consumers, sellers, enterprises, and content creators. The company also
provides other marketing and promotional services, such as online
advertising and co-branded credit card agreements. Selling goods isn't the
only way the company makes money; its web site's affiliate program is one
of the most famous on the Web. The level of integration that occurs on
Amazon is a programming feat that few (if any) online sales sites can
match, Amazon makes every possible attempt to customize the buyer
experience. The massive technology core that keeps Amazon running is a
major challenge, next to facing up growing competitors like Walmart,
Alibaba, Google in the online business.
 Background of E-Commerce
In e-commerce (electronic commerce) the trading business is done
through the internet and it involves commercial transactions that
include transfer of information. E-commerce simply means buying and
selling products and services through the internet and is commonly
associated with online shopping. It covers a range of different type of
businesses, from consumer-based retail sites to business exchange
trading goods and services between corporations.

There are four principal categories of e-commerce, namely B2B

(Business to Business), B2C (Business to Consumer), C2B (Consumer to
Business) and C2C (Consumer to Consumer).

• B2B: Involves companies doing business with each other. One example
is manufacturers selling to distributors and wholesalers selling to
retailers.
• B2C: Comprises of businesses selling to the overall public through
shopping cart software, without needing any human interface. An
example of this would be Amazon.
• C2B: Consumers post a project with a set budget online, and
companies bid on the project. The consumer reviews the bids and
selects the company. Elance is an example of this.
• C2C: Takes place within online classified ads, forums or marketplaces
where individuals can buy and sell their goods. Examples of this include
Craigslist, eBay and Etsy.

Following the tech-savvy consumer demands, e-commerce has evolved

over the years as one of the main facets of the internet to emerge.
Companies like Amazon began over a simple platform of B2C by merely
selling goods and books and transformed to the biggest online retailer in
the United States. Its operation is now serving multinational consumer
markets including Europe, India and China. Nowadays the e-commerce
giant provides a range of services ranging from retail to cloud computing
to book publishing. In year 2015, Amazon hit $107 billion revenue as
compare to $6.9 billion in year 2004.

History and background of Amazon

Amazon.com Inc was established on the World Wide Web in July 1995
and it is the largest electronic commerce company to date where
customers can buy almost everything they can imagine online and the
company is always trying to provide the lowest possible prices to its
customers.

On March 2012, Kiva Systems Inc agreed to be acquired by Amazon.com

Inc for $775 million in cash and it is the second biggest takeover of
Amazon. Kiva Systems Inc. is the manufacturer of robots that move
around warehouses, grabbing and moving shelves and crates full of
products.

On the report of Barr (2012), it is cited that the reason of Amazon

takeover Kiva is that the acquisition of Kiva took place when Amazon
adds a lot of new distribution centres in recent years to service its
rapidly growing business. Dave Clark, the vice president of Amazon of
global customer fulfilment said in a statement that “Amazon has long
used automation in its fulfilment centres, and Kiva’s technology is
another way to improve productivity by bringing the products directly to
employees to pick, pack and stow.” Therefore, Kiva warehousing
technology is making retailers fulfil online orders quickly and with fewer
workers.

It is also believed that the competition within rival companies is one of

the motives for Amazon to buy Kiva systems. Kiva is an innovative
product and since Amazon acquired Kiva, the company is supporting
Kiva systems to get the best methods to provide a better service in
coming years. To cope with its rival companies such as eBay or Apple
which are largest companies in e-commerce fields, the company has to
be more innovative in technology operation and always has to find an
efficient system to delivering the products to its customers in much
better way than its rivals. Kiva technology is helping not only to simplify
the tasks but also reduce cost while maximising flexibility of the
warehouses tasks from receiving orders to picking the products to
shipping to stay ahead of its rivals.
Finally, another reason for buying Kiva is to reduce costs. According to
Trefis Team (2012), Amazon’s earning with revenues was up 29% year
after year, reaching to $12.83 billion in the second quarter of 2012
report of Amazon. Most of its revenue was coming from the increasing
sales of general merchandise and electronics. It increased 34% in
international markets and around 41% in the North American markets.
On the other hand, the operating margins of Amazon were remarkably
declined because of the margin pressures as it has been spending
money on its expansion of fulfilment centres continuously in recent
years to enable to carry on its rapid growth of business. Since the
company is a retail business and furthermore it is growing rapidly, it
needs a large amount of storing place to hold the different types of
goods. It is not very easy task to do for labour in locating the goods in
the warehouse and carry the correct goods swiftly and efficiently
whereas the robots can easily identify the goods with bar codes. Thus,
by using Kiva’s automated warehousing technology systems at the
warehouses, things will get done faster than before and it will boost the
speed of productivity which will lead to reduce the cost of company.

Another acquisition of Amazon that the author is going to present is

Zappos. Zappos is online shoes and apparel retailer which has become a
leader in online market giving the best possible service to its customers.
Zappos agreed to be acquired by Amazon on July 2009. All the reasons,
that are going to present about why Amazon acquired Zappos by the
author, are referred to YouTube video from (07272009july, 2009) Jeff
Bezos about Amazon and Zappos.

The reason why Amazon interested in Zappos is that Zappos is unique.

Jeff Bezos said in the video that “Zappos has a unique culture that no
one has and it is a very significant asset.” It has its own reputation,
brand representation and its employees and it is the main reason for
Zappos to maintain its brand since it has gained the customer trust and
known as the customer-based business. Amazon is customer-based
business and so does Zappos. As both businesses go to the same
direction and focus on giving the best service to their customers, it is
 important for both companies to give customers a good representation
of their products.

Jeff Bezos also said that Zappos is under the great hands of great
leadership. It can be one of the reasons why Amazon acquired Zappos
because it is not easy to find good leaders though it is easy to find an
achieved business. An Achieve business cannot secure a good future but
good leaders can promise a bright future. In this case, the author would
say it is a bonus for Amazon since it acquired Zappos which is under the
great leadership with a good brand image in its market area at present
and with a lot of potential growth ahead in the future.

Another reason could be that not only Zappos has great leaders it is also
connected to Amazon for being a customer obsessed company. In
addition, there are even more amazing things. Because of the images of
both Amazon and Zappos, it will affect greatly on Amazon which is also a
customer based and at the same time Zappos image will also be greatly
affected since Amazon is one of the most achieving online retailer
businesses which means it has broad market. When Amazon merged
with Zappos, they can approach customers from both sides which
double the customer, make the companies to enter the market broadly
and expand their existing business. As synergy which is two plus two
equal five, both companies have good image and good service in their
respective areas and thus, joining and participating companies together
can enhance the value and brand of both companies in the market
positions. Furthermore, both companies can share their strategies,
technologies and operation experiences as the best as they could to
achieve both brands’ reputation and services and even grow faster in
the market.
Jeff Bezos always inspires his customers by saying: Amazon is a company driven
by a relentless customer focus. We believe that customers always want
something better, and it is our desire to delight them. This drives us to invent on
their behalf. At Amazon all of our actions, goals, projects, programs, and
inventions begin and end with the customer in mind. We call this “working
backwards”, a fundamental part of our innovation process. We start with
customers and what they want and let that define and guide our efforts.
Our culture is outlined in 14 so-called Leadership Principles. These are not just
inspirational phrases that we frame and hang on the wall, but rather guidelines
that provide orientation every day — whether we are discussing ideas for a new
project, thinking about how we can best approach a problem, or hiring new
Amazonians. The Leadership Principles empower us to be owners and innovators
while maintaining our customer centricity. Right at the top of our 14 Leadership
Principles is “customer obsession”, which explains how much our customer focus
is core to our company’s DNA and operations. Another one is called “bias for
action”. Many decisions are reversible and do not require extensive study. As
speed often matters in business, we encourage Amazonians to take calculable
risks and just start doing things.
More than changes, we focus on observing three constant factors in customer
behavior: they want low prices, the greatest possible selection, and convenient
delivery options. We constantly ask ourselves how we can best use new
technology to better fulfill our customers’ needs. For example, customers care
about sustainability and increasingly use Same- and Next-Day delivery options
when shopping. Route optimization technology helps us determine the most
efficient routes by improving the timing and routing of shipments. Such
technology allows for the inclusion of routes, address accuracy, and opening
hours. In addition, it makes it possible for drivers to serve the same
neighborhoods wherever possible — and these drivers have the best knowledge
about local parking facilities, addresses, and preferred drop-off locations.
Again, we believe it is more relevant to focus on the things that we know will not
change.
We are therefore always trying to expand our product and services selection and
to offer competitive prices and convenient delivery. We also believe that a
positive attitude towards the future is of great importance. At Amazon, we look at
the future with optimism and are constantly thinking about how we can better
shape it to our customers’ benefit — because we can’t predict the future, but we
can contribute to its development. When discussing new ideas, we do it with an
“Institutional Yes” attitude. That means we only accept contributions that seek to
improve an idea — so that it has a good chance to succeed.
We see that customers appreciate the variety of shopping opportunities,
including the bakery around the corner, shopping at high streets or in malls,
online shopping, or a combination of all of the above. Today, half of the articles
purchased on Amazon worldwide already come from small and medium-sized
companies — and many of them are enhancing their offline business through an
online shop and through selling on Amazon.
Our own goal with our physical presence has always been to offer true added
value and delight our customers with innovations in that environment. For
example, nobody enjoys long checkout lines.
For us, it means having the customer in mind. In this sense, we will continue
leveraging technology to make our customers’ life easier. At the same time, we
are putting our scale and inventive culture to work on a more sustainable retail
sector — because it enhances customer experience, reduces costs, and protects
the environment.
Across Amazon we are leveraging our scale for the good of customers and the
planet through innovative programs such as Frustration-Free Packaging, Ship in
Own Container, our network of solar and wind farms, investments in the circular
economy, and numerous other initiatives happening every day across our
company.
I am particularly excited about our project “Shipment Zero”. It is Amazon’s vision
to make all Amazon shipments net zero carbon, with 50% of all shipments net
zero by 2030.
To quote Jeff Bezos, “build a business strategy around the things that are stable in
time.” Then make sure that you are investing in ensuring that you are delivering
those things. When you have something that you know is true, even over the long
term, you can afford to put a lot of energy into it.
 Review of Literature
E-Commerce Evolution

Early development of e-commerce can be traced back to the 1960s, when

companies started using Electronic Data Interchange (EDI) to share business
documents with other companies. E-commerce was defined by IBM in 1972 when
the first electronic transaction happened. As the number of individual users
sharing electronic documents with each other grew in the 1980s, in the 1990s, the
rise of eBay and Amazon transformed the e-commerce industry.
The development of e-commerce has also led to rapid increase of internet sales
as consumers begin to appreciate benefits of:
• Discounted price offered by sellers as they operate with less margin
• Convenience to have a product delivered rather than the cost of time and
transport and parking of going to a store
• Sourcing low-priced product from overseas vendors
• More variety of catalogue offered by online stores
• Review engines that compare and recommend product
• Uncommon goods sold for cheaper offer at auction sites
The wide use of the internet globally has substantially contributed to the increase
of online transactions. As mobile devices became more popular, mobile
commerce has become its own market. With the rise of sites like Facebook and
Pinterest, social media has become an important driver of e-commerce. Source
from Internet Live Stats (2015) showed that 201 countries around the world have
internet access. The accessibility to internet help to grow E-commerce over the
virtual platform, below are the major milestones for the E-commerce evolution:
 1979- Michael Aldrich is credited with inventing online shopping by connecting a
modified domestic TV to a real-time transaction processing computer via a
domestic telephone line.
 1982- Minitel was introduced in France and was used for online ordering.
 1991 – The World Wide Web is created
 1994- Netscape releases the Navigator browser. Pizza Hut offers online ordering
on its web page, and the first online bank opens.
 1995 – eBay is founded & Amazon makes its first sale

 1996 – Over 40 million people have Internet access, and online sales surpass $1
billion for the year
 1998- PayPal comes into existence.

 2000 – Revenue from U.S. online shopping totals over $25 billion

 2002- eBay acquires PayPal for $1.5 billion and changes the scope of online
shopping forever.
 2003- After eight years, Amazon posts its first yearly profit and Apple launches
iTunes, the first major digital music store.
 2005 – The term “Cyber Monday” is coined and becomes one of the biggest
online shopping days of the year
 2006 – Facebook begins selling advertisements

 2008 – Online purchases are made on mobile phones for the first time

 2009 - Alibaba held the first Double Eleven (Single’s Day) Shopping Festival
online
 2012- US E-commerce and online retail sales are projected to reach $226 billion
(an increase of 12% over 2011).
 2016 - Alibaba Singles' Day festival posted a record $17.73 billion sales in 1 day
Today, 78% of US adults have made a purchase online, and 69% of adults with
Internet access shop online at least once a month and the most commonly
purchased items online are electronics (22%) and clothing (17%).

Case Study – Amazon

Amazon Progression
Amazon startup began with its founder’s own savings, loan from bank and family.
It began as a destination to buy books, and eventually other media. It then
offered marketplace services for online retailers and/or individuals, while
simultaneously selling other physical goods for homes, offices, cars, and beyond.
The company is a giant in the online retails with tremendous product range and
they make every possible attempt to customize the buyer experience. After 1996,
Amazon received extra investment of $1 million from venture capital. Amazon did
not rely solely on its internal strength to conquer the market. Eventually, Amazon
went public on NASDAQ in May 1997, Amazon acknowledged that only the stock
market would be able to provide the kind of financing it was looking for. Today
the shares are valued at approximately $268. In 2001 the stock price plunged to
just $5.97 with the dotcom crash. Amazon managed to survive this industry
challenge period, though had to close two warehouses and lay off 15% of their
staff in the process. The company finally turned a profit in late 2001 despite the
dotcom crisis. Even when profitable, Amazon have never declared or paid cash
dividends on common stock, opting instead to retain all future earnings to finance
future growth. Amazon’s revenue growing trend from year over year makes it a
case study worth analyzing.
Amazon is simply the ultimate hub for selling merchandise on the Web, it lets
almost anyone sell almost anything using its platform. Since 2000, customer can
also find goods listed by third party sellers to individuals or small companies and
retailers like Target and Toys 'R Us, used goods, refurbished goods and auctions.
The embedded marketing techniques that Amazon employs to personalize
shopper experience are probably the best example of the company's overall
approach to sales by knowing its consumers very well. Customer experience good
deals when they visit Amazon.com, from special offers and featured products to
some customized recommendations to attract personal shoppers.
Amazon is also able to lead the industry as it has been sensitive to the macro
environment changes throughout the world, by trending of consumer buying
behavior and keeping track with fast development of technology in every business
aspect.
Amazon's Competitor
Amazon operates in three general segments: media, electronics and other
merchandise. As of November 2014, the company became the largest internet
company in the US and a multinational consumer electronics company. In the
media segment, Amazon competes with auction site eBay, media game-changer
Netflix, Time Warner Cable, Apple, with iTunes; Google with its Play Store and
media producer Liberty Interactive. Amazon has several competitors in the
electronics and general merchandise segment, many of which are brick and
mortar rivals including Best Buy, Family Dollar, RadioShack, Staples, Target,
Walmart, Sears, Big Lots, Delia and Systemacs. Where else in the online
electronics and general merchandise segment the competitors includes Alibaba
Group, LightInTheBox Holding Co., Overstock.com, PCM, Vipshop Holdings,
JD.com, Wayfair Inc. and Zulily. In the other operating segment, Amazon
competes with several of the world's largest companies including CDW, PC
Connection, Insight Enterprises, Google, Oracle; salesforce.com, Accenture and
Citrix Systems, among others. Amazon’s CEO realized that not only could Amazon
sell products for less than its competitors but could also make them much
cheaper than its competitors. By streamlining manufacturing, distribution and
retail of products, Amazon has a significant competitive advantage due to the
scale it operates in.
 PESTEL Framework Analysis
We used the PESTEL framework, to analyze the changes in macro environment
that affects Amazon. The PEST framework was first introduced by Harvard
Professor Francis Aguilar in 1967 as the tool to scan the business environment
which is useful to spot business opportunities, detect direction of change within
business environment and avoid unconscious assumptions when entering a new
country, region, or market. In 1980’s, 2 more factors were added to ensure the
framework more comprehensive.
Political
Political behavior refers to “intentional acts from a wide range that may include
influence tactics, self-presentation, impression management, voice and helping
behavior to manage (create, maintain, modify or abandon) the shared meanings
of organizational situations so as to produce desired outcomes that would
otherwise be unfeasible” (Kapoutsis, 2016). Therefore, politics is tied to what is
actively going on within the company, and in the society outside the company.
Where in previous years, the concern was for laws and regulations for security,
false advertising, fraud and anti-dumping, while this now the focus has been all
about potential political election risk. There is no difference between e-commerce
and traditional commerce in this respect within the foreseeable future, as this
year represents a sea change whereby external political factors dominate almost
all events worldwide, with the biggest factor being the US Presidential elections
culminating in November 2016. The uncertainty to business practices stems from
the rhetoric, fear mongering, sensationalistic statements, and victimizations of
various parties, with either Clinton or Trump both viewed as risky for business. E-
commerce impact is not tied to scientific literature, but to promises of political
entities worldwide to erect barriers to trade in order to protect local economies.
The e-commerce risk particularly on Amazon is clear, its founder Jeff Bezos
purchased the Washington Post newspaper more than 2 years ago, and has
actively undermine the candidacy of Donald Trump. The retaliation from Trump as
the US President, can be detrimental to Amazon, as this is the primary source of
ownership income for Jeff Bezos. Therefore, the political perspective is crucial as
policies displayed by the US Presidency can post a spill over threat to the e-
commerce industry. Overall governmental support for e-commerce is an
opportunity especially for foreign countries expansion, Amazon could continue
expanding in India and China markets with governmental support. However, the
rising threat to Amazon also comes from the same factor, China government
allowed foreign e-commerce to operate in China, at the same time, they are also
strongly encouraging e-commerce startup with China companies. Competitors like
Alibaba and JD.com compete with Amazon fiercely in China online retail market.
Environment
Environmental concerns have been recognized as part of sustainability and
defined as ‘development that met the needs of the present generations without
compromising the ability of future generations to meet their needs’ WECD (1987).
In other words, by not compromising the 3 P’s which are the People, Planet and
Profits, the entire e-commerce industry has grown towards sustainability with
Amazon leading the way as one of the prime movers. Commercialization of the
internet has demonstrated a new working model with minimal usage of
resources, whether it is land, packaging, energy resources or others, while
delivering the maximum amount of savings to customers. During the shift to
online retail, Amazon excelled by harnessing web data to optimize price, locating
warehouses to optimize logistics, and experimenting with delivery models. Land
space is minimized with marketing being virtual, transportation is by means of
Economic Order Quantity and Shipping, while packaging is often times subdued
with minimal layering, and transaction steps and traceability is cut to the
minimum or stored online. The negative part of E-commerce to the environment
stems from the need to use technological interfaces, with its attendant
obsolescence and need for energy usage for recycling. Bhutta et al (2011)
estimates that in year 2007 e-waste to landfills is at 81% and the situation has not
improved much. This is the single biggest detractor of E-commerce. Rising in
emphasis on business sustainability, and popularity of low carbon lifestyles are
the opportunities for Amazon to improve the impact to its business. Amazon
improved its corporate social responsibility strategies by addressing
environmental issues as customers have strong interest in this area and these will
attract investors. As Amazon indulges into logistic business, environment issues
should be part of Amazon corporate strategy to address the ecological issues.
These strategies eventually turn into business sustainability and enhance the
brand or corporate image as e-commerce business entity that care about
environment.
Social
E-commerce has impacted society as it has changed the way businesses operate,
with the latest being developments being Web 2.0 which refers to a concept as
well as a platform for harnessing collective intelligence (Kaplan and Haenlein
2010). Social differences will exist where new technology is introduced as it
displaces traditional businesses setups. Also reflecting that social structures get
disturbed when longstanding jobs are replaced with new technology centered job
placements. From social perspective, building on Big Data to push specific
marketing by targeting potential consumers. While new information exists to
show the effectiveness of this approach, concerns of privacy and security remain,
and needs to be addressed moving forward to control public backlash against
deprived utilization of this technology. In a much more visible trek into the
unknown, Amazon has funded the A9 search engine. It has full search capabilities,
mapping functions, a toolbar with pop-up blocking and an easily accessible
personal search history. A9 also provides a "Diary" where user can make notes
about specific webpages and lists of recommended links for others to check out
based on their previous searches. Beyond the e-commerce industry to keep up to
the social needs of the IT community, Amazon has introduced “Mechanical Turk
Project” that seeks to combine community, technology and compensation. Using
the Mechanical Turk system, the IT community can post tasks they need help
with, like household service and maintenance with quickly caption a set of photos
and the person who completes it gets a small amount of money in return.
Amazon gets a commission on each completed transaction.
Technology
Over 20 years, the mobile internet speed has increased from 100kbps to 30Mbps,
a 300% speed increment. Dirk (2012) mentioned that fast forwarding of mobile
technology happened in the last two decades, from simple wireless analog-based
(1G) in late 1990’s to 2G GSM networks, 3G HSDPA network in 2005 to 4G LTE in
2010. 12 Technology transformed business from specific operating hours and
location to being available anytime and anywhere. Changing trends in the
technology provides more convenience to the consumer and revolutionize the
business operation as what Amazon did with the “Supply Chain System”. In year
2000, Amazon hugely invested over USD$2.1 billion to build automated
warehouse and automated supply chain management. To improve the delivery
time and cost, Amazon is exploring to improve its delivery method by deploying
drones, (Jenkinson 2005, Business Week 2003)
Castelluccia (2012) elaborated about Consumer Tracking on the Internet and
there are three types of tracking namely behavioral tracking, website tracking and
location tracking. Behavioral tracking is based on the consumer’s interest when
they search for certain products or services online, the finding history eventually
converts to consumer behavioral profile and behavioral profiling involves
collecting data and searching for patterns. Amazon has gained a lot of advantages
using the tracking technology by having huge database with added marketing
information such as consumer demographics and their spending interests with
ratings of the products purchased. Website tracking is another major source for
data collection, mainly focused on the IP address of the user through techniques
such as cookies and JavaScript. Location tracking is primarily from mobile devices.
Smart phones are equipped with multiple sensors like camera, microphone, GPS
and accelerometers which enables applications such as Facebook, Foursquare and
Google Map to collect consumer’s location and push the advertisement such as
“place of interest” to the user. Data collected from consumer tracking is a gold
mine for the online businesses as it will enable them to provide more
personalized service and product information to attract more consumers to shop
online.
Amazon has also evolved to provide comprehensive cloud computing platform
which is Amazon Web Services (AWS) as part of service to handle big data. The
first AWS offering was launched in 2006 to provide online services for websites
and client-side applications. AWS service is diversified geographically to minimize
the impact of outages and ensure robustness of the system.
Economic
Rising of inflation drives the demand and consumption for goods and services
down. Economic forces such as inflation, interest rate, labor and government
monetary policies can affect crossboundary e-commerce businesses. Ingait (2014)
indicated that economic factors are important to e-commerce. Thus,
government’s ability to maintain the inflation at a reasonable level is critical.
Malaysian currency dropped 25% in 2016 compared to 2015, driving the inflation
for imported goods. Such scenario drives the consumers to seek affordable goods
overseas especially for non-essentials and luxury items. Interest rate is another
monetary tool used critically by the government. Low interest rate encourages
borrowing and high interest rate discourages it. While interest rate is low, the
cheaper cost enables businessmen to extend their businesses online and
consumer will have additional money to spend since they have more disposal
income. Money circulation in the market will increase due to this. Cost is the main
factor in operating any business, the ability to drive the cost down eventually
contributes to higher profit margin. OCED (1999) researched that e-commerce has
economic impact to the business for the ability to extend to cross-boundary
without the need for physical setup, thus this encourages global marketing and
has lesser variable cost. Merchants need to maintain only one online store
instead of many physical branches and enables duplicated inventory cost to be
reduced. Employment rate is also a main factor that encourages e-commerce.
Low employment rate causes more people wanting to be entrepreneur by doing
business online as the cost to start up online business is relatively low as compare
to setting a physical shop. On the contrary, high employment rate stimulate e-
commerce transactions as more people can afford to spend more.
Legal
The internet transcends geographic borders, there are no laws or borders on the
Internet - therefore a term ‘Lex Internet’ has been used as synonym to no law
internet. Thus, it has raised concern on privacy and security, copyright and
trademarks. It can impact e-commerce when attempting to relate which country’s
legal system should be referenced, especially when disputes arise. Trust and fraud
are another serious concern relating to e-commerce, in the cyber business world,
cash transactions or payment on delivery is not really an option. In most of the
case, buyer will need pay first and wait for the goods to be delivered, if the seller
decided to cheat the buyer, then the buyer will have a hard time to trace and
retrieve the payment made. Another potential fraud includes the phantom
business opportunity and bogus investment. Nasir (2004) researched that some
countries encourages the use of electronic business by adopting legislation, for
example Australia enacted Electronic Transaction Act (ETA) that enables
contractual dealings, such as offers, acceptances and invitations, to be conducted
electronically. Data protection and credit card data is another area to look into,
Malaysia implemented the Personal Data Protection Act in 2010, similarly in
Singapore in 2012 which aims to protect consumer’s data, therefore business
entity cannot abuse the customer’s data that they have access to. Likewise, in
other countries in the European Union (EU) with the Data Protection Act
implementation, retailers are required to have privacy policy to explain how they
plan to use the customer’s data (Wilmart, 2014). EU has the most comprehensive
consumer protection in e-commerce as compared to the rest of the countries.
Any online retailer operating in EU and selling to consumers is subjected to
regulations regarding distance selling (Wilmart 2014). The online consumer
information tracking deployed by Amazon has generated a fair amount of
controversy. There is argument about Amazon gathering too much information
for ease of marketing comfort. The Electronic Privacy Information Center reported
that in 2000, Amazon started sharing its customer data with its partners and
subsidiaries. The concern has increased with the tracking of "gift-giving habits,"
because the gift-giving information Amazon collects could be about minors, which
is against the law and the gift receivers are not aware that their personal
information is stored in Amazon's database. From legal aspect, the law coverage
on e-commerce is crucial not only for consumer but also to the retailers. Any
dispute in the business, the legal system is required as arbitrator to decide the
best solution for the parties involved.

Conclusions and Future Trend

Conclusion on PESTEL affecting Amazon
Clearly using the PESTEL framework, we can conclude there are risks and as well
as opportunities to Amazon’s e-commerce interconnected businesses. The most
immediate risk is the uncertainty of Political change directives in governmental
policies, the US Economic situation, and societal perception of security and legal
risks. The opportunities which exist with Amazon’s current business strategy is the
Environmental cost savings, Social needs transformation, and Technological
changes provides a clear systemic advantage over rivals who have merely regional
or special case benefits, and who does what everyone else is doing. The risk-
taking attitude at Amazon indicates their clear direction in business decisions,
while willing to suffer temporary setbacks if they do not play out well at first.
Contenders within the e-commerce industry are commonly focused on expanding
product and service offerings on consistent growth strategies such as allowing
customers to shop online as well as physically, providing forwarding services for
collecting shopping bundles and expanding social marketing placements through
electronic media. These efforts have yet to be positively correlated with
generating significant increases in revenue or net profits, and it has been
theorized that customer apathy to social media (Facebook engagement in 2013
and apathy 2016) is a natural progression of over engagement. Contrarily Amazon
does it differently by leading to create an entirely new social market to which
previously did not exist in e-commerce. Amazon expanded its book market with
the Kindle reader in a time when physical book sales were plunging, creating an
entire new market for social ways to purchase and access books. Amazon
introduced ALEXA (sold hardware as ECHO) to marketplace a cloud-based learning
network which responds to user’s enquiries verbally, rather than visual-physical.
This development has the potential to build entire new social markets, again
where none existed.

Challenges of E-commerce

The e-commerce businesses require integrating two kinds of activities – one that
are embedded into the physical value chains and the others that are built through
information into the virtual chain. Although the relative importance of these two
kinds of chain depends on the characteristics of the products and services, their
integration, nevertheless, plays a critical role in the success of e-commerce. The
road to creating a successful online business can be a difficult if owners are
unaware of the online operating principles and developments surrounding e-
commerce industry. Researching and understanding the guidelines required to
properly implement an e-business plan is a crucial part to becoming successful
with online store building.
Future Trend

Source from Statista projected that by 2018, mobile user worldwide will reach
4.93 billion. Fortune.com reported that Amazon’s mobile app saw its usage
increase by 35% in Prime Day Deals on July 12, 2016 that generated $565 million
in sales, and Amazon’s mobile app users have the highest median income
compared to competitors. In 2016, total retail sales across the globe will reach
$22.049 trillion, up 6.0% from the previous year. eMarketer estimates sales will
top $27 trillion in 2020, even as annual growth rates slow over the next few years,
as explored in a new eMarketer report, “Worldwide Retail Ecommerce Sales: The
eMarketer Forecast for 2016”
This unique combination of fast growth and low market share means that there is
an enormous opportunity for the sector to grow and for new dominant players to
outpace industry leaders. Enterprise retailers need to watch who’s emerging,
track who’s loved, and research what’s driving success. In addition, Amazon must
continue to optimize their in-store experiences with connections between online
and offline worlds. In e-commerce, more and more value chain activities are
conducted electronically, therefore, businesses should understand the implication
of the virtual value chain activities. The virtual chain offers a number of distinct
advantages over the physical value chain. Some of these advantages lie in forging
alliances between customers and manufacturers, advertising products and
services selectively with effects of audio, video, and graphics, and saving time and
money in efficiently processing customer’s orders and enquiries.
The next step for e-commerce will be the application of Artificial Intelligence (AI)
systems and running evolutionary algorithms designed to find the absolute
optimum. By developing systems using these algorithms, which are designed to
effectively test, optimize and repeat on loop, e-commerce will move into an even
higher level of sophistication as this technology improves. Perhaps one of the
most exciting developments in e-commerce is one we are already starting to see
in testing - drone delivery. Drones will in the future allow companies to deliver
packages much more efficiently and quickly, with delivery times of just 60 or even
30 minutes from order entirely plausible. Drones will be sent out from distribution
centers and travel directly to the delivery addresses provided, at significantly
lower cost and logistical hassle than at present. Amazon, among others, is already
seriously close to making this a reality across the entirety of their business, and it
seems that others will follow suit as quickly as possible.
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