Porter’s Five Forces Analysis of E-Commerce

E-commerce is the method of online buying and selling of products and goods. Tech development in the digital and semiconductor industry laid the foundation for the development of e-commerce platforms. Today, we’ll discuss Porter’s five forces analysis of e-commerce industry; the bargaining power of suppliers and buyers; the threat of new entrants and substitute products; competitive rivalry of e-commerce’s five forces analysis of online shopping platforms.

The e-commerce industry employs the following technological tools and equipment;

• Electronic data interchange
• Inventory management system
• Automated data collection system
• Mobile e-commerce
• Electronic funds transfer and netbanking
• Supply chain management
• Online transaction processing
• Internet Marketing

Top online shopping and e-commerce platforms are as follows;

• AliExpress
• eBay
• Amazon
• Walmart
• Target
• Rakuten
• Shopify

Porter’s five forces analysis of e-commerce industry would analyze the bargaining power of suppliers and buyers; the threat of new entrants and substitute products. Here’s e-commerce Porter’s five forces analysis online shopping platform as follows;

Porter’s Five Force Analysis of E-Commerce Industry 

Let’s discuss Porter’s five forces analysis of e-commerce industry; they’re as follows;

Bargaining Power of Suppliers in E-Commerce Industry

The bargaining of suppliers is moderate in the e-commerce industry and online shopping platforms. Some of the main factors impacting the bargaining power of suppliers in the e-commerce Porter’s five forces analysis of online shopping platforms are as follows;

I-Limited Suppliers

There are a limited number of suppliers in the market that cater to the needs and demands of all the brick-and-mortar stores and various e-commerce platforms. Many suppliers prefer to work with the top brands and leading e-commerce platforms and brands like Amazon and Walmart. It would make sure long term contracts and consistent sales of raw supplies, and they don’t have to worry about renegotiating the right pricing deals with stores all the time.

II-Forward & Backward Integration

Some brands like Amazon and Walmart invest a significant amount of resources in market and advertisement. It allows them to establish strong brand loyalty and have a significant amount of control over their suppliers. They have to follow the standards and code of conduct of top leading brands; because they have a significant influence in the market.

Bargaining Power of Buyers in E-Commerce Industry

The bargaining of buyers and customers is very strong in the e-commerce industry and online shopping platforms. Some of the main factors impacting the bargaining power of buyers in the e-commerce Porter’s five forces analysis of online shopping platforms are as follows;

I-No Switching Cost

Buyers and customers have a lot of shopping options while shopping online or offline in brick-and-mortar stores. There are various brands offering similar types of products without any differentiation. Customers could easily switch from one shop to another or one e-commerce platform to another without incurring a lot of cost.

II-Easily Accessible Information

Customers and buyers could easily gather information about the relevant required product, its price, and availability in various stores. Easy availability of information offers them a competitive edge while shopping. They can easily find the required product under their budget and needed quality.

The threat of Entrants in E-Commerce Industry

The threat of new entrants is moderate in the e-commerce industry and online shopping platforms. Some of the main factors impacting the threat of new entrants in the e-commerce five forces analysis of online shopping platforms are as follows;

I-High Branding Cost

There is no doubt building an e-commerce platform is easy and inexpensive. But when it comes to building a global e-commerce brand and earning the trust and confidence of customers with quality products and service; then it requires a lot of investment. However, many top brands like Walmart, Amazon, and eBay set the e-commerce industry standards.

II-Lower Switching Cost

No matter how big the brand is; it is nothing without its customers. The end consumer is always the boss; they could easily switch from one brand to another that offers them better quality and lower prices without incurring a lot of costs.

III-Economies of Scale

Top brands like Amazon and Walmart have the competitive edge of mass production and economies of scale. They produce goods in mass volume and sell them to the mass public. However, many small e-commerce platforms don’t have this option, and they can’t achieve the cost and quality efficiency of big sites.

Threat of Substitute in E-Commerce Industry

The threat of new substitute products is very high in the e-commerce industry and online shopping platforms. Some of the main factors impacting the threat of substitute products in the e-commerce five forces analysis of online shopping platforms are as follows;

I-Various Shopping Options

When it comes to shopping, customers and buyers have a lot of options in the form of various e-commerce platforms and many brick-and-mortar stores. They can easily find substitute products of the same quality from different stores without any price differentiation. It offers them a significant competitive edge over sellers and stores.

Competitive Rivalry in E-Commerce Industry

The competitive rivalry among online shopping platforms is very high in the e-commerce industry. Some of the main factors impacting competitive rivalry in the five forces analysis of e-commerce and online shopping platforms are as follows;

I-Tough Competition

The competition is very high among top retail brands and companies like Amazon and Walmart. They invest a lot of capital resources in running aggressive marketing and advertisement campaigns to gain a competitive edge over others.

II-Low Barriers & Switching Cost

Along with tough competition from the top brands; there are various small e-commerce stores and small brick-and-mortar stores. They offer a similar type of quality and service to the customers; it further makes the e-commerce industry highly competitive.

Conclusion: E-Commerce Porter’s Five Forces Analysis |Five Forces Analysis E-Commerce Industry

After an in-depth study of Porter’s five forces analysis of e-commerce industry; we have realized that online shopping platforms have got highest growth rate. If you are learning about e-commerce Porter’s five force analysis of online shopping platforms; then you should keep in mind the abovementioned bargaining power of suppliers and buyers; the threat of new entrants and substitute products, and competitive rivalry.