In order to analyze the industry in which Zappos.com is actually pursuing its business, we can support the latter SWOT analysis by providing a study based on Michael Porter’s Five Forces analysis. This model is a framework for industry analysis created in order to assess the intensity of competition and the attractiveness of the industry itself. b.1 Competitive Rivalry An initial point to analyze the industry is to look at competitive rivalry. In this specific case, Zappos.com is operating in an industry that is subject to a high level of rivalry. Relatively small difficulties for companies to enter the shoes retail market mean a constant and persistent menace for Zappos business. Many new competitors represent a threat for the company, which still has the tools to maintain a prominent position in the online vendor panorama.
Competition is mainly focused on price as stated on the case papers. Customers are tending to approach the company using sideways more than direct traffic to the site to verify the existence of discount or price reduction possibilities. Nevertheless, virtual competitors live the same situation of Zappos, having to compete on a red ocean market. Bricks and mortar shops represent the 90% of the market, and have an appeal and an in-person consistency that Zappos can’t have due to its presence on the net. These shops that constitute the only real alternative to online shopping occupy the largest share of the market.
Zappos still holds the main position in online shoes retailing due to unique sources of competitive advantages, which for their nature are difficult to replicate: the service “Powered by Zappos” implies a deep and proven collaboration between the retailer site and the shoemaker companies, excluding other competitors; the Zappos customer service experience and the WOW effect, a unique feature that built the brand of Zappos and that constitutes one of its main distinctive sources of competitive advantage.
New entrants can lift the level of competition and reduce its attractiveness. The possibility of new companies to establish in a certain market is correlated to the height of the entry barriers: the e-business industry is characterized by low set-up costs lifting sensibly the level of this threat for the company. On the other hand, the service offered by Zappos has been perfected through a ten years experience making the company expert and competent about its business, and at the same time difficult to be emulated. In response to the attractiveness that new players may have in the market, Zappos can count on a solid and loyal customer base that has been built across all company life. In conclusion, Zappos has the largest shoes offer online, as a result of an extensive series of agreement with the main shoes brand.
The bargaining power of buyers results very important in this market, as they can influence it by asking for higher quality products or services or lower prices, causing the whole industry consistent losses. In the e-commerce business buyers have a very high level of bargaining power, due to the possibility to compare the prices of the same article they are interested and switch at no cost between alternatives.
Even in this case, Zappos can count on many techniques perfected during company life in order to maintain a solid customer base and keeping high the level of loyalty. The company has a loyalty program for customers and offers many policies regarding returns and refunds in order to keep the customer satisfied. Nevertheless, Zappos is able to maintain prices low in order to stimulate the comeback from past customers and compete with the threat search engines represent. In the case, returning customers make 75% of the selling.
Suppliers can exercise much pressure on companies, especially if their number is limited and the product the supply is hardly replicable, vital or possible to find elsewhere. These factors are not influenced by a company strategy and are preexisting in the industry structure. In the online business industry, bargaining power of suppliers is low. Zappos has many alternative suppliers so can exercise its power and obtain convenient conditions for the supply of products. Dealing with Zappos is an important asset for suppliers too, as the large customer base, the visibility of the company and the inventory management.
On the other hand, a controversial situation may be the relationship between UPS and Zappos, which although the retailer company had the ability to manage, could represent a concrete problem in case the shipping company may refuse its services. A substitute product is a product that can accomplish the same purpose as the product that the industry is producing. It will restrict the profitability inside the industry. There are no substitute products for footwear and most of major manufacturers are looped in by the company.