Question

What is the pestel and five forces model of Amazon’s rise is forcing laundry detergents to shrink . case study. explain briefly.

Answer 1

Every company is looking to gain a strategic advantage, to gain a bigger market share and better profits. This can be done by doing things differently or doing different things. The current era of technology is providing companies innovative methods to do things differently and to to different things. One such technology is e-commerce. There is no doubt that e-commerce has indeed brought about sweeping chnages in the way business is conducted. The brick and mortars are quickly being replaced with tons of webpages accessible at a mouse click. Growing presence of e-commerce means a shift in traditional distribution channels, radical changes in marketing strategies and definitely a shift in product characteristics.

This case study is a result of this transformation.

The need to bring about changes in packaging and sizing of detergents (by cutting on plastic, pack size) in order to facilitate e-commerce operations is a clear indicator of the anticipation of organizations in the shift of distribution strategies.    

Applying the Pestel Model on this case study:

1. Political Factors: E-commerce is being promoted by any economy. Government has relaxed restrictions on movement and trade via e-commerce which is making business easier. Lesser intervention by Govt. means ease of doing business and that is attractive for the organizations

2. Economic Factors: E-commerce does the job of cutting the middle men out. This means better profits for the comapnies as the commissions in between are foregone.

3. Social Factors: There is an ever increasing popularity among the people about convenience and quality of service that e-commerce companies provide. To get something delivered at your doorstep at a mouse click with complete transparency and accountability makes it an attractive option for people and a better distribution strategy for organizations

4. Technological Factors: There is a massive development being done in capabilities of e-commerce operations from blockchain, big data to RFID, automated material handling etc. The operations are only going to get more streamlined and accurate.

5. Environmental Factors: The changes in packaging by cutting down on plastic use, increased use of bio-degradable substitutes like cardboard have positive impacts on environment. Also, in some cases, the foaming capacity of detergents are also being enhanced that will require lesser water. These factors will help such organizations in improving their environmental scores.

6. Legal Factors: The changes done in packaging are tested under all mandated guidelines like drop test, vibration test and usage test. Since, the packagings are in no way increasing chances of health hazard and spills but only promoting environment safery with its composition, there are no legal risks.

Using the five force analysis:

1. Buyer's power: The customer base in e-commerce is quite widespread and diffused and with evergrowing interest into e-commerce, this customer base is going to increase manifold times. Moreover, large CPG (Consumer Packaged Goods) companies enjoy a brand loyalty and awareness that is not affected by such changes.

2. Supplier's Power: Large CPG companies are most of the times immune to such forces as they have many substitues available and due to their internal competition, costs associated with changing in product characteristics doesn't vary significantly.

3. Threat of new entry: E-commerce does provide a big platforms for the giants as well as new entrants. While new entrants in the form of organic/natrual detergents will always pose a threat to the large CPG companies, by taking early action, such companies can always block their shelf space in warehouses of e-commerce companies.

4. Threat of substitution: While there will be many players in this space in the future, the brand image and loyalty of a company along with consistent high quality products will keep this threat at bay.

5. Rivalry among existing competitors: When such a change in way of conducting business happens across the industry, usually it is the first mover advantage that defines the strategic position of a company. The company which is first to think along such lines and execute their strategy effectively, are the ones that gain long term strategic advantage. Same is the case here.

PESTEL and Five forces model serve as effective strategic management tools. But without proper execution, no strategy can yield the desired results.