Question

Amazon tends to have the best retailing system, the best distribution system, and the best marketing system of the modern retailers. It also dominates the marketplace for retail sales to a greater extent than any other retailer. What is the source of Amazon's ability to capture value in the marketplace? Explain.

Answer 1

Shortly after going online in 1995, Amazon.com soon made it clear that it would provide consumers with the most affordable way to purchase books at rates that could not be matched by retail stores. Since it has grown into other areas, this pledge of the consumer has been fulfilled. Over the years, Amazon has invested heavily in fulfillment centers, positioning itself as a logistics force company. Millions of consumers have evolved to rely on Amazon 's vast inventory and their ability to have items at their doorstep as quickly as an hour from the time of your order in some markets. The bigger Amazon gets, the more it can invest in cheaper costs, in logistics and in expanding its catalogue,

Via its Marketplace service, the organization has expanded its logistics services to third-party vendors, allowing it to generate value for smaller vendors through its distribution size. Value is easily gained by increasing the use of Amazon's associated inventory, widening the range of product offers to consumers, and charging third-party vendors a portion of each purchase. Nonetheless, the size of the logistics industry is at risk with the low-margin approach employed, particularly when other online and physical retailers are trying to compete with Amazon.

Through Amazon, money is received from consumers up front in exchange for a year's worth of free two-day delivery, among other added benefits. With an estimated 30 million users, Amazon has clearly shown consumers how useful it can be. In adopting the method of paying subscription fees, Amazon not only retains money in the form of a $99 membership fee, but also profits from increased sales by these customers. Paradoxically, consumers pay for the convenience of buying more from the product.

More importantly, Amazon provides discounts to widely reordered products , providing consumers with up to 15% off via the Subscribe & Save service. The system allows the organization to integrate low-margin products into streamlined procurement and delivery. A portion of the profit is shared with consumers by price disparity in order to promote the desired behaviour, while discounts are likely to substantially reduce the profitability of the commodity. Even if it were to break-even on individual transactions, Amazon is capable of leveraging the profit of wholesale pricing and distribution networks.

Amazon generates profit in a variety of ways, mainly by extracting and reinvesting it in further scaling up the operations. This size guarantees a constant loop of value development and capture ... until revenue growth no longer supports it.