Amazon’s Business Model

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Introduction

Amazon.com encompasses a Fortune 500 multinational electronic commerce company situated in Seattle. It is identified as the world’s largest online retailer, established in 1994 and launched in 1995 by Jeff Bezos, under his regret minimization framework.

Its business is not only limited to America, but also spans United Kingdom, India, Germany, Canada, Spain, France, China and Japan (Amazon.com Inc 1). Though it is engaged in selling various products according to its diverse departments, it also ships the products that have been purchased from it to certain specified countries.

Initially, it was launched as an online bookstore, but later diversified into the sale of MP3 downloads, DVDs, CDs, video games, software, apparel, toys, furniture, food and electronics. Amazon’s issued its public offering of stock in 1997 at an $18.00 per share price under AMZN stock exchange symbol of NASDAQ.

In terms of its annual reports and Proxy Statements in 2011, it had a revenue of $ 48 billion, operation income of $862 million, net income of $631 million, total assets of $25.2 billion, total equity of $7.75 billion and 56,200 employees.

Benefits and limitations of the Amazon’s online Retail Model

As the most effective online retail model, Amazon.com utilizes the Affiliate Business Model. This model is utilized alongside the market mix of pricing, promotion, product and people, to enhance the company’s marketing capability.

The Affiliate Business model provides people customers with various purchasing prospects, regardless of the place they are surfing from. The Affiliate Business Model proffers many affiliated partner sites with various incentives.

These sites provide with the necessary points that link to the merchants while purchasing, with the aim of generating sales. Owing to the fact that it is a pay-for performance model, the non-generation of sales by the affiliates does not translate into costs for the merchant.

This online retail model is highly suited for the World Wide Web; hence, explaining its popularity. This popularity aids Amazon to generate a high volume of sales.

Benefits

In terms of easy access, the website provides the customer with various categories of the products available that help the customer to easily search the product he or she needs from the department under which the product is listed.

The various departments of products displayed on the Amazon website ascertain that a variety of products are available to satisfy the diverse customer needs.

It reduces overhead expenses and ensures that the products are accessible to a larger demographic group. In terms of security and efficiency, payment is conducted in a discreet manner to ensure security and the products are delivered efficiently and within the deadline provided.

Limitations

In terms of shipping cost and shipping time, shipping the products does not only pose additional and expensive costs for the customer especially if the merchant is far from the customer, but it also inconveniences the customer because he or she cannot receive the product earlier than five days after the purchase.

Essentially, communication between the buyer and the merchant is difficult, as there are no communication options provided on the website. Inherently, due to the fact that the customer cannot physically view the product, a product of less quality can be delivered to him or her, culminating into mistrust and low customer satisfaction.

The manner in which Amazon.com changes the market for books

Initially, the company sold and shipped books to customers (Sampson 54). This was later advanced to the sale of digital e-books that could be downloaded or printed. This did not generate the required sales volumes culminating into the current introduction of Kindle, a portable e-book reader (The New York Times 1).

Kindle utilizes wireless connectivity to enhance downloading, shopping, browsing, and reading of magazines, newspapers, e-books, blogs and other types of digital media in various chosen countries.

Bezos asserted that in 2009. Electronic reader sales made up to 35% of the physical book sales. The popularity of this application has aided the company to change the market for books from sale and shipping of books, to e-reading and downloading of full books or pages from certain books at a fee.

How the Design of Amazon’s website facilitates user efforts to locate a particular product

A search button is situated at the top of the website to allow customers to either search a product from all the Amazon departments provided, or from a specific department. Essentially, on the left hand corner of the website, the departments and sub-departments are displayed to help the customer narrow down his or her search of the specific product they would like to purchase (Amazon.com Inc 1).

Additionally, each customer is accorded with a cart that can help in selecting the different number of products he or she is willing to purchase. The website’s middle part contains the Amazon’s most sold products to enable the customer have an idea of the products mostly preferred and purchased by other customers.

This might convince the customer to try such products. The website also utilizes collaborative filtering that recommends to the customer the other products that he or she would prefer given his or her choice of a certain product. All Amazon products have prices that enable customers to compare with such prices with the others offered in the market to facilitate high volumes of sales.

Collaborative filtering and how Amazon uses this technique to encourage sales

Collaborative filtering encompasses a common Web Technique utilized in generating personalized recommendation. This is done through filtering or making automatic predictions on a user’s interests through collaborating or the collection of tastes and preference information of other users (Ekstrand et al 4).

The main assumption utilized in the case of collaborative filtering is such that id a person B posses the same opinion as person C about an Issue X, then there is a high likelihood that Person B will take up Person C’s opinion on another issues Y as compared to him taking the Opinion Y of another random person.

The data collected on customer behaviors is utilized by Amazon to conduct collaborative filtering. In this way Amazon generates a list of personalized items a certain customer might be interested in depending on the purchases and interests of other customers that hold the same customer behaviors as his or hers. This encourages a higher volume of sales.

Selling used books alongside new versions as a reasonable business practice that does not undermine the market for new books.

Selling used books alongside new versions encompasses a reasonable business practice that does not undermine the market for new books, because it allows the economically weak customers to purchase needed books (Sampson 125).

Some people keep used books in places where they keep things that they will never use because they are not in need of them anymore. Allowing them to sell such books offers others with the opportunity to access needed books at a lower price.

Essentially, the money acquired from such sales can aid customers to purchase newer versions of the other books they needed, but could not afford. Additionally, some customers might be in need of various books, but they cannot afford to purchase all books due to the quoted prices of the newer versions.

According them with lower priced versions will enable them to purchase the newer versions of the books they are in dire need of and the used versions of the books they least need.

Works Cited

Amazon.com Inc. Amazon.com.1995. Web.

Ekstrand, Michael D, John Riedl, and Joseph Konstan. Collaborative Filtering Recommender Systems. Hanover, Mass: now Publishers, 2011. Print.

Sampson, Brent. Sell Your Book on Amazon: Top-secret Tips Guaranteed to Increase Sales for Print-on-Demand and Self-Publishing Writers. Denver: Outskirts Press, 2007. Print.

The New York Times. “Amazon.com Inc”. The New York Times 31 January 2012 late ed.: Al. Print.

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