Amazon

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Amazon Introduction, Amazon Business model, What is Amazon?

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Amazon

  1. 1. AMAZON.COM<br />BUSINESS MODEL<br />Amazon.com is one of the major companies to sell goods by Internet which started business as online bookstore but nowadays they have become multi sellers. Buyers can purchase new and used items which sold directly by a third party via Amazon.com by using Amazon Marketplace. Furthermore, Amazon.com was one of the first online businesses to set up an affiliate marketing program. A Store is an Amazon.com affiliate product which website browsers can use to create an online store on their sites. Website owners are not allowed to sell their own products directly; they have to pick products from the store and earn referral fees on the products purchased by their readers. <br />There are three operational strategies that have helped Amazon.com to enhance its competitive advantage, including cost-leadership, customer differentiation and focus strategies. The first strategy, cost-leadership is pursued by Amazon.com by differentiating itself primarily on the basis of price. Due to this strategy, Amazon.com always makes sure that it offers the same quality products as other companies for a considerably less price. Their second strategy is customer differentiation. Amazon.com provides current and prospective customers with differentiation though design, quality or convenience and Amazon.com always selects a differentiator that is different among the competitor. So, Amazon.com consumers can recognise and differentiate its product from competitors. The last strategy that it uses is a focus strategy. This strategy takes one of the two earlier strategies and applies it to a niche within the market. Amazon.com focuses on outstanding customer service as a niche but not the whole market because each niche has its own demand and requirement. <br />AMAZON’S REVENUE MODELS:<br />Amazon generates revenue primarily by selling books, videos, computer software, toys, industrial tools and etc. Amazon Marketplace is a fixed price online market place that allows sellers to offer their goods alongside Amazon’s offerings.<br />Amazon charges a commission rate based on the sale price, a transaction fee and a variable closing fee which is a very profitable sales strategy. The fee structure is range from 4% to 10% of the product price.<br />a) Subscription fees revenue model – the company charges a subscription fee by monthly or yearly for the users who access to the content and services offered.b) Transaction fees revenue model – the company receives commissions which paid on volume of transactions. The higher the volumes, the higher are the transaction fees.c) Advertising revenue model – Amazon provides forums for advertisements and receives the payments from advertisers.d) Affiliate fees revenue model – the company receives commissions by referring customers to other websites.<br />THE NEGATIVE OPERATING CYCLE<br />It's not only the lack of salespersons, leases and inventory that makes Amazon potentially so valuable, it's the way Amazon actually gets paid.<br />Most retailers--most businesses in fact--must buy goods and supplies before selling them. Cash goes out to suppliers before it can come in from customers, obliging the company to continually finance the gap, often equal to a month or two's worth of sales. However, Amazon charges a customer's credit card account as soon as it ships a book, and the credit card company usually pays Amazon within a day. Amazon, meanwhile, takes an average of 44 days to pay its suppliers. Instead of having to pay to finance sales, Amazon profits from having the use of its customers' money for a month and a half.<br />

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