Running head: AMAZON”S CASE STUDY 1

Amazon’s Case Study

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Introduction

Amazon is the leading online retail business based in the USA. The firm has successfully

utilized the 4Ps of marketing framework leading to its success and sustainability. Amazon has

found itself at the top of the game through over 500 fortunes' proclamation for multiple years.

Amazon has built a rigid reputation in internet-based entrepreneurship through the production of

diverse e-commerce products. The ability to make orders seamlessly from any region has

resulted in a competitive advantage of the Amazon Company. The above depicts how amazon

has strategized its move in accessing even the marginalized markets adding to their favor in the

online retail industry (Montasell, 2019). This paper will focus on determining Amazon's various

costs involved in the operation and also offer an in-depth analysis of the firm's market situation.

Amazon’s Costs of Production

The production cost is used to describe the sum amount of capital (monetary value)

required in producing a specific output quantity of a product. According to Gulhrie & Wallace,

the cost of production is established in consideration of payments and the vital expenses used in

obtaining capital production factors like land, management, and labor required in production.

Currently, Amazon deals with export and import reselling kind of business. The site is an

optimum choice for merchants and online shoppers alike as it offers modernized needs to the

independent entrepreneurs. In analyzing the production costs, this paper will narrow down to

kindle and kindle fire products offered at Amazon. Despite the steadily declining demand for the

e-readers since its establishment, the cost of production involved in the manufacturing of these

commodities is sold at a profit loss once offered in the market. For instance, the kindle e-reader

provided at Amazon has roughly total costs of $84.25, while Amazon offers the kindle e-reader

at of $79.00 per unit that is at a profit loss. According to Love (2011), sales at Amazon ignores
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essential costs like licensing fees and software costs. The Kindle's material bills come at the cost

of $78.59 with a 6-inch, 2GB flash storage, E-ink display, and an additional amount for Wi-Fi

assembling amounting to $5.66. On the other hand, producing the kindle fire costs around

$209.63, with over $10 loss per tablet sold at Amazon (Bertolucci, 2019). The above is explained

by Jeff Bezos, who is the CEO at Amazon as a break-even strategy on the hardware costs of their

sales.

Similarly, Amazon must be dependent on the online commerce market in a quest to stay

in a profitable course in case the clients stop or slow their online purchase tendencies. The above

might result in enormous losses for the global online giant leading to loss of revenue. However,

the above description has not been the case for the last five years. Hubbard (2015) claims that

revenue is defined by the total sum earned from sales of a product or a service. Below is an
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attachment of graph indicating a dramatic rise in revenue shaded in the yellow sections.

The costs of production at Amazon (Amazon Financial Statements, n.d.).

Rise in the cost of goods sold (COGS) is attributed to either rise in the supply cost or

reduce revenue. In the above case study, the rise in the cost supply is the most appropriate

reason. For the last four years, Alexa products and other online streaming services have been

added to Amazon, leading to a rise in the COGS and eventually rise in prime membership fees

annually.

Overall Market

The globe is undergoing a technological revolution where the use of e-commerce portals

are on the rise. The above has made it possible for consumers to shop at any time or any place.
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Despite the above facts, it is arguable that the online transactions, e-commerce only presents a

small proportion of the total online retail sales. Since Amazon is the outstanding global online

retailer, it uses a free shipping approach for two days to keep customers attached to their services

and products. The above is a competitive advantage over other online stores like Walmart,

Apple, and Cosco, which pose a threat in challenging Amazon as they have physical stalls on

given locations. However, the opponents may not be doing well globally due to their

confinement to their given physical locations.

Recommendations

Since online shopping trends are becoming popular, Amazon must formulate ways to

retain its customers through the renewal of memberships annually. Besides, subscription to the

platform for newsletters and notification of new product's arrival should be reinforced to keep

consumers abreast of the new services or products. For competitive actions, Amazon ought to

provide high-quality services and products at average costs for efficient competition with the

numerous firms engaging in similar online ventures. Choice in customization of shipping in

terms of days and hours should be activated over the platform. Finally, the platform's

subscription plans should be extended for the members to select the most appropriate one.

. References

Love, D. (2011, November 10). Amazon loses at least $5 to sell you a Kindle. Retrieved from

https://www.businessinsider.com/kindle-manufacturing-cost-2011-11

Bertolucci, J. (2011, November 9). Report: $79 Amazon Kindle cost $84 to make. Retrieved

from
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https://www.pcworld.com/article/243531/report_79_amazon_kindle_costs_84_to_make.h

tml.

Ali, F. (2019, February 20). A decade in review: Ecommerce sales vs. retail sales for 2007-2018.

Retrieved August 4, 2019, from https://www.digitalcommerce360.com/article/e-

commerce-sales-retail-sales-ten-year-review/

Amazon Financial Statements 2005-2019: AMZN. (n.d.). Retrieved August 1, 2019, from

https://www.macrotrends.net/stocks/charts/AMZN/amazon/financial-statements

Hubbard, R. G., & O'Brien, A. P. (2015). Microeconomics (5th ed.). Boston: Pearson

Montasell, G. (2019, June 19). U.S. top online retailers in 2018. Retrieved August 4, 2019, from

https://www.statista.com/statistics/646030/top-online-stores-united-states-revenues/