Running head: AMAZON”S CASE STUDY 1

Amazon’s Case Study

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Introduction

Amazon is the leading online business based in the United States. 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 cost of production is used to describe the total 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 to

get the factors of production of capital, 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 online shoppers and merchants alike as it offers modern needs to the

independent sellers love to hate. 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 products once offered in the market is sold at a profit loss. For instance, the kindle e-reader

provided at Amazon has roughly total costs of $84.25, while Amazon kindle e-reader goes at a
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profit loss of $79.00 per unit. According to Love (2011), sales at Amazon ignores 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 e-commerce market to stay profitable if

consumers stop or slow their online purchase tendencies. The above would 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. The graph attached below indicates a

dramatic rise in revenue for the yellow shaded parts.

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

The rise in the cost of goods sold is attributed to either rise in the cost of supply 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
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Amazon, leading to an increase in the costs of goods sold 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.

Despite the above facts, it is arguable that the online transactions, e-commerce only represent a

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

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/