Microeconomic Issues Facing Amazon Company, Term Paper Example

Introduction

Amazon.com is a vast Internet-based firm that deals with selling books, music, electronics, movies and other goods. It is a web service business that operates either directly or as the middlemen between other retailers and the organization millions of customers worldwide. Also, with the company having an individual website, software development centers and customer services centers in many locations it has led to the dramatic growth of the firm in e-book publishing and turned it into a major disruptive force in book publishing and marketing. From the firm marketing strategy, I think other businesses can learn from Amazon’s digital business strategy that has made them grow from small business to largest business firm globally (Smith, Brent, and Greg Linden, par 3). Due to the company’s successful growth in e-commerce, the firm has been leading e-retailer recently in the United States with close to 386 billion U.S dollars in 2020 net sales. Additionally, the statistical growth of the company has been built up by three core things: large selection, low price, and fast delivery. The three core things set by Amazon were part of their long-term strategy for success as they wanted Amazon to become the biggest and best e-commerce book retailer globally.

Additionally, looking at the Amazon reported net sales of $108.525 billion in the first quarter of 2021 shows that the firm makes annual profit as this is a 43.8 percent increase from the same quarter in 2020. The company’s success today has evolved since it was founded in the early years of 1994 by then CEO Bezos. Also, the organization’s marketing strategy to offer more and different products has helped it broaden its market to more customers. Like many other successful companies, Amazon’s success was built on gaining customer loyalty that resulted in big profits in the long run of the company’s growth. Consequently, in recent years the company has been innovative to its customer by making their customer reviews on their products. This has helped the company in the recent year reach new heights, such as becoming the second-ever $1 trillion market cap company in the history after Apple company. Besides, the company has successfully built a consumer paradise by creating ways of charging much less and promise more than other stores and companies. The company has provided the best services to their customers through this best selection, leading to their annual sales high. For instance, in 2020, Amazon delivered a record performance in annual revenue up 38 percent to $386 billion, increasing over $100billion in recent years. It shows that the Net profit of the company was up 84 percent compared to last years. The high annual sale by the company was due to its strengths in integrated digital platforms and great proficiency in supply chain management that boosted market share and adeptly meeting customers’ demand. Therefore, this paper aims to discuss microeconomic issues faced by Amazon.com, such as identifying the company market structure, giving comments on Amazon’s Demand curve and other general views on the company’s economic growth.

Marketing Structure

The majority of goods and services provided by Amazom.com can be found in other online retail like CHEGG or at the local market. But Amazon being best on e-commerce, has made its focus to be customer-centered, which includes doing shopping, listening to music, and being convenient for its consumers.  Amazon.com is an example of an oligopoly firm. The company has its own brand value, and more so, the company can set their products’ prices based on the demands of certain goods and services they provide to their customers.

The company uses different market strategies to embrace its customers. For instance, when it is almost the holiday season, the firm takes an aggressive approach to reduce the price of their products, mostly the gifted items such as toys and consumer electronics. However, Amazon.com’s largest retail marketing competitors include Wal-Mart and Goldman Sachs, mostly not limited to the Amazon Target in marketing. The firm beats its competitor for electronics due to the flexible technology that allows it to offer consumers a broader product assortment and highly competitive pricing in its products (McGurl 478). For instance, being an oligopoly, Amazon.com uses the kinked demand curve as shown below to suggest their price to the customer. The curve logic is based on few firms dominating the industry and when firms wish to maximize profits.

“The kinked-demand curve shows how firms in an oligopoly resist price change. As the case one company increases the price of their products, it becomes expensive than rival firms making consumers of their products switch to its rivals with less price. And for the case of the firm lowering price, then the other firms will be forced to lower the price to match their competitors in the market, which causes all of the firms to record less profit.” Looking at this logic of the curve, Amazon has done a great job keeping the kindle affordable for most (Dossche et al. 810). The successful growth in profit maximization of the e-reader provided the lowest price for e-books and increased e-books both online and in their retail shops.

Additionally, after the outbreak of Covid-19, the e-commerce giant remained convenient to its customer by providing essential service at the height of the pandemic. Facing the closure of some companies, Amazon remained focused on providing services to their customers. Amazon services remained adamant, as shown by the flood of online orders propelling the company to record sales during the pandemic. While the United States recorded the highest unemployment and economic turmoil, Amazon kept on hiring more staff. For instance, the company employed 175,000 new warehouse and delivery workers to fulfill the customers’ orders. According to analysts surveyed by FactSet, the company exceeded its profit by $100 billion in quarterly revenue for the first time.

Firm’s Demand Curve

During the pandemic, Amazon has been able to increase its prices as the demand increased. The supply chain was also increased, leading to an elastic demand. This has led the company to record a positive demand curve as the company made a high profit since its invention in 1994 (Dumaine, 2020). The company services during the Covid were growing rapidly, showing the positive growth of the company sales and increase in sales over the consumer need of its products. This fueled growth of Amazon as the firm demand curve was elastic as people were on a back-to-back shopping rush. In fact, the company revenue collection exceeded the predicted threshold over those of Walmart and Exxon. Also, looking at the date, the online company retailer shot up during the pandemic up to $8.107 billion, which exceeded the previous year’s record of $7.222 billion. In 2020 the company’s net sales increased by 43.8 percent, representing $108.518 billion from $75.452 in the same quarter. Also, the international net sale was totaling $30.649 billion from $19.106 in the first quarter of 2020 (“Amazon Sales, Amazon Revenue and Amazon Annual Profits). This shows that the company demand curve increased due to the high demand for Amazon services. The company income rose throughout the pandemic years with a fulfillment increase of $16,530 billion up from $11.531 billion in 2020. The graph below shows how the company price elasticity and quantity of sales made during the covid-19 pandemic.

Firm’s Pricing Strategy

The selling in Amazon can be rewarding as most of the time, the company tries to generate as many sales as possible. Amazon is known for cutting the price of its products regularly to attract its consumer, especially during the festive season. Due to the competition from other e-commerce companies, Amazon’s pricing model is based on keeping the price low for the buyer. Keeping the low price drives the loyalty within the firm’s customer, making Amazon benefit from merchants competing for the Buy Box. Another pricing strategy used by Amazon is using convenience as many of Amazon’s products can be accessed from other retail shops. But due to Amazon having the depth of stock that never runs out, it increases their sales and keeps customers returning for faster purchases and rolling profits. Also, Amazon keeps its price stable, leading the company to build customer trust, leading to increased sales.

General Comment on Amazon History

The historical potential of Amazon dates back to 1994 when it was set out to be the most customer-centric company. It was meant for consumers who want to find anything they may want to buy online and provided the lowest possible prices for the items needed by their clients. The company was set up with a key mission of making the customer happy. From the history to date, Amazon company has been powerful in any new market it enters. This has seen the company leverage its brand recognition globally, making threats to its competitors and even the new market they enter (Kargar, par8). For instance, Amazon has been growing its sales from the small niche website, making the company the best retail business giant. Compared to its competitor, Amazon makes many sales leading to being the best in the United States in terms of eCommerce revenue. The graph below shows the Amazon revenue collection from its sales compared to its competitor in online marketing.

Additionally, the company has also been experiencing a positive market share. For instance, the approximated 197 million people around the world get their devices and visit Amazon.com. It has led to the progressive growth of the company in both the United States and worldwide. For example, in 2018, the company’s market share in America hit 49 percent. And in 2020, the company was able to make a net sale of $386 billion as the leading e-retailer. Also, in terms of profit-making, the company has been experiencing significant upward growth. For instance, in 2020, the company recorded a net profit of 84 percent compared to the last year. Therefore, the historical potential of Amazon is on an upward trend, given the company’s brand being considered valuable worldwide.

Comment About Amazon Stock

In my opinion, even though the company is private, I think it is good for investment. Because looking at how the company success is rooted in making it easy for customers to buy their products online. The investment in Amazon is significant as the company has positive management and well-analyzed market competition that as the investment will enable you to make a lot of profit. With the company having the expensive share costing up to $3,00, the private investor with much less the amount can use fractional shares to buy the company’s share stock. This will make the private investor use M1’s minimum deposit of $100 to buy 1/33 of the company’s stock.

My Opinion

In my opinion, the senior management of the Amazon company has practiced excellent microeconomic policies. They have made sure the company experiences positive growth both online and in retail shops around the United States. Also, the company’s management has made sure that the firm is everywhere and consumers can get what they want both online and in their stores. Also, their practice was excellent as through the pandemic there were able to come up with the decision that so the company making a lot of profit from their net sales. Additionally, they did an excellent job of focusing bottom-up approach that saw the company make a significant profit during the pandemic. For instance, the senior managers of Amazon examined how the company can remain relevant in the market over their competitors by lowering the price of their products to compete with other companies.

Works Cited

“Amazon Sales, Amazon Revenue and Amazon Annual Profits”. Digital Commerce 360, 2021, https://www.digitalcommerce360.com/article/amazon-sales/.

Dossche, Maarten, Freddy Heylen, and Dirk Van den Poel. “The kinked demand curve and price rigidity: Evidence from scanner data.” Scandinavian Journal of Economics 112.4 (2010): 723-752.

Dumaine, B (2020). “Amazon was built for the pandemic—and will likely emerge from it stronger than ever.” (2020).

Kargar, Javad. “Amazon. Com.” Allied Academies International Conference. International Academy for Case Studies. Proceedings. Vol. 9. No. 1. Jordan Whitney Enterprises, Inc, 2017

McGurl, Mark. “Everything and LessFiction in the Age of Amazon.” Modern Language Quarterly 77.3 (2016): 447-471.

Smith, Brent, and Greg Linden. “Two decades of recommender systems at Amazon. com.” Ieee internet computing 21.3 (2017): 12-18.