Different Tools Of Pricing And Strategies Of Amazon †Free Samples

Question: Discuss about the Different Tools Of Pricing And Strategies Of Amazon. Answer: Introduction Amazon was founded in the year 1994 by the present visionary Jeff Bezos, he identified the lacunae in the practices of the e-commerce companies and clubbed it with his mission for an e-commerce company, and the result was Amazon. The company started off as an online bookseller, which soon gained popularity and is not selling almost anything to everything on its platform (Bhatt, Patel, Chheda Gawande, 2015). The company operates in more than 18 countries and ships product to over 160 countries. The company which employees over 5, 00, 00 people earned revenue of 138 Billion USD in the year 2016. Amazon is the largest e-commerce companies in the world and one of the most valued organizations across globe. The company has a customer-centric approach, which it resonates thorough its business process, policies and procedures to pass on the maximum benefit to its customers (Jain, Madan Singh, 2016). A number of e-commerce companies emerged as the result of Amazon success, hence Amazon realized if it has to sustain its business model; it has to adopt some differentiation strategy to stay ahead of its competition. The company came up with cost based leadership as one of its differentiated strategy (Stadler, 2017). The purpose of the assignment here is to discuss the different tools of pricing and various strategies one can adopt to leverage the pricing to gain a competitive edge in the market. In brief themarketing mix of Amazon will be discussed to fulfil the objectives of the assignment. Marketing Mix Marketingmix is a set of action or tactics undertaken by a company to promote its brand or product in the consumer market. Organization use 4P/7P of marketing to decide on the future strategic goals of the organization Product Amazon has millions of products listed on its website and its product line is extensively segregated into various categories for easy user navigation. Some of its product line include: Kindle Books DVD Consumer electronics Consumer durables Jewellery Home furnishing Lifestyle products Alexa Firefly(Babin Zikmund, 2015) Price The pricing strategy of the company differs from market to market. For example for Price sensitive markets like India, the company offers products at lowest price, and in certain other markets the strategy of the company is competitive. Thus, the strategy for Amazon is Go global and think local (Chauhan, 2015) Place Amazon is recently foraying into opening of offline stores, go stores was first of its kind store in Seattle. However, its prime revenue generator still is the online model(Strauss, 2016) Promotion The company uses both offline and online tools for the penetration of its marketing campaign. The company designs great promotional campaign and uses a great mix of traditional and web marketing to promote the brand and the product(Jackson Ahuja, 2016) Physical Evidence Amazon has always maintained high degree of physical evidence through its brand logo, product packaging and the material. Amazon has a high brand recall due to its logo, which ensembles that it covers all the products with the initials A-z More so; the packaging of Amazon product is a physical evidence of its consumers. People The team at Amazon creates processes keeping in mind the customers at the focus. They always believe in focussing on people and are a customer centric firm. The company also believes in taking good care of its employees and goes with the philosophy that If you take care of your employees, they will take care of your shareholders Process Amazon has a great customer support which serves all the 180 countries where its product is shipped. The company has been appreciated by its customers for creating processes which benefits the customers the most. Pricing Pricing is one of the most -mix of marketing which has the ability to write the success or failure strategy of the company, hence organization pay great attention towards the pricing its set for its product or services. There are multiple reasons for the success of Amazon; its business models, its business process and policies, its marketing strategies, its operations, logistics and its leadership, another factor which contributes towards its success is its pricing strategy (Nagle, Hogan Zale, 2016). Amazon knew from the start that in order to sell online and make people readily come to their platform, they would definitely have to come up with cost leadership for its customers. Pricing models Good pricing helps to determine the price to sell the good and services in order to maximize the profit from sales. A lot of companies go with volume sales and keep the profit margin less, this way they are able to earn more profits securing the fate of the organization. Amazon uses this strategy brilliantly, in any of its markets, the prices of Amazon products is lower than any of its competitors. Also to add, despite selling at such low cost the company is able to make profits and even spends a big fortune on its marketing. Some of the pricing models which should be understood in detail to understand how organizations decide on the pricing of the products: Premium Pricing In premium pricing business sets the costs higher than their competitors, this type of pricing is suitable for small businesses that operates in a niche market and can ask higher price for providing premium products. Another rationale for charging premium price for the product is because of the value based pricing (Liu Gu, 2016). Business has two strategies to set a price, one is cost based and the other is value based. In cost based, the price of the product is determined by taking into consideration al the cost centres, in value based pricing, the price is calculated according to the perceived value of the product. Ensuring that the customer purchase the product at a premium pricing is not easy, the organization has to ensure the following steps to secure the same: Product packaging, designing and the look and feel should be attractive and really attract the customer (Armstrong, Kotler, Harker Brennan, 2015). The marketing of the product has to be in sync with the premium pricing(Choi, 2017) Store dcor should complement the premium pricing (Keller, 2017). Bundle Pricing Bundle pricing is the strategy which a lot of businesses are doing in the present day; they combine more than one product and sell it as a bundle to the customers. The biggest advantage of the the bundle pricing is that customer receives two products at relatively lower price (Hallberg, 2017). In the case, where customer buys a product alone, the price is high, but with bundle the price is lower. Bundle pricing is more effective for companies which offer complementary products, for example; Gillette selling Razor with blades. Another advantage of bundle pricing is that the company is able to move quickly the products which are selling slow and are occupying shelf space (Arthur, 2018). Psychological Pricing Psychological pricing directly affects the emotions of a human; this type of pricing is directly targeted towards human emotions. It pushes employees to respond to emotional levels rather than the logical levels. A lot of products are of these particular reasons priced at $ 199, 299 and many more; it also has a logical explanation attached to it. Consumers focus on the first number rather than the second, hence to make the pricing look attractive and gaze the attention of the customers company uses this pricing strategy (Liu Yang, 2016). Price Skimming Price skimming is one of the most popular pricing strategies used by the company. Companies in order to make high profits on products, keep the price of products high in the initial phase of introduction, thus skimming the market with profits. This strategy is done to ensure collection of maximum revenues or profits in the very early stage of the product cycles. Multiplex uses this strategy to skim easy profits in the initial days and then reduce the price for maximum penetration. This strategy helps the companies to skim maximum profit from the early adopters and then reduce the price for the price sensitive consumers. This strategy is a refined version of premium pricing strategy, wherein the company charges premium, but here, the premium is charged to make money from early adopters and then the price is reduced to penetrate the market. Economy Pricing As the name suggests, this type of pricing is used to attract the most price conscious customer segment. The product category mostly include grocery, food suppliers and discount retailers, This strategy helps in minimizing the cost of production and marketing in order to keep the prices of the products down., they aim to achieve the economies of scale with this strategy. Wal-Mart, Target Tesco are some of the examples of the organization using this strategy. Market Penetration Pricing This is the strategy which Amazon used by following the cost leadership; in this strategy organization keeps the cost of the products extremely low to drive huge sales. The company is well aware of the losses it will make during the initial days, but as the product awareness in the market grows, more and more people start buying the product, thus increasing sales in volumes for the company. Once the product is known to a large number of audiences, they tweak the price by a small margin, which is hardly noticed by the customers, thus making more profits. Penetration pricing has proven to be very successful marketing strategies in almost all the markets and mostly in the price sensitive markets like the Asian economy Cost Based Pricing This is one of the easiest and simplest ways to calculate the price of the product. In this type of pricing, the individual cost of the product ingredient is included and at the end, a small mark-up is added to determine the price. A lot of manufacturing companies use this kind of pricing. It is further differentiated into 2 models, cost based pricing and cost plus pricing. In cost based pricing, variable and fixed price is included and a % mark-up is added to it. In direct cost pricing there is a mark-up on the variable cost. These are in comprehension all the pricing models any organization can use to stay competitive in the industry. Every organization has its own strategy to determine the price and its strategies towards occupying a larger market share, thus they come up with their own pricing, keeping in mind the target audience and the product. Amazon- Pricing Strategy as the USP At Amazon 20% of the traffic is driven from the websites which compares the prices of different products being sold on different websites, hence Amazon has to see to it that their algorithm uses Artificial intelligence to have knowledge of such sites. 80-90 of the online audience are surfing the internet to hunt for the best deals at the lost price, Amazon uses algorithm for such audience and shows them lowest price in comparison to its competitors. The company uses cost leadership strategy and ensures that its products are priced at the lowest in comparison to other competitors. Although, Amazon tries to even differentiate its offering by tweaking its algorithm to improve the customer experience, easy surfing, and curated deals for the customers, the price still plays a very crucial role. Thus the company keeps a regular check on the prices of its competitors and it prices its product either at the same rate or at a relatively lower price. Conclusion Pricing is one of the most important elements of the marketing mix, which helps in identifying the action or the tactics company has to take to create a brand name in the market or to create product awareness. Amazon which was founded in the market is extremely successful because of its unique cost leadership strategy; the company focuses on volume business and thus keeps the price low, and still makes a profit on the products being sold at its website. This pricing strategy works best in price sensitive market, more so in the e-commerce category, pulling the customer on the website is a difficult task, thus using pricing as the focus point for the customers, product penetration is achieved. Penetration pricing, Skimming, Economy pricing, cost based pricing are some of the pricing strategies used by the companies across the globe. References Armstrong, G., Kotler, P., Harker, M., Brennan, R. (2015).Marketing: an introduction.New York: Pearson Education. Arthur, W. B. 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