Pricing Strategies Used by Amazon

The assignment discusses the importance of pricing in marketing and how it is used by Amazon to create brand awareness and drive sales. The company's focus on volume business and low prices is highlighted as a key factor in its success. The assignment also touches on other pricing strategies such as penetration pricing, skimming, economy pricing, and cost-based pricing.

Running Head: Marketing
Amazon
Marketing
Pricing as Marketing Tool

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Table of Content
Introduction...........................................................................................................................................2
Marketing Mix.......................................................................................................................................3
Pricing....................................................................................................................................................4
Pricing models.......................................................................................................................................4
Premium Pricing................................................................................................................................4
Bundle Pricing....................................................................................................................................5
Psychological Pricing..........................................................................................................................5
Price Skimming..................................................................................................................................5
Economy Pricing................................................................................................................................6
Market Penetration Pricing...............................................................................................................6
Cost Based Pricing.............................................................................................................................6
Amazon- Pricing Strategy as the USP.................................................................................................7
Conclusion.............................................................................................................................................7
References.............................................................................................................................................8

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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 the marketing mix of Amazon will be discussed to fulfil the objectives of
the assignment.

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Marketing Mix
Marketing mix 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.

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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

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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 décor 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

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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.

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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.

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References
Armstrong, G., Kotler, P., Harker, M., & Brennan, R. (2015). Marketing: an introduction.New York:
Pearson Education.
Arthur, W. B. (2018). Asset pricing under endogenous expectations in an artificial stock market.
In The economy as an evolving complex system II (pp. 31-60). CRC Press.
Babin, B. J., & Zikmund, W. G. (2015). Exploring marketing research. Boston: Cengage Learning.
Bhatt, A., Patel, A., Chheda, H., & Gawande, K. (2015). Amazon Review Classification and Sentiment
Analysis. International Journal of Computer Science and Information Technologies, 6(6),
5107-5110.
Chauhan, P. (2015). A Comparative study on consumer Preferences towards online retail marketers-
with special reference to Flipkart, Jabong, Amazon, Snapdeal Myntra and fashion and
you. IJAR, 1(10), 1021-1026.
Choi, S. C. (2017). Defensive strategy against a private label: Building brand premium for retailer
cooperation. Journal of Retailing and Consumer Services, 34, 335-339.
Hallberg, N. L. (2017). The micro-foundations of pricing strategy in industrial markets: A case study in
the European packaging industry. Journal of Business Research, 76, 179-188.
Jackson, G., & Ahuja, V. (2016). Dawn of the digital age and the evolution of the marketing
mix. Journal of Direct, Data and Digital Marketing Practice, 17(3), 170-186.
Jain, E., Madan, M., & Singh, S. (2016). Impact of Value Creation on Stock Prices: A Study of Amazon.
Com, Inc. Middle East Journal of Business, 55(3035), 1-9.
Keller, K. L. (2017). Managing the growth tradeoff: Challenges and opportunities in luxury branding.
In Advances in Luxury Brand Management (pp. 179-198). Palgrave Macmillan, Cham.
LIU, X., & GU, L. (2016). The Study of Pricing Strategy in Online-offline Channel Based on the
Consumer's Switching Behavior. Journal of Management, 2, 009.
Liu, Y., & Yang, R. (2016, May). The choice of manufacturer's online customization channel under
different pricing models. In Control and Decision Conference (CCDC), 2016 Chinese (pp. 2435-
2440). IEEE.

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Nagle, T. T., Hogan, J., & Zale, J. (2016). The Strategy and Tactics of Pricing: New International
Edition. Abingdon: Routledge.
Stadler, D. (2017). AMAZON CASE STUDY DRIVING CUSTOMER EQUITY. Proceedings of MAC 2017,
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Strauss, J. (2016). E-marketing.Abingdon: Routledge.