Business Economics Assessment 1: Amazon Fresh and Australian Market

This report presents a business economics assessment focusing on Amazon Fresh's potential market entry into Australia. The assessment analyzes key economic concepts such as fixed and variable costs, supply and demand dynamics, and pricing strategies. It examines how Amazon Fresh might approach the Australian market, considering existing competition from established players like Woolworths and Coles. The report explores the company's platform and buyer power strategies, contrasting them with the rivalry and entry barrier strategies employed by competitors. Furthermore, it delves into the government's role in the fresh food market and the importance of risk assessment. The analysis includes the application of economic models to determine equilibrium prices and quantities and evaluates the shifts in supply and demand curves. The report references relevant literature to support its arguments and provides a comprehensive overview of Amazon Fresh's strategic considerations within the Australian supermarket industry.

Running Head: BUSINESS ECONOMICS 1
Assessment 1: Business Economics
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BUSINESS ECONOMICS 2
Assessment 1: Business Economics
1A. Supply and Demand
Question 1
When starting a new business, there are usually two expenses that the business owner is
bound to possess. These include fixed costs and variable costs. Fixed costs usually do not vary
with the sales volume while variable costs do. From the case study, Amazon Fresh would have
considered sales and marketing costs as a fixed cost and packaging costs as a variable cost.
Amazon Fresh is a grocery delivery company, which has been delivering various perishable and
non-perishable foods to its customers in parts of New York, Los Angeles, New Jersey and was
recently launched in United Kingdom. To buy the company`s products, consumers use the
Amazon Fresh app to carry out online shopping. There are several service categories, which are
provided by the company depending on the choice of the customers. Customers can choose
either an attended delivery where foods are delivered in plastic bags or an unattended delivery
where groceries are delivered to the doorstep of the consumer in tote bags with controlled
temperature. Before starting a new business in Australia, sales and marketing costs would be the
best fixed costs to be considered by Amazon Fresh. Since the company sells its products through
online shopping, promoting and marketing its business in a new market should be the major
target. More so, online shopping is steadily growing in the Australian supermarket industry and
there is already another company that is to say Woolies and Coles, which is performing
excellently in online shopping. Amazon Fresh therefore needs to invest more in promoting its
services to out compete the already existing company. For example, the company usually offers
free delivery to customers who spend more than 50 dollars on purchase in other countries where

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it is operating its business from. It may also be an effective strategy that can be used by Amazon
Fresh to attract a large market share (Ward, 2014).
Digital marketing is one of the most effective strategies that are increasingly forming the
basis of the efforts employed by new businesses to attract numerous customers. This is carried
out through paid advertising that enable the business to be visible for keyword terms related in a
major search engine. After carrying out the initial marketing and gaining some significant sales,
Amazon Fresh will then have to acquire existing leads and potential customer databases so as to
put more investments in email-marketing so as to distribute its products to the highly-targeted
emails (Bragg, 2019).
Since variable costs occur depending on the volume of sales, Amazon Fresh would have
also considered the increase in packaging costs, which may occur if multiple numbers of
customers in Australia embraces its services. The company delivers its products in plastic bags
and temperature-controlled tote bags. To out compete the excellently performing companies in
Australian Supermarket Industry such as Woolies and Coles, Amazon Fresh would have used
unique, eye catching and perishable foods preservative packaging materials. In terms of shipping
and packaging, delivery is also a key business cost that varies depending on the volume of sales.
Apart from packaging, Amazon Fresh would have also considered delivery as a variable cost.
Transport and packaging costs usually increase as the business` sales increase. Conversely, the
company would have put into consideration the fact that its packaging as well as delivery costs
would increase if its sales had increased (Peavler, 2017).
1B. Pricing

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Question 3
3.1.
By considering the shifts in demand and supply a case of Amazon, when it lowers its
prices say from $2 to $1, the quantity supplied on market will be low with 150 units supplied.
This therefore forces the demand of fresh food to increase from 200 units to 250 units. The
decision made by one firm affects other firms to lower in order to compete in the market.
It is evident that when the sellers reduce prices, the quantity supplied will be lowered in
order to avoid the losses arising from changes in supply. However, a reduction in sellers’ prices
and supply, leads to the increase of demand for fresh food. Generally, the shift in supply inwards
leads to increase of demand for the quantity in the question.
Figure 3.1: Shift in Supply curve

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Source: Author, 2019
Where SS represents supply curve
DD represents demand curve
3.2. For Equilibrium Quantity and equilibrium price
Quantity Demanded = Quantity supplied
QD = Qs
QD = 300 – 50P………….. (i)
QS = 100 + 50P…………..(ii)
300 – 50P = 100 + 50P
By collecting the like terms,
100P = 200
P= 2
By substituting P =2 in (ii)
QD = 300 – 50(2)
QD =200
Therefore, Equilibrium price is $2 and Equilibrium quantity is 200 units.
Question 4

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Fresh food markets are some of the most important markets in every economy which
greatly contribute towards the economic development of the country. However, the government
plays a vital role in ensuring effective operation of these markets. First and foremost, the
government creates wealth in fresh food markets by implementing policies that encourage
farmers to grow a lot of fresh foods such as tomatoes, onions, sweet potatoes, cabbages, leaf
green foods and so many others. Among the policies implemented by the government include
provision of incentives to farmers and subsidizing prices of inputs such as fertilizers used by
farmers. Additionally, the government can also introduce teaching programs about new methods
of farming that can enable farmers increase production of fresh foods. The government can also
create wealth in fresh food market by building markets in various states and reduce the taxes
imposed on them. This will enable farmers save more money that would have been used to pay
for the high taxes and invest it on expanding their farms and buying of farming machines that
can help them increase their produce (Krishna, 2013).
1C. Risk
Question 2
Basing on the case study, I think the strategies that best define Amazon are Platform
strategy and buyer power strategy. Platform strategy entails two strategies, that is to say coring
and tipping. The coring strategy entails the use of a set of techniques to establish a platform
through making technology a core in a particular market. To effectively penetrate the Australian
Supermarket industry, Amazon had to use up to date effective techniques that could enable it

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establish a platform in the new market which is already comprising of an excellently performing
company, Woolworths and Coles. Considering the fact that Amazon Fresh deals in online
delivery of products, establishing a platform, which is very easy for customers to order the
products they want will help it, attract a large customer base in the new market. Tipping strategy
on the other side entails a set of activities performed by the company to tip a market on its
platform instead of some other potential company`s market. Despite the stiff competition in the
Australian Supermarket industry, The Amazon Fresh Company would carry out numerous
activities that could tip the fresh food market towards its platform (Peavler, 2017).
Unlike Amazon Fresh which use platform and buyer power strategy, Woolworths and Coles uses
Rivalry and entry barrier strategies. Since Amazon Fresh is just trying to penetrate a new market,
it uses the buyer power strategy to retain a large customer base where as Woolworths uses
Rivalry and entry barrier strategy to restrict the new companies joining the Australian Super
market industry. Already, Woolworth and Cole is dominating the online service delivery sector
due to its strategically implemented technologies. The use of Rivalry strategy will make it even
implement more advanced technology and better packaging services so as to further dominate
the market. On the other side, Amazon Fresh focuses most on laying strategies that can enable it
attract part of the customer base of Woolworths and Coles. Succeeding in this will require the
company to implement more advanced technology which may expose it to very high fixed costs
(Greene, 2015).

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References
Bragg,S.(2019). Examples of Variable costs. Retrieved from
https://www.accountingtools.com/articles/what-are-examples-of-variable-costs.html
Greene,J. (2015). "Amazon Gizmo Makes Order as Easy as Pushing a Button". The Seattle
Times
Krishna,R.J. (2013). "Amazon Launches Website in India". The Wall Street Journal.
Peavler,R.(2017). A Guide to Fixed and Variable Costs of Doing Business. Retrieved from
https://www.thebalancesmb.com/a-guide-to-fixed-and-variable-costs-of-doing-business-
393479
Ward,M.R.(2014). Managerial Economics: A problem solving Approach. Fourth Edition.