The success enjoyed by Amazon is highly associated with a strong end effective sales and pricing strategy as far as the operations of the company are of concern. The approaches are used to ensure the successful growth of the company by ensuring that more sales are made. In this process, the company has come up with ways through which they can boost their sales to increase profitability. The pricing strategies, on the other hand, have been adopted to ensure that the new and current products that are produced by the company end up getting the market reception it requires. In each of the strategies that have been adopted by the Amazon, there is an element of forecasting that aims at understanding the effect of the strategy for the company. The paper is an analysis of Amazon pricing and sales strategy and the forecasting that comes along with such strategies. The paper will go further to look at the possible drawbacks that come along with these strategies.
Pricing Strategies
There are two main pricing strategies that the company has been depending on to have a cutting edge in the industry. One of the strategies has been on the market penetration approach. Amazon, as a company, deals with both new and old products for the market (McGurl, 2016). The company adopts a market penetration approach where they always seek to lower the price of any new product introduced to the market to a price that is lower than that of other companies. The approach adopted by the company allows many people to have an interest towards the purchasing of this new product and as a result, therefore, giving room for new buyers to have a chance of taking up that new product (Simon & Fassnacht, 2019).
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The approach has been working for all the time Amazon has been in existence, and in this case, it has been adopted to make the company have a cutting edge over its new customers in the online business. The approach is aimed at ensuring that the company increases its market share by 20% over the next ten years as far as the purchase of these new products is of concern (Sims, 2018).
Price skimming is another pricing strategy adopted by the company to enhance its success in the market. Amazon has most of its products being technology-based. The use of price skimming allows the company to sell most of its newly innovated products at a relatively higher price than the substitutes. The sole aim of this approach is to create the impression that the product on sale has greater value and effect to the customer and as a result promoting most of them to buy (Toptal & Cetinkaya, 2015). Amazon makes use of the pricing approach on a regular base to introduce new products. The strategy plays a vital role in ensuring that any product introduced in the market has a 5% successful rating for the first three weeks. As a result, it allows the new buyers to increase the interaction between the product and potentially new buyers in future (Sims, 2018).
Sales Strategy
The sole aim of the company’s sales strategy is that it allows the company to ensure that there is an increase in the number of products sold per individual customer. One of the approaches that are very common with Amazon is the adoption of bundle pricing as a sales strategy. The approach entails the selling of products at a relatively lower price per unit but on the condition that one purchases these items in bulk or when purchasing different varieties. The approach aims at making the customer feel comfortable with the purchasing of many products because the eventual price per unit is lower (Prasad, Venkatesh & Mahajan, 2015). Cumulatively, the sales made per each customer ends up increasing, and this boosts of the sales of the company in the long run. Amazon has been utilizing this approach to ensure that the company will, in the future, have an average of 2% more sales per customer over its major online competitors. Statistic views Amazonas being in a position to have a total revenue of 1.08 trillion by the end of 2015 (Armstrong, 2018. The graphic below shows the increase in revenue over the years.
Drawbacks of some of the approaches
Several drawbacks come as a result of these strategies. The adoption of market penetration is faced with two main drawbacks. One is that as the company initiates the low pricing approach, there are a lot of losses that come along with it. Additionally, the company ends up finding it hard to raise the prices to the normal rates because of the fear that customers will not be able to go for the product with the increased pricing (Simon & Fassnacht, 2019).
The case is the opposite with price skimming. The increase in the pricing of the product leads to most customers going for substitutes because of the fear of paying more. Additionally, the company needs to spend more to ensure that most customers are aware of this product (Toptal & Cetinkaya, 2015).
Bundle pricing as a sales strategy pushes the company to the wall. The company is forced to ensure that it always stocks products that complement each other. Additionally, the approach is precarious because getting the best product interaction of the company is challenging (Prasad, Venkatesh & Mahajan, 2015).
Conclusion
All in all, the pricing and sales strategies that have been adopted by Amazon appear to be effective as far as the products sold by the company are of concern. However, there is a need for the customer to check if these approaches meet the expected outcomes in the long run.
References
Armstrong, M. (2018). Amazon: The Road to $1 Trillion. Statista. Retrieved from: https://www.statista.com/chart/13745/amazon-revenue-forecast/
McGurl, M., (2016). Everything and less: fiction in the age of Amazon. Modern Language Quarterly , 77 (3), 447-471.
Prasad, A., Venkatesh, R., & Mahajan, V. (2015). Product bundling or reserved product pricing? Price discrimination with myopic and strategic consumers. International Journal of Research in Marketing , 32 (1), 1-8.
Simon, H., & Fassnacht, M., (2019). Decision: Long-Term Price Optimization. In Price Management (pp. 259-297). Springer, Cham.
Sims, S., (2018). Acquisitions: Walmart vs. Amazon.
Toptal, A., & Çetinkaya, S. (2015). The impact of price skimming on supply and exit decisions. Applied Stochastic Models in Business and Industry , 31 (4), 551-574.
