I. Introduction
Amazon is a company built on the idea that its customers are always right. The firm has spent decades building a reputation as an online retailer that can deliver virtually anything to anyone, anywhere in the world, at any time of day or night.
But Amazon’s strategy is based on more than just a fast and reliable delivery network. It also needs to have a large selection of products available at competitive prices. And it must have enough paying subscribers for its Prime shipping service.
These factors have helped Amazon become the dominant player in online retailing, but more is needed to make the company profitable. Amazon has never turned a profit in its 20-year history as a public company — and that’s not likely to change anytime soon.
II. The Importance of Market Share
Market share is a key performance indicator that shows how much of a market a company has. It’s a measure of the size of the pie, but it’s also an indicator of how well that company is doing relative to its competitors.
Definition and explanation of market share
A corporation’s market share is the percentage of total sales in a given market for its products. For example, if one company owns 75% of all U.S. automobile sales, its market share would be 75%.
Benefits of achieving a larger market share, including economies of scale and pricing power
Companies with higher market shares tend to be more profitable than those with more minor claims because they can generate more enormous profits from economies of scale — or increased efficiency from producing large volumes of products at low per-unit costs. These companies also typically enjoy greater pricing power — or the ability to charge higher prices without losing customers — because they have more leverage over customers than smaller competitors who may not have enough demand to support selling their products at higher prices without losing sales volume.
III. Amazon’s Long-Term Strategy
Amazon is known for sacrificing short-term profitability to gain market share. This strategy has been successful in many industries, but it has risks. This article will discuss why Amazon is willing to sacrifice profits for market share and review some of the tradeoffs involved. We’ll also look at some ways that Amazon has invested in market share and how those investments have paid off.
Investing aggressively to capture new markets
The first thing to understand about Amazon’s long-term strategy is investing heavily in new products and services. This isn’t surprising — most companies would instead grow their business than make a small profit on each transaction — but Amazon takes the approach further than most companies do. For example, when it comes to its cloud computing services, Amazon invests billions of dollars annually into research and development, even though there’s no guarantee that those investments will pay off in increased revenue or profit (see “What Is Amazon Web Services?”).
Another way that Amazon invests aggressively is by offering free shipping on many items sold through its website. While this policy may seem like a loss leader — a thing that lowers prices temporarily so customers buy more expensive items
IV. The Competition
Amazon’s market share is growing, and it’s willing to sacrifice profits for market share.
Amazon is the undisputed king of online retail. It has more than half of all e-commerce sales in the U.S. and a dominant position globally. But while Amazon may be king, it’s also been sacrificing profits to grow its market share.
In 2017, Amazon had $177 billion in revenue but just $2 billion in profits. Its operating income margin was only 1%. That’s less than half of what Walmart earned (3%) and even further behind other retailers like Target (6%).
How other retailers have struggled to compete with Amazon’s market share
Walmart has invested heavily in e-commerce but only captures 20% of online retail sales—far behind Amazon’s 50%. In addition, Walmart has struggled to compete with Amazon on price thanks to its much higher labor costs than its online rival. As a result, Walmart recently announced plans to raise wages for 500,000 workers by 10% or more next year to improve customer service and attract new talent.
V. Conclusion
Amazon’s approach to the retail space has always been different than its competitors.
Amazon has always been willing to sacrifice profits for market share. It does this by providing low prices, fast shipping, and an incredible selection of products.
Amazon also doesn’t focus on short-term profits; instead, it focuses on long-term growth. This means that Amazon will invest heavily in new technologies, such as artificial intelligence and robotics, which could make its warehouses more efficient and cut costs.
In addition to this strategy, Amazon has always had a great relationship with its customers. For example, the company constantly improves its Prime membership program and offers new services like Prime Video and Prime Music. This makes customers more likely to renew their membership yearly and spend more money with Amazon over time.
Finally, Amazon makes sure that it offers customers many options when shopping on its site — whether through its Marketplace or third-party sellers who sell their brands on the site. This helps Amazon compete with other online retailers like eBay (EBAY) and Etsy (ETSY)
