Its system is specifically designed to ship small orders to consumers. Putting warehouses closer customers allow for same-day delivery in many areas, thus reinforcing its “convenience” proposition. High local volume justifies investment in fulfillment center in each local area.
The introduction of Prime membership reduces hurdle to purchase resulting in more purchases per customer and generate even more volume for Amazon. Amazon’s top-of-mind awareness also keeps online competitors from gaining enough volume to operate efficiently.Īmazon’s operating model is all about gaining high enough volume per fulfillment center and automating processes. Having top-of-mind awareness gives Amazon necessary volume to execute its operating model efficiently, resulting in low cost. Wide selection, low price, and convenience make Amazon the default online shop for most people. It leverages third-party sellers in order to create the indirect network effects (more sellers => more supply => lower price). Amazon is not merely an online store, it is a market place. Its websites list millions of unique products sold by Amazon or third-party sellers and very easy to navigate. Amazon solely interacts with customers through its website so it can avoid store occupancy cost. Amazon’s business model is to “serve consumers through retail websites and focus on selection, price, and convenience.” (Amazon’s 2014 10-K).
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