Amazon: Marketing Mix (4 Ps)

The Marketing Mix, or “4 Ps” as it’s more commonly known, is one of the oldest yet robust marketing concepts. It suggests that there’s four elements of a business; Product, Price, Place & Promotion; which must balance each other for the company to be successful and satisfy customer demand at a profit.

To give a simple example, a local corner shop’s convenient location (Place) allows it to charge higher prices than you’d expect to find in a supermarket (Price).

4-ps-corner-shop

Through an analysis of the mammoth e-tailer Amazon, I will demonstrate how the Marketing Mix can be applied to explain how each ‘P’ balances the other three in order to create it’s sustainable competitive advantage.

 
Place:

As the Amazon revolution began as an online bookshop that revolutionised the industry, I’ll start with Place. Founder Jeff Bezos had a fascination with the growing internet during the early 1990s and realised he could sell online to avoid the cost base of a high-street store and therefore better compete on price. In choosing books, he also offered online shoppers the added advantage of being able to easily search for any book in mind simply by entering the ISBN number on Amazon.com.

In one sense, and particularly in the early days, the absence of physical stores has been a significant challenge for Amazon because distribution via the postal service means customers have the inconvenience of waiting a day or two for delivery, but on the other hand there’s convenience in being able to order any of the 100 million+ products on Amazon.com for it to turn up at your front door the next day without leaving the house. This now rapid delivery time is enabled by their excellent distribution centres. In the UK, Amazon owns eight of these fulfilment centres, strategically located to ensure the virtual warehouse is accessible to the whole country, so regardless of whether you’re standing in Oxford Street or the far-flung John O’Groats, the service is the same.
 

Price:

By selling only online, the elimination of rent and high staff costs of a physical store ties Place very closely to Price. Furthermore, Bezos’ ethos of efficiency and keeping the final cost to the consumer as low as possible ensures Amazon continues to deliver zero profit, instead reinvesting all would-be profits back into the company to increase scale and therefore further reduce costs – in what’s known as the “fly wheel effect”. For a company relying so heavily on a small cost base, at least in the early days to offer unbeatable prices that shifted customer behaviour from buying on the high-steet, this has been a key contributor to Amazon’s growth.

Further to this point, Amazon itself admits some items are sold for less than its own purchase price. It’s not uncommon for a new book title to be purchased at £6.99 with an RRP of £10.99, yet listed online at £5.99, making Amazon the go-to place when it’s almost half the price of most other retailers on launch. With such a low cost base, it’s much easier for Amazon to take this hit on its margin to fuel the perception of being the cheapest retailer, than for most of its competitors.

 
Product:

It wasn’t long before Amazon expanded its product line beyond books. By 2000, it was listing CDs, toys, videos and more, with Bezos adopting the phrase that Amazon is the place where you can buy “‘Anything’ with a capital ‘A'”. And that is pretty much exactly what’s in the portfolio today. In 2013, the average UK person spent £70 on Amazon which accounted for over half of all online retail sales.

Interestingly however, Amazon wasn’t ready to leave it there and has instead seen other opportunities for product growth, even as a marketplace in itself. Since so there’s so many users on the site, why not give them an opportunity to buy and sell from each other and take a cut each time? This has reached a point whereby 40% of Amazon’s global sales are now by third-party sellers. But perhaps the future for Amazon lies developing its own products and services. The first sign of this was the launch of the Kindle in 2007 which sought to revolutionise the book industry completely, and more recently the TV and film streaming service, Amazon Prime, that’s seeking to challenge the dominance of Netflix. What could be a key advantage here is Amazon’s ability to club together a package of its other services to Amazon Prime users, be it free delivery, as a differentiator once the service quality of the content reaches a par.

 
Promotion:

As a first-mover into the e-tail space, Amazon has always benefited from, and in the early days relied upon, strong awareness through word-of-mouth. The success in achieving Bezos’ dream portfolio of ‘Anything’ with a capital ‘A'” is such a powerful business model to remain in the forefront of peoples’ minds, particularly when Amazon has managed to maintain this perception that they won’t be beaten on price. Furthermore, Amazon creates further buzz around itself through events like ‘Black Friday’, a traditionally American discount period whereby retailers offer customers bargain prices for one day only which Amazon has lurched upon, with different products cut-price each hour, for one-hour only.

In addition to this, more formal promotion has also grown in recent years, to the point that Amazon’s traditional advertising spend exceeded even Apple in 2015, and big investments such as bringing the Top Gear trio of Jeremy Clarkson, Richard Hammond and James May onboard Amazon Prime are there to support Amazon’s ambitions in its non-core business areas to continue the brand’s growth.

4 Ps - Amazon.png

 

Final Thoughts:

For many businesses, there is a standout ‘P’ in its Marketing Mix that is key to its differentiation and allows it to profit. Take a bottled water brand like Evian, without the Evian ‘brand’ (Promotion) it’s just another bottle of water, or a sports broadcaster like Sky is nothing without the Premier League (Product), but I’ve been deliberating in my own head what’s the standout ‘P’ or ‘Ps’ in Amazon’s strategy.

In the early days, it would certainly have been Price given that Amazon’s key selling point was being able to undercut traditional retailers, therefore challenging the custom of always buying in-store. But over time, whilst the pricing strategy has remained a key factor of Amazon’s success there’s clearly less dependence on this to the point that distribution has become so efficient that it’s almost more convenient to buy from Amazon and have it delivered to our front door, workplace or even a local pickup point than having to find the time to go out and buy it ourselves.

And with the growing emphasis on its own products and services, the Product element can’t be overlooked for too much longer. What this indicates to me is just how sustainable Amazon’s competitive advantage looks to be. At this rate our children and grandchildren will be believing it got so big they even named a rainforest after it…

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