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Worldwide Amazon Marketing Expenditure Research Paper

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Updated: Feb 7th, 2022

Introduction

It is hard to imagine an organization that engages more with continual and drastic disruption as Amazon. It started in 1994 with the disruption of the bookselling market. Having gathered publishers and booksellers on a global scale, they have created an immense value of such efficient and cheap distribution of books, which was not imaginable before. However, that was only the first yet already significant disruption, which influenced the market.

Further, Amazon went on tablets and e-readers, moving the logistics towards the disruption of Apple, Samsung, and Sony (Galloway, 2017). The latter three used to dominate the market, yet Amazon has proven its power. Then, at the end of 2016, Amazon moved beyond its grocery stores based on a new technology to ensure more efficient and enjoyable shopping: in mid-2017, it purchased the Whole Foods chain. Yet again, Amazon has taken up something even bigger and bolder, an intention to transform the US healthcare system in cooperation with JP Morgan and Berkshire Hathaway.

With its money and such massive disruptions, one can consider Amazon to be a giant killer rather than a disruptive innovator. It is also plausible for the reason this giant business eradicates the opportunities for small businesses and alternative visions to take place and maintain their positions. It demolishes not only unsustainable and inconvenient business models and values, but also alternative cultural businesses that do not possess such amount of money and power (Taplin, 2017). Of course, Amazon is involved with bitcoins in both ways: selling them and accepting them as a digital currency. This does not have a significant impact on the business now (Galloway, 2017), but in the future, engaging with bitcoin can be the most innovative decision in the global healthcare market.

Amazon

The space sector has always been both a vivid dream and a display of the most promising innovations for both humankind and organizations involved in its exploration and research. At first, those organizations were states, yet since the beginning of the 21-century, the space sector has been actively commercialized (Cobb, 2020). Bezos’ Blue Origin has been created specifically for the presence and growth in the space sector, thus introducing both the dominant player in the space sector and a new area for Amazon. Another Bezos’ project is Amazon’s Kuiper, which recently entered the race with 3236 satellites (Logsdon, 2020, p. 6). Currently, the private investment comprises 500 Million US$ and disinvesting 1 BLN US$ from Amazon per year (La Regina, Hufenbach 2020, p. 112). While Amazon’s projects are in charge of delivery service, Blue Origin is intended to space transportation.

Traditionally, the space sector used to be state-monopolized, and all the development was state-led and managed. The space agencies and service providers used to direct their research and technological innovations to the state or were owned by the state. However, nowadays, one can observe a drastic change towards the commercialization of the space sector, which can be signified as a significant historical point on the history of space exploration.

Here we will consider four entrepreneurs and the corresponding space businesses to analyze the chances of Amazon to succeed in this area. First, Elon Musk and the SpaceX with the space exploration offer represented by Falcon 9, Falcon Heavy, Dragon. Musk’s vision is to “build a greenhouse on Mars to assure food provision to remote and disadvantaged areas” (La Regina&Huffenbach, 2020, p.112). Second, Paul Allen and his Stratolaunch, which is designed to enable everyone to be connected. Third, Richard Branson aiming at the provision of survivability to everyone with his Virgin Galactic. And finally, Jeff Bezos and Amazon’s Blue Print with his firm priority to customers’ desires.

In terms of private investments, Elon Musk and Jeff Bezos are the undoubted leaders (1.8 BN US$ and 1.5BN US$ correspondingly). Then go Richard Branson (680 MLN US$) and Paul Allen (300 MLN US$) (La Regina&Huffenbach, 2020, p.112). One could say that there are two main competitors instead of four since the investments drastically differ. Moreover, indeed, the ability of the agency’s procurement, as well as the general technological innovative development is undeniably dependent on money at disposal.

From the description of the four entrepreneur’s visions, Bezos’ one seems to be the most encompassing and fulfilling consumer demand. Such a vision helps set a fluid agenda capable of adjusting to the demand and overall market pressures. However, one can observe a slight but gradually evolving trend in the liberalization of user-data gathering (Haas, 2020). Another potential obstacle for Amazon’s development in the space sector, which comes from a broader socio-political context, is the shift in socio-political agenda and discourses towards more equal and sustainable production. Here, of course, Amazon would be in the weakest place since the priority to the customers goes at the cost of workers.

Network Effects

Amazon is an exemplary business that manages to design its features in such a way that they strengthen and enhance network effects. In fact, a variety of network effects type has been entrenched into the business model of Amazon. Thus, the network effects are an inherent feature of Amazon’s business model. Amazon knows how to create them and use them for their benefit since the very beginning.

First, it was related to the function of a product review: the more reviews a product gets, the more people use Amazon to read reviews about this product. This is an example of a one-sided network effect that was present almost from the very beginning. Later on, two-sided network effects have emerged with the emergence of opportunity for third parties sellers to distribute their products through Amazon. This feature allowed the sellers and buyers to be mutually attracted. Moreover, with the implementation of the recommendation system, Amazon has established yet another side effect. The machine learning and its outcomes operate a lot like same-side effects (Moore & Tambini, 2018, p. 27). Although they create a willingness to return and spend time on Amazon for the consumers, it likewise creates barriers to entry, e.g., new types of products.

Social Networks

Apart from other factors, Amazon’s success lies in the excellent strength of its online presence, which can be regarded as a digital marketing strategy role model. The retail giant effectively figures out how to use the fame of different channels to lead back to Amazon item pages. It uses the whole variety of social media channels like Twitter, Instagram, Facebook, Pinterest. Now they also use their own “Amazon Spark,” enhancing their marketing performance even more.

There are three fundamental aims of including SMM in a marketing strategy: 1) attraction of new clients; 2) achievement of an increase in customer loyalty; 3) branding. SMM also involves a great variety of methods. For the reason each social media platform varies in specialization and target demographics, Amazon’s strategy varies (Moore & Tambini, 2017). However, one of Amazon’s most powerful tools in creating customer loyalty is Amazon Prime, a service providing a variety of benefits to the most loyal customers. Amazon uses Twitter actively for humorous engagement with the audience. Apart from their official main account with over three million followers (@amazon), the company also uses a variety of other official accounts, e.g., @AmazonHelp, @AmazonNews, and others, for different products and even geographical markets.

Sharing Economy

Amazon is an exemplary business in terms of customer engagement. To get a customer to the phone app, social networks, website, and, most importantly, to the final purchase, Amazon uses the most innovative techniques of personalization. Individual customization through the algorithms and data-gathering helps Amazon achieve incredible customer engagement because of the combination of native recommendations and their relevancy to the individual. Another crucial feature intended to drive consumers to action is proactive consistency. The undoubted priority to the consumer is Amazon’s famous imperative. The business is consistent with it, which is visible through the variety of customer’s support services and rules. The more loyal a customer is, the more benefits s/he has. Another crucial point here is the recommendation algorithm, which has been continuously developing along with the implementation of Amazon Prime. The latter is a powerful tool intended to strengthen both customer loyalty and customer engagement.

Facebook

Facebook is one of the most important social media channels for Amazon. Apart from monthly tens of thousands of external posts and comments, Amazon also has its official page on this social media. All these posts can be used not only for enhancing customer engagement but also for qualitative and quantitative analytics of customers’ perceptions, trends, and etcetera. The official page aims at promoting both the company news and feature products. Another technique used for the same purposes is cooperation with influencers.

Amazon seems to avoid the free-rider problem, however, it can be seen as a free-rider itself. An example here could be using people’s time and resource investment in the core of their business model. Specifically, the reviews system can be regarded as a tool encouraging Amazon’s free-riding. Another example is users’ data gathering: while users provide (very often unknowingly) a huge amount of data, Amazon (and Facebook) uses this data for profit.

Rent the Runway

The relevant criteria here are the following:

GLM, or gross margin per customer lifespan, i.e. an expected profit over the average customer lifespan. The formula for the calculation is revenue minus costs per a customer. According to Clement (2020), in 2019, Amazon spent almost 18.88 BLN US $ on marketing, 37.9 BLN US$ on shipping, and 40.23 BLN US$ on fulfillment. In total, costs comprise 97 BN US$. Average annual expenditures of Amazon’s Prime members are 1,400 US$, and 600 US$ for non-Prime members, we take an average of 1000 US$. In total, by end of the 2019, there were 197 MLN of customers worldwide. Thus, a cost per customer is 492 US$. Hence, GLM = 1000 – 492 = 508 US$.

Retention rate, or the criteria of customer loyalty. As mentioned earlier, Levin (2016) demonstrates that 73% of Amazon Prime’s subscribers show loyalty, which grows with the time spent in interaction with Amazon (up to 91-96% after just a year). Thus, we set the retention rate for Amazon as an average between these three numbers, i.e. 87%. Discount rate, or inflation, usually set by 10%. The formula used for the calculation of the customer lifetime value: GLM multiplied by retention rate and divided by (1+rate of discount-retention rate). CLV = 508×0.87/1+0.87-0.1=249,7 US$.

Table 1. Average customer annual expenditures on Amazon

Product type Average Annual Cutomer Expenditure, US$
Food and drinks 150
Cosmetics and household chemicals 100
Fashion and creative industries 150
Interior design 150
Electronics (technology) 150
Books and stationery 100
Video games and toys 100
Pet supplies 50
Baby supplies 50
Total 1000

References

Clement, J. (2020) Worldwide Amazon marketing expenditure. Statista. Web.

Cobb, W. N. W. (2020). Privatizing peace: How commerce can reduce conflict in space. Taylor & Francis.

Galloway, S. (2017). The four: The hidden DNA of Amazon, Apple, Facebook and Google. Random House.

Haas, M. (2020). Space security: The next decade. CSS Analyses in Security Policy. Web.

La Regina, V., & Hufenbach, B. (2020). Space exploration and innovation: An ESA perspective. In Space Capacity building in the XXI Century, 109-121. Springer, Cham.

Logsdon, J. M. (2020). The United States in space. Asia Policy, 27(2), 5-11.

Moore, M., & Tambini, D. (Eds.). (2018). Digital dominance: the power of Google, Amazon, Facebook, and Apple. Oxford University Press.

Taplin, J. (2017). Move fast and break things: How Facebook, Google, and Amazon have cornered culture and what it means for all of us. Pan Macmillan.

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