Amazon, the giant online store, is known for its competitive prices and offers. Why is Amazon so cheap? Here are the reasons it is cheaper than various stores.
Amazon is famous for offering the cheapest and best deals for quality products. The online store is cheaper because it has a lower overhead cost per item than other stores. They can easily store items in a warehouse instead of dealing with all the expenses of having an in-store. Therefore, they can employ more than front-end and back-end employees.
The company also enjoys supply chain efficiency and a large purchasing power. This article will give more detailed reasons why Amazon prices are so cheap.
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Reasons Why Amazon Items Are So Cheap
1. The marketplace
It's a marketplace, not a store. Amazon has 20 marketplaces globally, allowing it to sell over 350 million products on its website. The marketplace allows third-party vendors to list their products and sell them to online customers.
Vendors have two ways to sell on Amazon;
- Fulfillment by Amazon (FBA), where Amazon picks, packs, and ships their product when a customer buys.
- Fulfillment by merchant (FBM) the seller packs, stores, and ships the product on its own.
In FBA, Amazon will charge the vendor the operational cost for shipping, storing, and packing items. And since Amazon does not have to use its revenues for such operational charges, they will be relatively cheaper than stores that have to buy and sell their products.
2. Daily discounts
Amazon offers discounts on different products. Discounts encourage people to buy more products, increasing revenue for the company. In Q1 2021, the company registered $837,330.25 in revenue per minute, more than any other retailer. With this revenue, they can sell their items at a low price and make huge profits.
3. Amazon delivery
Free shipping on eligible items makes ordering items at the store cheaper than competitors.
Amazon shipping is free if the overall items you have ordered meet at least the stated minimum of goods that qualify for free shipping. For example, if you order groceries and shoes, the groceries have the free shipping badge. Your whole order will automatically qualify for free shipping.
Furthermore, amazon prime members are eligible for free two-day shipping on eligible items and no minimum amount to spend.
4. Low Cost of Operations
Amazon enjoys low operation costs because it does not have to build stores in every locality. The giant retailer operates warehouses that store the item delivered to its customers.
This saves the store the amount they could have otherwise used to operate a physical retail store. The savings trickle down to the price of items.
5. Economy of Scale
Amazon enjoys an economy of scale thanks to its enormous size. The company has greater buying power than its competitors, giving it an upper hand when it comes to buying many items at discounted prices from the manufacturers.
When the company gets huge discounts, it transfers the same to its clients by selling the products at more affordable prices while maintaining its profit margins.
Shopping at Amazon is more convenient than an in-house store at affordable prices. Customers do not have to drive to the store to buy needed items. You only need to have the internet and browse the website to make an order.
With such convenience, you would expect to spend more. However, the prices at Amazon will match your in-house store or even be cheaper. It is cheaper when you weigh the time and money saved shopping at their website.
7. The In-House Technology
Amazon retail benefits from the company’s technological advancement. Amazon uses algorithmic pricing to compare its prices with competitors, offering customers the best deals and lower prices on items.
The technology monitors demand, prices, and profitability and quickly adjusts items on the website accordingly.
Why Are Prices So Different On Amazon?
Amazon is a marketplace where different vendors sell their products. Therefore, you may find the same item sold by over ten vendors, and the products have different prices.
Besides, a vendor may decide to sell their product at a discount making the item cheaper. There will be a price variation since each seller sets their prices.
Is Amazon Prime Membership Cheap?
Prime membership has increased to $139 for an annual and $14.89 for a monthly subscription. While this may sound pricey, it’s still cheap compared to the total benefits a subscriber will enjoy. Some of the benefits that Amazon Prime members enjoy include;
Free two-day shipping: This is one of the most popular benefits of Amazon Prime. Subscribers receive their orders in time at no cost, irrespective of the amount spent.
- Unlimited streaming: If you buy movies or TV shows from Amazon, they’ll automatically be added to your queue and downloaded to your device as soon as they are available for streaming.
- Deals: Amazon Prime subscribers can access exclusive deals and discounts reserved for Amazon Prime Members. Amazon has a two-day deals day for prime members, where they get discounts on over 10 million items. You can get deals on kitchen appliances, electronics, entertainment devices, and many others.
- Amazon Music Unlimited: You can listen to all types of music, including classical and jazz, without paying additional fees. Prime members enjoy unlimited access to thousands of songs and playlists as part of Amazon’s Unlimited Free Listening feature and unlimited listening on Prime Music.
- Unlimited photo storage: As an Amazon Prime subscriber, you have unlimited photo storage space and a free 5 GB storage space for your videos.
- Unlimited reading: You can borrow up to one Kindle book per month from the Kindle Owners' Lending Library. There are over 1 million books available in this library. The books are yours to keep once you've finished reading them, with no due dates or cancellation penalties.
Amazon is cheaper than many online and in-stores because they enjoy a higher buying power and low overhead cost. They also have a marketplace with millions of products sold daily, giving them a high revenue that allows them to sell at a very low price and still make profits.