Amazon: How To Justify Free Prime Shipping

a woman receive parcel from a mailman using free shipping delivery service

One thing customers absolutely love about shopping with is the Free Shipping option for Prime members. Shop away and have as many eligible items as you want shipped to the designated location for free. Initially $79 a year, it is now upped to $99 – a no-brainer for 40 million Prime members worldwide. Some customers would say the option could be priced as high as $499 a year and still make a lot of sense, particularly to e-retailers that shop and therefore need to ship for numerous transactive occasions on a daily basis.

The option is so enticing it is a lot of times the determining factor for competing brands when a customer is contemplating which item to go with. You tell me; a $10 umbrella with a free shipping option, compared to the others that come with an additional $10 shipping fee, which one would you go with? It might very much be the dynamic that led to surpassing Walmart in the retail race. Am I going to Walmart or shop Amazon online? Let me see, I think I’ll go with free shipping plus saved gas money and time ! And, there’s also the convenience of otherwise haggling with filling out the shipping and billing addresses every time an order is submitted, too.

Talking to the Cloud, there’s always that relief of doing things right the first time, and never quibble again. Analogers, on the other hand, well, most likely the same information will have to be repeated and re-confirmed again and again for every transaction. Justification and measurements of success for streamlined IT systems can be as much an issue as it is an obstacle for IT professionals and engineers to innovate it from scratch. Never sitting still, that’s an innovation leadership discourse for a different time.

  So, Prime Shipping is a great success. Customers love it, got it. But how exactly does Amazon cope with the cost associated with shipping individual umbrellas to scattered customers and destinations in a timely manner – for free? We know that shipping in bulks to one destination is probably the ideal trip from Amazon’s stand point, but not small shipments. The philosophy behind the strategy is quite simple: reciprocate with gifts of two natures: 1. One that only you can stomach; and, 2. One that improves the customers’ quality of life. They’ll love you for it. Well, that’s nothing but a sales pitch unless cost is offset somehow and the two can be pulled off profitably. One solution is that Prime members purchase more stuff than usual with the free shipping option. The flip side, then, is that Amazon gets hooked for even more shipping operations that don’t convert.

This is what Amazon sellers and buyers have been talking about for the past decade. No one seems to understand how exactly Amazon is pulling it off. It is, after all, a determining factor isn’t it, if not the. For Amazon’s competitors to step up their game to leveled terms, the first thing they’d have to offer is a matching yearly worth of shipping. That, and of course they’ll have to match the shipping capacity itself to back up the words. Easier said than done, it takes Amazon a massive cloud-computing interconnected network of fulfillment centers roamed with robots and super-humans, unmatched by anyone in the world – and, yet, it still had to have a Prime option on the table.

 How Does It Work? Long story short, buyers pay $99 a year to buy away with free shipping. On the back end, sellers get charged “a plethora of fees for FBA services” (Fulfilled By Amazon). In order to have Amazon handle their goods, the “Fulfilled” part, involves a monthly inventory storage fee charged by the cubic feet. These fees are seasonal as they are upped in the holiday peak shopping season between October and December:

 Higher long-term rates apply to longer terms inventory over six to twelve months. In rearranged jargon, the longer it takes an item to sell the higher the fees will be, and exponentially. Kind of like the retail stores in mega-malls being re-evaluated every so often before extending the rental contract according to sales performance. Should the retailer decide to change or quite the inventoried gig, they’ll have a bill to foot, too.

   Fair game? Absolutely. Most retailers start small on a fiscally responsible level and up their storage space only when business expands or opportunity renders. No need to overstress that the “FBA” factor is a macro level capacity made available to small time start-ups and entrepreneurs at a micro level investment. That is, associated fees scale accordingly to business sizes and expansions, thus, small timers can compete with the big guys on competitive terms with affordable upfront investment amounts.

  Although members or Prime Member of the Amazon has increased annually, by the year 2014 increased 53 % worldwide ( 50 % are members of America ) that means there are 40 million core members from 270 million members from around the world that make Amazon gain revenue of $ 3,960 million dollars from members who want free transportation . Amazon seems to have quite a lot from this. But, in fact, Amazon is still loss from free transport for these customers in every quarter that partly occurred from the additional expenses of the privilege for this special type of member e.g. the expenses from free trial for 30 days to see the online film, music and TV shows (including application Kindle books with ) and so on. 

  However, Jeff Bezos, CEO of Amazon’s top 17 wealthiest individuals in the world , remain committed to doing business in this way  for continually retain their prime members of the Amazon. 

   Lastly, suppliers/product oweners must consider to tradeoff between the fee charged by Amazon , which is like an investment for the future,  the self-investment in warehouse/Information System  and the business opportunities that will arise when left the “professionals doing their jobs”.  By the way, we have to follow up the Amazon business strategy that would leverage their strength and better offer benefits for customers, vendors and their stakeholders in the Supply Chain for “Win-Win Situation”.

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