Ironically, the largest online retailer in the world, known for their extensive inventory, started as an online book retailer in July of 1994. Amazon, founded by Jeff Bezos, is responsible for 50% of online sales today. The company grew rapidly, expanding from just books to a variety of different products and services. Now being the largest E-Commerce company in the world, Amazon poses threat to other companies.
So what exactly is the “Amazon Effect” and why is it so relevant? The effect is the disruption of the retail market. Amazon dominates market share and it continues to grow. Amazon has the convenience factor that consumers are looking for making it hard on other companies to compete. Ultimately, Amazon causes problems for companies, but these companies have also had time to adjust. They are investing in the latest technologies, and learning from what Amazon does so well to stay competitive.
With many services, the most popular for Amazon comes at a cost: Amazon Prime. Amazon Prime is a paid subscription that allows the customer to order their products and get them delivered in 1-2 days with no additional shipping cost than their subscription fee. Financially, would this make sense for any other company? No, shipping is expensive and that’s why most companies have a shipping cost. Amazon loses billions of dollars on shipping, but continues to thrive.
Known for their quick deliveries, Amazon is doing everything in their power to make them get to the customers faster. From a logistics standpoint, Amazon utilizes UPS, FedEx and other big names in the business to ship their products so quickly. To stay on top, Amazon wants their own delivery service. This faces a threat to the logistics companies due to the fact that Amazon can cut prices by having their own services. This will force logistics companies to also cut prices to keep competitive.
Overall the “Amazon Effect” makes it difficult for other companies to get business. With their domination of the market, companies had to adjust to stay competitive. Although Amazon is a threat, companies have their ways to combat Amazon. There will be a lot of changes to come from Amazon’s logistics in the next few years. Amazon is changing the market and how we receive our products.