Marketing 361 Phase II

Amazon Prime
Sarena Miller, Molly Pontius, Linshan Shu, Lanh Truong, Dillon Willette
Team 66
October 23, 2017
Company & Industry Overview
Amazon is an online based retailer, which operates in the e-commerce industry (NAICS:

45411a). One of the industrys main economic drivers would be e-commerce sales, which are

constantly growing (Figure 1) (Hadad, 2017). Other key economic drivers for Amazon include:

internet connectivity, internet user growth, and other technological trends (Hadad, 2017).

Amazon Inc. was established in Seattle, Washington in 1994. Amazon is currently the largest e-

commerce company in the United States marketplace, and is predicted to see an upward trend

(Figure 1). In fact, 43% of online retail sales in 2016 were purchased through Amazon (Camhi,

2017). The companys success can be attributed to high customer loyalty and brand awareness.

Industry Leaders
In the United States, Amazon owns 22.6% of the e-commerce market share (Figure 2) (Hadad,

2017). Amazon has a unique business plan; instead of using revenue to direct profits, the

company reinvests their revenue to create new products and services for customers. This keeps

Amazon on the forefront of the e-commerce industry (Yarrow, 2017). Other companies that are

considered industry leaders behind Amazon are ShopRunner, Walmart, and eBay.

Product Description
Amazon Prime was created in 2005 and is the companys most successful strategy to date. The

Prime program now has 80 million subscribers in the United States. Prime membership costs $99

per year or $10.99 per month, and you receive free two-day shipping, and unlimited streaming of

movies and TV shows with Prime Video. Amazon Prime has allowed Amazon to dominate the

US marketplace and hold a significant portion of the market share (Camhi, 2017).

Growth Rate
The e-commerce industry is a very fast growing industry, with 13% industry growth for the past

5 years and a projected 8.8% for the next 5 years (Hadad, 2017). Analysts are expecting Amazon
to grow earnings at an average annual rate of 20.08% for the next 5 years (Nasdaq.com, 2017).

This is because their business model is centered around innovation and focused on customers.

Environmental Treads
The most relevant trends when discussing Amazon and the e-commerce industry would be

technological, specifically trends regarding online shopping. Currently 51% of Americans prefer

to shop online, and 96% of Americans have made an online purchase in their life (Wallace,

2017). The trend Cyber Monday is a day like Black Friday where one day out of the year online

retailers like Amazon slash their prices by significant amounts to boost online sales.

Expansion of SWOTT (Figure 3)

A full SWOTT analysis is detailed in figure 3, however, by identifying specific strengths and

weaknesses, Amazon will be able to become more profitable globally. Amazon can build on the

companys strength of customer loyalty and low prices to dominate in other markets. Also,

Amazon can eliminate weaknesses such as customer preference for free shipping with a $25

purchase instead of having a Prime membership.

Target Markets (Figure 4)

The three market segments we have chosen to focus on are new parents who have children under

the age of 3, early adopters/innovators interested in technology, and full time college students.

We believe that an individualistic marketing approach toward all three markets will be the most

effective.

Primary: New Parents with children age < 3

Per the Motley fool, online baby products are the number one gateway to e-commerce. New

parents value fast delivery, especially when they run out of important products like diapers. We

are marketing to this target market through our Amazon Family program, which offers a 20%

discount to Prime members on diapers and related products.

Size and Location

Since delivery is such a high priority for this consumer base, Amazon should focus on highly

populated areas like Dallas, Chicago, and New York. Densely populated areas enable Amazon to

deliver quickly and with lower costs. For this market, we selected an age of 34 and younger with

a household income of $50,000 - $125,000 since this demographic is able to support the cost of

having a child. Based on these traits ReferenceUSA left us with 1,425,855 individuals.

Demographic and Psychographic

We are targeting both men and women who are credit card and internet users. As an e-commerce

company, internet users are crucial when determining market segments.

Secondary: Early Adopters/Innovators

Since Amazon does not have brick and mortar stores, customers are unable to try products before

purchasing. Amazon can effectively reach early adaptors and innovators by implementing

programs like See a Kindle in Your City, where Amazon is able to introduce new products,

receive feedback, and gain word of mouth advertising.

Size and Location

Amazon should focus on densely populated areas because these areas are typically more

technologically advanced and innovative. We estimate these individuals will be 25 - 45 years

old, have an income of $60,000 - $150,000, have a higher disposable income, and will not be

price sensitive. This will allow early adopters to try the newest and most advanced technology.

Demographic and Psychographic

Early adopters are keen on trying new technology and using word of mouth advertising. With no

physical stores, it is difficult for Amazon to advertise. Thus, Amazon is reliant on early adopters

and innovators to test new products and recommend them to other potential customers.

Tertiary: College Students

Like new parents, college students are likely to develop shopping behaviors they will carry

throughout their life. Amazon is targeting this customer base by offering an Amazon Student

discount on features like Amazon Prime Video and Prime Music.

Size and Location
For this demographic, we focused on individuals who are ages 25 and under and make an

average income of $50,000 or below. When we used this specific criterion on ReferenceUSA,

and returned a segment of about 836,348 individuals.

Demographic and Psychographic

These individuals are usually tech savvy, have internet access, and have purchased online

previously. These individuals are likely to put quick shipping at a high priority, and they are

more likely to adopt Amazon Prime services outside of the free 2-day shipping.

Competitive Analysis
For the e-commerce industry, the competition is intense. From a macro standpoint, we can see

that the industry has a low concentration that is highly fragmented resulting in many small

independent players (Hadad, 2017) (Figure 5). These two traits indicate low barriers to entry

which means that if you wanted to establish an e-commerce business, you could without much

difficulty. This raises the level of competition in the industry.

Looking at Amazons competition from a micro perspective we can identify ShopRunner,

Walmart, and eBay as their main competitors. Amazon Primes competitive edge is lower prices

and faster delivery. ShopRunner only charges for $79 annually for free two-day shipping (Tuttle,

2016). Walmart and eBay, have cheap prices, and are launching membership

programs. Fortunately, with more than 40 million eligible products on Prime, Amazon is still

leading the industry (Gustafson, 2017).

ID of Top 3 Marketing problems and Possible Solutions

Despite the success of Prime, Amazon has problems which include: Prime users typically do not

use all the included benefits, Amazons US market is becoming saturated, and Amazons global

marketing has been ineffective in increasing the companys global market share.

Services included with Prime Subscription

Most Amazon Prime users are unaware of all the services included in the membership. This

lowers Amazons profit margin because of shipping costs and the costs of streaming video

content. Last quarter Amazon had sales revenue of $35.7 billion while only retaining a profit of

$724 million (Rao, 2017). Amazons fulfillment costs and the number of Amazon Prime users

have a positive correlation (Figure 6).

Declining User Growth

The number of potential customers in the US to market Prime to is decreasing. Amazon currently

has 66 million US Prime members (D'Onfro, 2015). Last years growth was unreleased by

Amazon, which has leads experts to believe that the growth rate is declining.

International Marketing
Amazon has had difficulties expanding internationally. Last quarter, Amazon saw a loss of $724

million for international sales (Cahmi, 2017). Amazon could increase the amount of physical

locations abroad so customers can have a personalized experience.

Summary & Suggested Solutions

Although Amazon Prime has been successful, there are still marketing issues that is hurting the

business (Figure 7). Instead of only having the standard Prime bundle, Amazon should create a

customizable bundle as mentioned in Figure 7. Amazon would make up lost profits from

customers who only need some of Primes services. To reach more US consumers, Amazon

should develop a new marketing strategy and work with DirecTV to create a bundle package for

football fans. Amazon could attract consumers in other markets by creating a cash delivery

system for countries like India, who do not rely on credit and debit cards to pay for products.
Attachments: (Figure 2)

(Figure 1)

(Figure 3)

(Figure 4) (Figure 5)
(Figure 6)

(Figure 7)
 Works Cited
BI Intelligence (2017, February 03). Amazon accounts for 43% of US online retail
sales. Retrieved October 21, 2017, from http://www.businessinsider.com/amazon-
accounts-for-43-of-us-online-retail-sales-2017-2
Bowman, J. (2016, June 21). Who Is Amazon's Favorite Customer? Retrieved October 19, 2017,
from
https://www.fool.com/investing/2016/06/21/who-is-amazons-favorite-customer.aspx
Camhi, J. (2017, July 31). Amazon is investing heavily in Prime overseas but it has little to
show for it so far. Retrieved October 21, 2017, from
http://www.businessinsider.com/amazon-is-investing-heavily-in-prime-overseas-2017-7
D'Onfro, J. (2015, January 22). One Of Amazon's Biggest Challenges For The New Year.
Retrieved October 21, 2017, from http://www.businessinsider.com/one-of-amazons-
biggest-challenges-for-2015-2015-1
Gesenhues, A. (2017, May 17). E-commerce sales reach $105.7B in Q1 2017, to make up 8.5%
of all retail sales. Retrieved October 21, 2017, from https://marketingland.com/e-
commerce-sales-reach-105-7-billion-q1-2017-214974
Gustafson, K. (2017, January 31). Wal-Mart just unveiled its latest weapon in war with Amazon
Prime. Retrieved October 20, 2017, from https://www.cnbc.com/2017/01/30/wal-mart-
scraps-amazon-prime-rival-in-favor-of-new-free-shipping-offer.html
Hadad, J. (2017, April) E-Commerce & Online Auctions in the US. Retrieved October 22, 2017,
From http://clients1.ibisworld.com.ezproxy4.library.arizona.edu/reports/us/industry/defau
lt.aspx?entid=1930
Hoium, T. (2014, August 03). The Biggest Problem With Amazon Prime. Retrieved October 21,
2017, from https://www.fool.com/investing/general/2014/08/03/the-biggest-problem-
with-amazon-prime.aspx
Nasdaq.com. (2017, October 20). Amazon.com, Inc. Analyst Forecasts Earnings Growth.
Retrieved October 22, 2017, from http://www.nasdaq.com/symbol/amzn/earnings-growth
Prime Student. (n.d.). Retrieved October 19, 2017, from
https://smile.amazon.com/l/668781011/ref=smi_www_rco2_go_smi_g2609328962?_enc
oding=UTF8&ie=UTF8&node=668781011
Rao, L. (2017, April 27). Amazon Prime Revenue Up Nearly 50% In The Past Year. Retrieved
October 21, 2017, from http://fortune.com/2017/04/27/amazon-prime-revenue/
ReferenceUSA. (2017). Retrieved October 22, 2017, from
http://www.referenceusa.com.ezproxy4.library.arizona.edu/Home/Home
Smith, C. (2016, May 15). New programs from Walmart and eBay prove that e-commerce
membership is the most important new retail trend. Retrieved October 20, 2017, from
http://www.businessinsider.com/amazon-prime-competitors-2015-5
Tuttle, B. (2016). 5 Alternatives to Pricier $99 Amazon Prime. Retrieved October 21, 2017, from
http://time.com/23427/dont-want-to-pay-99-for-amazon-prime-here-are-5-alternatives/
Wallace, T. (2017, September 21). Ecommerce Trends in 2017: 135 Statistics About Online
Selling. Retrieved October 21, 2017, from
https://www.bigcommerce.com/blog/ecommerce-trends/#cmtoc_anchor_id_0
Yarow, J. (2013, October 28). Former Amazon Employee Explains How The Company's
Business Model Really Works. Retrieved October 21, 2017, from
http://www.businessinsider.com/amazons-profits-what-people-dont-understand-2013-10