Amazon Distribution Strategy

Amazon’s business model follows both a B2C and B2-B distribution strategy. Indeed, on the one hand, its e-commerce platform is consumer-facing, providing millions of products to billions of users around the world. At the same time, its e-commerce platform is also used by other businesses, called third-party stores, to sell their own products on top of Amazon.

Strategy	Description	Example	Implications	Integration
Fulfillment Centers	Amazon operates an extensive network of fulfillment centers strategically located across regions and countries. These centers serve as storage and distribution hubs for a wide range of products, enabling quick order processing and delivery.	– Amazon’s fulfillment centers house millions of products, including electronics, books, clothing, and more. – Advanced automation and robotics systems assist in picking, packing, and shipping customer orders efficiently.	– Enables rapid order fulfillment, reducing delivery times. – Supports a wide product selection and inventory management. – Allows for the implementation of Prime two-day and one-day shipping.	Fulfillment centers are at the core of Amazon’s distribution strategy, closely integrated into the company’s operations. Advanced automation technologies optimize the picking and packing processes, ensuring fast and accurate order processing.
Prime Two-Day Shipping	Amazon’s Prime membership program offers subscribers free two-day shipping on millions of eligible products. This offering encourages customers to shop frequently on Amazon and provides a competitive advantage in e-commerce.	– Prime members can enjoy free two-day shipping on products labeled as “Prime-eligible.” – Amazon invests in logistics and transportation infrastructure to meet Prime delivery commitments.	– Drives customer loyalty and frequent purchasing. – Enhances Amazon’s competitive positioning. – Requires efficient supply chain and distribution operations to meet delivery timelines.	Prime two-day shipping is tightly integrated into Amazon’s e-commerce platform and logistics network. It’s a key value proposition for Prime members, driving customer retention and increased spending on the platform. Amazon continually invests in its logistics infrastructure to meet the demand for fast deliveries.
Amazon Logistics	Amazon has developed its logistics arm, Amazon Logistics, to have more control over its delivery network. This includes delivery vehicles, local delivery stations, and even air cargo operations. Amazon Logistics helps ensure reliable and timely deliveries.	– Amazon Logistics manages a fleet of delivery vans and trucks for last-mile delivery. – The company has launched its air cargo service, Amazon Air, to transport packages and reduce reliance on third-party carriers.	– Provides greater control over the delivery process. – Supports delivery speed and reliability. – Reduces dependence on third-party carriers and shipping costs.	Amazon Logistics is fully integrated into the company’s distribution network, enabling Amazon to maintain control over the final stages of the delivery process. The expansion of Amazon Air and the use of delivery vans help the company meet delivery commitments and reduce costs.
Third-Party Seller Integration	Amazon’s platform allows third-party sellers to offer their products alongside Amazon’s own inventory. This integration broadens product selection and leverages third-party seller distribution networks to fulfill orders.	– Thousands of third-party sellers list their products on Amazon’s marketplace. – Fulfillment by Amazon (FBA) enables third-party sellers to use Amazon’s fulfillment centers for order storage and shipping.	– Expands product variety and selection for customers. – Leverages third-party seller distribution capabilities to fulfill orders. – FBA generates additional revenue through fees and services.	Third-party seller integration is a fundamental aspect of Amazon’s platform, enabling the company to offer an extensive product catalog without holding all inventory itself. FBA further integrates third-party seller operations with Amazon’s fulfillment centers and logistics.
One-Day and Same-Day Delivery	Amazon offers one-day and same-day delivery options for eligible products, further enhancing the speed of order fulfillment. These options cater to customers who require even faster delivery times.	– Customers in select locations can choose one-day or same-day delivery when ordering eligible products. – Amazon’s distribution network and logistics infrastructure support these faster delivery options.	– Meets the demand for expedited shipping, enhancing customer satisfaction. – Encourages customers to shop more frequently on Amazon. – Requires optimized distribution and logistics capabilities.	One-day and same-day delivery options are integrated into Amazon’s e-commerce platform and logistics network, offering convenience to customers and driving increased order frequency. Amazon’s network infrastructure plays a crucial role in making these delivery options feasible.
Global Fulfillment Network	Amazon’s global fulfillment network extends its reach to customers worldwide. It includes fulfillment centers, sortation centers, and delivery stations in various countries, allowing the company to serve a global customer base.	– Amazon operates fulfillment centers in North America, Europe, Asia, and other regions. – The network facilitates international shipping and order fulfillment for global customers.	– Enables Amazon to serve customers in multiple countries. – Supports international expansion and cross-border e-commerce. – Requires efficient global supply chain and distribution coordination.	Amazon’s global fulfillment network is a cornerstone of its international operations. It integrates with the company’s e-commerce platform to offer a seamless shopping experience for customers around the world. The network’s expansion continues to support Amazon’s global growth.
Delivery Partnerships	Amazon collaborates with external delivery partners, such as UPS, FedEx, and local courier services, to complement its own delivery capabilities. These partnerships provide additional delivery capacity and coverage.	– Amazon relies on third-party carriers like UPS and FedEx to handle a portion of its deliveries. – Local courier services are engaged for last-mile delivery in various regions.	– Expands delivery capacity and reach. – Ensures delivery options in areas where Amazon’s logistics may have limited coverage. – Offers flexibility in adapting to varying delivery needs.	Delivery partnerships are a strategic component of Amazon’s distribution strategy, allowing the company to scale delivery operations efficiently. These partnerships are integrated into Amazon’s logistics network to ensure timely and reliable deliveries.
Amazon Lockers and Pickup Points	Amazon provides convenient pickup options, such as Amazon Lockers and pickup points at partner locations. Customers can choose these locations for order delivery and pick up their packages at their convenience.	– Amazon Lockers are self-service kiosks available at various locations like grocery stores, gas stations, and apartment complexes. – Pickup points at retailers like Whole Foods and convenience stores allow customers to collect Amazon orders.	– Enhances convenience for customers who prefer alternative delivery options. – Reduces the risk of missed deliveries and package theft. – Supports Amazon’s physical presence in partnership with other retailers.	Amazon Lockers and pickup points are seamlessly integrated into the Amazon shopping experience, providing additional flexibility for customers to receive their orders. These options reduce the reliance on traditional home delivery and offer greater convenience.
Supply Chain Technology	Amazon invests heavily in supply chain technology, including inventory management systems, demand forecasting, and data analytics. These technologies optimize the flow of products and inventory throughout the distribution network.	– Amazon uses advanced software to forecast demand and manage inventory efficiently. – Robotics and automation systems in fulfillment centers streamline order processing. – Data analytics are employed to optimize transportation and logistics operations.	– Supports efficient inventory management and order fulfillment. – Enhances operational efficiency and cost-effectiveness. – Enables data-driven decision-making in distribution and logistics.	Supply chain technology is deeply integrated into Amazon’s distribution strategy, driving operational efficiency and supporting the company’s commitment to fast and reliable order fulfillment. The use of technology extends across various aspects of the distribution process, from inventory management to transportation.
Cross-Docking and Sortation Centers	Cross-docking and sortation centers play a crucial role in Amazon’s distribution network. These facilities enable the efficient sorting and transfer of products, reducing handling time and expediting the delivery process.	– Cross-docking centers facilitate the transfer of goods from inbound to outbound transportation with minimal storage. – Sortation centers sort packages by delivery destination, optimizing the route for final delivery.	– Reduces order processing time and minimizes storage requirements. – Supports faster and more efficient order consolidation and shipping. – Enables timely sorting and routing of packages to delivery stations.	Cross-docking and sortation centers are integral to Amazon’s distribution strategy, streamlining the movement of products through the supply chain. These centers are strategically placed to improve efficiency and reduce delivery times.

Table of Contents

Amazon Hybrid Distribution Model Explained

What does it mean that Amazon follows a hybrid distribution model?

Well, when looking at Amazon, it’s critical to understand the company ranges from D2C to B2B and enterprise, with its various business units.

On the direct-to-consumer side, Amazon is one of the most successful e-commerce companies worldwide. It enables billions of consumers worldwide to buy anything from its vast selection of items.

While Amazon is one of the most successful e-commerce companies on earth. That is also a B2B platform, which hosts, through its third-party seller services, millions of third-party (independent, not owned by Amazon) e-commerce stores.

The third-party stores leverage Amazon’s infrastructure (online store, seller analytics, inventories, and delivery) to outsource part of their business to Amazon. This is the B2B side, which empowers millions of independent entrepreneurs and small businesses on top of Amazon.

The third head of Amazon’s business model is represented by Amazon AWS. A cloud juggernaut that empowers millions of businesses out there. AWS enables other companies to host part of their infrastructure on the cloud, making it possible to substantially lower the cost of doing business as AWS becomes underlying and outsources web infrastructure for this small, medium, and large enterprises. Also, very large companies, like Netflix, host their services on top of AWS!

Amazon e-commerce first-party business

Amazon e-commerce is a B2C business that targets billions of consumers worldwide.

The B2C e-commerce is run for scale.

In short, it has tight profit margins, yet it generates cash in the short term (see cash conversion cycle), which Amazon re-uses to scale up its operations quickly.

This side of the business is all about a wide variety of products, low prices, and very fast delivery.

On top of it, over the years, Amazon has added Prime to enable consumers to get free delivery.

Amazon third-party platform

Amazon’s third-party platform is part of e-commerce which hosts other sellers.

And it enables them to sell on top of Amazon.

This side of the business comprises an ecosystem of entrepreneurs joining the Amazon platform to amplify their sales.

Third-party sellers can choose to sell on Amazon and take care of the fulfillment. In this case, Amazon will take only a revenue cut as a distribution fee.

Or they can decide to leverage Amazon’s inventories. In this case, the seller won’t have to store any inventory, which will be sent directly to Amazon, which takes care of the fulfillment.

In this case, the seller takes only a tiny cut of the overall revenues, as Amazon takes care of the inventory, distribution, and fulfillment.

Amazon AWS

Amazon AWS is the cloud infrastructure that powers up a good chunk of the web.

Amazon AWS is primarily a B2B and enterprise platform, which has become a company within Amazon.

Born, as a way for Amazon to offer third-party sellers the ability to host their e-commerce on top of Amazon, AWS is now a company with its own business logic.

Indeed, AWS contributes to most of Amazon’s profits!

is-amazon-profitable-without-aws — While Amazon is still profitable without AWS, AWS contributes to most of Amazon’s operating profits. In 2021, Amazon generated almost $25 billion in operating profits. However, if you removed AWS, Amazon would have reported an operating profit of just over $6 billion.

In this side of the business, the distribution approach is quite different.

On the one hand, it’s about offering a set of AI-ML tools, which are used by developers to build cloud tools on top of Amazon AWS.

On the other side, it’s about a qualified sales force that can sell those services to other businesses or potentially enterprise clients.

Two souls, a single-tech giant

As we saw, Amazon has two souls.

On the one hand, it’s a strong consumer brand that leverages a powerful flywheel to enable low prices, wide variety, and speedy delivery.

That is how Amazon defines customer obsession.

On the other hand, it’s also a B2B or enterprise platform.

AWS sells its cloud services to other businesses or enterprises, thus making it possible to use Amazon’s cloud infrastructure as the backbone of their business.

Key Highlights

Amazon’s Hybrid Distribution Model:
- Amazon’s distribution approach is a blend of Business-to-Consumer (B2C) and Business-to-Business (B2B) strategies.
- The company operates a massive e-commerce platform that caters to both individual consumers and third-party businesses, creating a hybrid ecosystem.
Direct-to-Consumer (D2C) E-commerce:
- Amazon’s e-commerce platform is consumer-centric, offering an extensive range of products to billions of individual users globally.
- The focus is on providing a wide variety of items, competitive pricing, and efficient delivery services.
- The introduction of Amazon Prime further enhances the customer experience by offering free and expedited delivery options.
Amazon Third-Party Platform:
- Amazon’s third-party platform enables independent entrepreneurs and businesses to sell their products on the Amazon marketplace.
- Sellers can either manage their own order fulfillment or utilize Amazon’s fulfillment services, streamlining the logistics process.
- This platform fosters a thriving ecosystem of sellers who leverage Amazon’s infrastructure and customer base to boost their sales.
Amazon AWS (Amazon Web Services):
- Amazon AWS is a cloud infrastructure platform designed to cater to businesses of all sizes, from startups to enterprises.
- AWS provides a wide array of services, including cloud computing, storage, databases, machine learning, and more.
- It offers the convenience of hosting IT resources in the cloud, reducing costs and enhancing scalability for businesses.
- AWS has evolved into a substantial revenue source for Amazon, contributing significantly to its operating profits.
Amazon’s Two Sides:
- On one hand, Amazon is a recognizable consumer brand, emphasizing principles like customer obsession, low prices, and rapid delivery.
- On the other hand, it operates as a B2B platform through AWS, serving the technology and cloud needs of other businesses.
- This duality enables Amazon to cater to both individual consumers and enterprises, leveraging its expertise in various domains to provide value.