amazon-value-proposition

Amazon Value Proposition In A Nutshell

A company like Amazon has multiple value propositions, as it serves several target customers in different markets. With its mission “to be Earth’s most customer-centric company, where customers can find and discover anything they might want to buy online and endeavors to offer its customers the lowest possible prices,” Amazon’s value propositions range from “Easy to read on the go” for a device like Kindle, to “sell better, sell more” to its marketplace.

Background story

As the author of The Value Mix I’ve designed and gathered a range of innovative tools that product managers and entrepreneurs can use to create new products and services. In this article, I’m analyzing some value propositions of Amazon. Value proposition design is a key element for a company’s success to deliver products that people want.

Many people see Amazon’s value proposition as being the “everything store.”

But as a company, Amazon has more to offer.

Let’s dig into some of the main value propositions of the company.

(For more about value proposition design, read Hacking Value Proposition Design.)

A suite of value propositions

Amazon started as an online book store.

But over the years, through acquisitions and internal developments, the company now offers a suite of value propositions to sometimes very distinct types of customers.

There’s a lot to learn for product managers and entrepreneurs.

Digging into Amazon’s business model and value proposition can help you understand the nuts and bolts of running an e-commerce business.

One big takeaway is how Amazon focuses on increasing its customer share. Of course, Amazon has a significant market share. What matters even more to them is to delight its customers so much that they mostly use Amazon’s products and services.

This truly fits with Amazon’s mission statementto be Earth’s most customer-centric company, where customers can find and discover anything they might want to buy online and endeavors to offer its customers the lowest possible prices.”

Kindle: Easy to read on the go

The Kindle doesn’t appeal to everyone.

You often hear people saying:

  • “I can’t read on a screen.”
  • “I prefer the feel of holding a physical book.”
  • “I love the smell of a new book.”

These people aren’t Kindle users.

That’s okay. Amazon knows that they target a particular audience.

These people have a few things in common. They love reading–often more than one book at a time. They’re often on the go (commuting or traveling). So they want to travel light.

And here, the Kindle offers a great customer experience. It has a great choice of books that you can download from anywhere. You can store more books that you could read in a year in a device that is lighter than most paperback books.

The Kindle is the dream tool for any hardcore reader.

Prime: Anything you want, quickly delivered

Prime represents the quintessential value proposition of online convenience.

It serves an audience of people who tend to be in a hurry. If they need something, they cannot be bothered going to a shop and don’t want to wait more than a day before it gets delivered.

The free one-day delivery is at the core of the customer experience. But I think people also like how privileged they feel. It’s not for everyone.. and this sense of exclusivity is also comforting.

On top of that, Amazon bundles free fast delivery with many add-ons such as Amazon Video and Kindle Unlimited. This is a great deal and reassures those who feel concerned about subscribing to Prime. It’s not just a discount delivery but a real membership with many benefits included.

It gives them a great sense of value.

Related: Amazon Prime Video Revenue Model Explained

Marketplace: Sell better, sell more

With Marketplace, Amazon targets business owners who are eager to reach larger audiences.

Their challenge is to drive enough traffic to a website and convert this traffic into sales. Amazon Marketplace gives them the tools to sell more.

For example, Amazon offers tools such as Reviews and Questions to help entrepreneurs convert viewers into customers.  

These business owners believe that it’s easier to sell through an existing marketplace than to build an e-commerce shop. They enjoy the ability to leverage Amazon’s captive audience as well as being able to reach them through ads.

Related: Platform Business Models In A Nutshell

More of Amazon’s value propositions

It’s difficult to make an exhaustive list of Amazon’s value proposition as the company targets a variety of audiences with a lot of different products.

These range from Amazon self-publishing to Amazon Fresh to Amazon Music.

Breaking down Amazon’s business model

Amazon’s business model is very complex and it moves around a few building blocks. 

amazon-business-model
Amazon has a diversified business model. In 2021 Amazon posted over $469 billion in revenues and over $33 billion in net profits. Online stores contributed to over 47% of Amazon revenues, Third-party Seller Services,  Amazon AWS, Subscription Services, Advertising revenues, and Physical Stores.

Indeed, when looking at Amazon’s business model it’s easy to conclude that is just an e-commerce company. And indeed, e-commerce is the largest revenue stream.

However, there are a few things to take into account.

First, it’s important to distinguish between scale and profitability. When it comes to scaling, the e-commerce side of Amazon is the most important part. 

E-commerce runs at very tight margins, and it offers the possibility for third-party stores to host their products on top of Amazon.

Thus, e-commerce has been built as both a consumer (where billions of people can find anything) and B2B (where other merchants can build their stores on top of Amazon) platform. 

Second, over the years, Amazon has experimented with many things, and among them, programs like Amazon FBA, Amazon Prime, and Amazon Advertising turned into successful business units. 

Third, as a side effect, trying to make an order to the “jumbled mess” that had become Amazon’s underlying infrastructure, the company came up with a set of dedicated servers, which would eventually become AWS.

AWS, initially used as an internal service, within Amazon, to enable third-party stores to host their e-commerce on top of Amazon, eventually grew to become a dedicated service, for other startups. 

AWS pretty much powered up a good chunk of the sharing economy of the 2010s, with companies like Airbnb or Netflix, relying on it to build their own infrastructure. 

When for the first time, Amazon opened up the numbers of AWS, in 2015, it became clear, that AWS had become a company within Amazon, and indeed the most successful one.

Not by chance, eventually, the CEO of AWS, which most run it independently,  Andy Jassy, eventually became the CEO of Amazon!

amazon-revenue-model
Amazon has a business model with many moving parts. With the e-commerce platform which generated over $222 billion in 2021, followed by third-party stores services which generated over $103 billion, Amazon AWS, which generated over $62 billion, Amazon advertising which generated over $31 billion and Amazon Prime which also generated over $31 billion, and physical stores which generated over $17 billion.

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Connected to Amazon Business Model

Amazon Business Model

amazon-business-model
Amazon has a diversified business model. In 2021 Amazon posted over $469 billion in revenues and over $33 billion in net profits. Online stores contributed to over 47% of Amazon revenues, Third-party Seller Services,  Amazon AWS, Subscription Services, Advertising revenues, and Physical Stores.

Amazon Mission Statement

amazon-vision-statement-mission-statement (1)
Amazon’s mission statement is to “serve consumers through online and physical stores and focus on selection, price, and convenience.” Amazon’s vision statement is “to be Earth’s most customer-centric company, where customers can find and discover anything they might want to buy online, and endeavors to offer its customers the lowest possible prices.” 

Customer Obsession

customer-obsession
In the Amazon Shareholders’ Letter for 2018, Jeff Bezos analyzed the Amazon business model, and it also focused on a few key lessons that Amazon as a company has learned over the years. These lessons are fundamental for any entrepreneur, of small or large organization to understand the pitfalls to avoid to run a successful company!

Amazon Revenues

amazon-revenue-model
Amazon has a business model with many moving parts. With the e-commerce platform which generated over $222 billion in 2021, followed by third-party stores services which generated over $103 billion, Amazon AWS, which generated over $62 billion, Amazon advertising which generated over $31 billion and Amazon Prime which also generated over $31 billion, and physical stores which generated over $17 billion.

Amazon Cash Conversion

cash-conversion-cycle-amazon

Working Backwards

working-backwards
The Amazon Working Backwards Method is a product development methodology that advocates building a product based on customer needs. The Amazon Working Backwards Method gained traction after notable Amazon employee Ian McAllister shared the company’s product development approach on Quora. McAllister noted that the method seeks “to work backwards from the customer, rather than starting with an idea for a product and trying to bolt customers onto it.”

Amazon Flywheel

amazon-flywheel
The Amazon Flywheel or Amazon Virtuous Cycle is a strategy that leverages on customer experience to drive traffic to the platform and third-party sellers. That improves the selections of goods, and Amazon further improves its cost structure so it can decrease prices which spins the flywheel.

Jeff Bezos Day One

jeff-bezos-day-1
In the letter to shareholders in 2016, Jeff Bezos addressed a topic he had been thinking quite profoundly in the last decades as he led Amazon: Day 1. As Jeff Bezos put it “Day 2 is stasis. Followed by irrelevance. Followed by excruciating, painful decline. Followed by death. And that is why it is always Day 1.”

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