Amazon is one of the most trusted and used online retailers in the world. One of the many reasons they have so many loyal customers is because of their unmatched low prices.
In this article, we’ll cover why Amazon is cheaper than other online stores.
Amazon is so cheap because they are a huge company. They have the resources and technology to ship mass amounts of products every day. With almost infinite products, third-party sellers, ample advertisement income, and a trusted-brand name, they can keep their prices extremely low.
In this article, we are going to discuss the fifteen reasons why Amazon is so cheap, so you can better understand their company and why they are the most affordable online retailer in the world.
The first reason on our list for why Amazon is so cheap is the culmination of many of the reasons: they simply have immeasurable resources.
For almost thirty years since Amazon was founded in 1994, the company has created, purchased, bought, built, and truly done everything it needed to do to create a worldwide conglomerate.
Essentially, they have the staff, resources, and income needed to keep their prices as low as they can go.
Another aspect of their immense resources is their in-house technology and data collection.
Amazon is a tech company as well as a retail business, and it uses its tech team to quantify all the data they need, including demand, competing prices, stock levels, profitability, and consumer satisfaction.
By crunching the numbers, Amazon can ensure its customers get the best possible prices while still making a heft profit.
Amazon is known for having everything you could possibly need on one site with the click of a button.
Their extensive catalog of products is impressive, but they also have over a thousand warehouses with stockpiles of each item to make sure everyone can get what they want when they want it!
Because they can offer such a wide range and ample in-stock items, Amazon can charge less because they sell so incredibly much.
As most people know, buying in bulk is always more cost-efficient than purchasing just a few items.
On a very small scale compared to Amazon, businesses like Costco and Sam’s Club are offering the same thing to their customers.
However, Amazon does bulk buying to the extreme; by buying thousands of one item at a time, they receive insane discounts from distributors and, therefore, can sell those products to the consumer at a reduced price.
Although Amazon does have a ton of its own stock, the site also uses third-party sellers. That means that some of the items are being sold by individual people or smaller companies, and Amazon simply takes a profit for allowing the sales on its site.
Third-party sellers are a huge income for Amazon for several reasons:
- They pay to advertise on the site.
- Amazon has to do almost nothing for the sale and still makes money.
- They compete against each other to offer the lowest prices to consumers.
- Amazon is able to retain more customers by having more products without storing them.
In 2019, Amazon made over $12 billion on third-party sales alone! This incredible income, along with many others, ensures Amazon can keep its prices lower than any other store or online retailer.
5. Income Through Advertisement
Third-party sellers aren’t the only ones who advertise on Amazon. In fact, in 2021, the company made a whopping $31 billion from selling advertisements on its site and app.
Amazon not only offers ad space, but they also have tools to optimize other companies’ marketing strategies and ways to engage and retain customers.
On the flip side, Amazon saves money on advertisements because they are so well known that most people already use the site not only to place orders but also to do research into products they are interested in!
6. Low-Cost Operations
As with any business, the less Amazon spends on your operation, the less it has to charge for your product, all while keeping its profits high!
Amazon has incredibly low-cost operations for several reasons:
- They use their in-house tech to make shipping and deliveries cost-efficient.
- Many of their workers make minimum wage as they are in packaging, shipping, or delivery positions.
- They bulk buy their products.
7. Shipment Organization
Amazon is seriously organized! They have a system in which items are packaged and shipped directly from the warehouse to the destination in small, efficient packages.
For many clients, that means split orders, and while getting three boxes for one order may feel redundant, it actually saves Amazon a ton of money every year, which means they can keep product and delivery prices extremely low.
8. Impressive Delivery Network
One of Amazon’s most impressive features is that they can essentially send anything anywhere, and it will get there within 72 hours.
Many Prime deliveries arrive the next day, which keeps their customers happy and coming back for more! Of course, this encourages sales and, therefore, allows Amazon to keep its prices low.
Amazon’s extensive delivery network is seriously impressive. Their thousand distribution centers send out about 1 million packages every day with ease.
With their own delivery network as well as their partnerships with big names for local in-store pick-ups, their Amazon lockers, and their relationship with UPS, they can ensure delivery costs are next to nothing.
Annual memberships are a large part of Amazon’s yearly income. Through the 200 million Prime members around the world, Amazon rakes in an incredible $4.7 billion a year!
Once again, by creating a significant income through other avenues, such as annual memberships, other than just their products, Amazon can set ridiculously low prices while still making a ton of money.
Amazon Basics is Amazon’s low-budget private label brand for kitchen, tech, and household products. They purchase the items in bulk from a manufacturer and put their own label on them.
By using a private label, Amazon is making a ton of money and saving you a great deal as well. They can set the price extremely low as the manufacturing costs are so low, and because they have so much storage space, they can order thousands of items at a time.
Amazon uses its data collection to find out which products customers want and have those specific items made for them for next to nothing!
In case finance isn’t your specialty, a high market share is when a company has to put in little effort to enjoy big sales. It also means that a company will benefit from market expansion because they already have a monopoly on the industry.
Amazon certainly has a high market share! In fact, Amazon has a 56.7% market share which means they own more than 50% of the market.
To break it down another way: every other online retailer in the country combined sells less than Amazon sells. Although this may be a terrifying statistic for other e-commerce sites, it’s one of the main reasons why Amazon is so cheap!
Similarly to the idea of market share, with a high economies of scale, the bigger the company, the more they make!
A company with economies of scale have high production numbers, low costs, and profits that are spread over a variety of goods. Essentially, Amazon is one of the best examples of economies of scale in the world.
Many Amazon customers wonder how you can find certain brand names on their site for less than on the actual company website.
This essentially happens for two reasons: Amazon does not need to make as much on each purchase to stay afloat, and companies don’t complain because they really want their products on Amazon.
Once again, this is fantastic for the consumer because you can find your favorite name brands on Amazon for a fraction of the cost!
Every factor we have discussed so far plays a big role in why Amazon is so cheap, however, none of them would truly keep the company so successful and the prices so low if it wasn’t for their brand recognition.
Amazon has worked extremely hard to ensure their customers and sellers get the best possible experience on their site. With ample refunds and reimbursements, trusted products, and a prominent customer service team, Amazon retains 98% of their customers!
The bottom line is, the more people who shop on Amazon, have Prime memberships, and sell or advertise on the site, the more money Amazon makes and the less they have to charge for their products to stay profitable.
Because the company is one of the most popular on earth, and it seems to be only becoming more successful by the day, Amazon will always have the cheapest items!
Welcome to CompanyScouts! I am Jake, the founder of CompanyScouts. I hold an Msc in Economics and Business Administration. With a deep interest in the consumer segment, I strive to help people get to know their favorite companies even better.