Amazon is an online retailer like no other. The company has built a reputation for competitive pricing and fast shipping, but all that convenience comes at a hefty price tag for the sales giant.
Although profits rose once again in the first quarter of 2017, a Business Insider article revealed that revenue came in at $ 43.7 billion instead of the $ 44.68 billion anticipated by analysts. To continue offering fast shipping and other benefits customers have come to expect, the company finds many ways to increase its revenue.
That doesn't mean you can't be smart when shopping on the website. Find out how to save money on Amazon products by avoiding the tricks that the retailer uses to make you overspend.
1. Data-driven uploads
Amazon uses a highly sophisticated algorithm to recommend the right products to the right customers, at the right times. The company has access to data that allows it to analyze customer behavior and use the information to recommend products to other buyers with similar profiles.
According to Vadim Bichutskiy, director of data science at Innovizo, Amazon has pioneered a data-driven strategy for cross-selling and upselling. In fact, Amazon attributes 35 percent of its revenue to cross-selling, and that money is coming out of your pocket.
Free shipping offers
Amazon offers customers a few different ways to get lightning fast shipping. You can pay $ 99 a year for an Amazon Prime membership, allowing you to ship free, two days on most items and free delivery, and two hours in certain areas. If you don't want to pay for an Amazon Prime membership, you can spend at least $ 25 on books, or $ 35 on other qualifying items, with free shipping.
However, free shipping isn't free for Amazon, and the company has to make up for its losses in some way. The goal of free shipping offers is to incentivize customers to pay more for Prime Memberships or have them increase the number of items in their carts to reach the minimum. And the strategy works. The proceeds from these incentives offset Amazon's annual shipping costs.
Amazon Prime memberships
Amazon Prime is a customer loyalty program that was originally designed to get shoppers to spend more. According to a report by the market research firm Consumer Intelligence Research Partners (CIRP), as of April 2017, 80 million people in the US had Amazon Prime memberships. As a result, they can take advantage of incentives like free expedited shipping, same-day delivery in select areas, unlimited streaming of videos and music, early access to lighting deals, access to the Kindle Owner Loan Library, and discounts on diapers, video games and more.
Once you pay for an Amazon Prime membership, you will likely stop shopping at other stores to take advantage of all the benefits. According to the latest CIRP report, Amazon Prime members spend a staggering $ 1,300 a year with the retail giant, compared to non-Prime shoppers, who spend just $ 700 a year.
Prime Instant Video
Amazon Prime members have access to Prime Video, which allows them to stream a number of popular TV shows and movies. However, Prime Video doesn't actually make money for the company.
Amazon found that Prime members who use the free video streaming service are 10 times more likely to rent or buy Prime Video movies as non-prime members. Once customers get into the habit of streaming free videos, Amazon has a chance to sell the ones that aren't available for free.
In fact, Amazon owns the patent for 1-click ordering, which has generated billions in revenue for the retail giant. Once customers store their credit card and shipping information on the servers, they can simply click once to order without going through the checkout process.
This frictionless ordering system is another way that Amazon disconnects customers from how much they are actually spending and encourages impulse buying.
As of June 2016, Amazon offered over 150 "Dash Buttons," which allow customers to reorder common household items such as detergent, paper towels, diapers, and pet supplies with just one click. The dash buttons connect to WiFi and can be placed anywhere in your home, so you don't need to use a computer or smartphone to reorder them, just press the button and you're done.
Dashboard buttons may seem like a convenient service offering, but many people think they're just another trick by Amazon to disconnect customers from the truth of their spending habits. And because Amazon limits the brands offered through Dash Buttons, customers don't necessarily get the best rates on the items they need.
The customer pays a price for convenience and Amazon reaps the rewards.
The next time you see a promotion for an Amazon Kindle, think twice before you buy, as the "deal" could actually cost you in the long run. According to a 2016 report from CIRP, Kindle owners spend an average of $ 1,450 per year on Amazon, compared to $ 725 for non-Kindles customers.
In a press release, CIRP co-founder Mike Levin said, “Like Amazon Prime members, Amazon Kindle owners are better customers. They also shop more frequently and buy more expensive items on average ”.
Prime Day Sales
Amazon Prime Day is a 24-hour event during which members enjoy access to a wide range of products at below-average prices. To attract more customers and take advantage of this promotion, Amazon offers a free 30-day membership for everyone to participate in the event. By selling more Amazon Prime memberships, Amazon can increase your cross-selling opportunities and your profits.
According to CNBC.com, Amazon Prime Day 2016 was the largest yet, with worldwide orders up 60 percent and US orders up more than 50 percent. If you're looking to keep your spending on Amazon low, you might want to avoid participating in the 2017 sales event.
Amazon's Lightning Deals can be found throughout the website and on the Gold Box page. These offers are limited to one per customer and generally have very short expiration dates. In addition to making offers time-sensitive, Amazon creates a sense of urgency by displaying status bars that show the percentage of products that are already in shoppers' carts and the percentage still available. If you're looking to save money on Amazon, you might want to steer clear of this section of the site and avoid the temptation to impulse buy.
Amazon is notoriously reticent about the amount of revenue it makes from these deals, but the company tends to double down on strategy around certain vacations. For example, Amazon doubled its lightning bolt deals to 30,000 during the 2015 holiday season, and customers took the opportunity to rate flash deals on electronics, televisions, jewelry and toys.
Amazon Prime members also received 30-minute early access to Lightning Deals. This discount is another way that the company can benefit from its memberships.
Amazon's sales were up 23 percent to $ 35.7 billion in the first quarter of 2017, according to CNBC. And these gains were largely due to Amazon capitalizing on the “Internet of Things,” with products like the personal home assistant, the Echo, and a smaller version known as the Echo Dot.
Costing about $ 180 for the original version and $ 50 for the compact model, the Echo is a voice-operated wireless speaker that features artificial intelligence. You're always ready to listen and play music and games, set alarms, perform math equations, and search for facts online. Additionally, Echo allows customers to purchase items from the company's website without the use of a computer. Echo even has a friendly personality called Alexa, so you feel less like you're interacting with a company and more like you're shopping with a friend.
According to CIRP, Amazon has sold 5.1 million Echo devices nationwide since 2014.
Amazon Prime now
The latest addition to Amazon's fast delivery options, Prime Now offers items in two hours or less. This service is free for Prime members, but is limited to certain cities and zip codes. Prime Now is just another way that Amazon promotes its Prime memberships and prevents customers from spending money at other retailers.
Amazon Prime members can use Prime Now to get groceries, household items, and office supplies right to their doorstep. And the company's investment in faster delivery services has paid off. In 2016, Amazon CEO Jeff Bezos said he will continue to invest in new warehouses and data centers, as well as additional services for Prime members.
Third Party Sellers
It has become so easy to order products through Amazon that most customers don't bother to find out where their merchandise actually comes from. Instead of hosting products in expensive warehouses and losing money on free shipping, Amazon has started hiring outside sellers.
The Amazon Marketplace allows smaller businesses to sell to millions of buyers under the Amazon umbrella. According to CNBC, Amazon shipped 50 percent more items through third-party sellers during the 2016 holiday season than the year before. Of course third parties make a profit, which comes out of your pocket.
In the meantime, the company just relaxes, relaxes, and collects its money.
By Morgan Quin