Price Differentiation and Two Part Pricing Strategy of Amazon

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Price Differentiation and Two Part Pricing Strategy of Amazon

By: Sonal Uban

Amazon.com is an American international e-commerce company headquartered in Seattle, Washington. It is the world's largest online retailer[1] that started as an online bookstore, but soon diversified, selling furniture, food, toys, and jewelry among other things. [2] The company also produces the popular Kindle e-book reader and the Kindle Fire tablet computer—and is a major provider of cloud computing services. [3] Amazon is considered the fourth most successful startup company of all time by market capitalization, revenue, growth and cultural impact.[4] Amazon’s e-commerce strategy is multi-level. In its annual summary, Amazon stresses that “It believes the main competitive factors in its market segments include selection, price, availability, convenience, information, discovery, brand recognition, personalized services, accessibility, customer service, reliability, speed of fulfillment, ease of use, and ability to adapt to changing conditions, as well as our customers’ overall experience and trust in transactions with us and facilitated by us on behalf of third-party sellers”. [5] The key to realizing and achieving all these factors lie in Amazons strategy. This paper will explore how Amazon is employing price discrimination and two- part pricing system as its strategy to realize its goals on profit.
Background
In order to maximize their revenue, Amazon has to first learn about the reservation price of each individual or groups of consumers they are selling to. Reservation Price is the most money an individual is willing to pay for the item he or she buys in the market. [6] No one pays more than this price. Price discrimination is about finding ways to get people to pay a price that comes close to their reservation price. It can be of three kinds: first…...

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