CASE STUDY [30 Marks]

Traditionally, Amazon did not have physical stores and the company relied on online sales channel due to e-commerce nature of its business operations. Starting from 2015, the online retail giant has been concentrating in physical retail "during which time it's opened half-dozen bookstores that double as gadget emporia, a score of campus bookstores that don't sell books and a convenience store without cashiers." Moreover, Amazon also has an alternative store format that operates in a cost-effective manner. "Students order textbooks and dorm furnishings online and come to these stores to pick them up. The centralized pickup location reduces shipping expenses. The company is also testing a grocery pickup service at two locations in Seattle. Once it launches, Prime members will be able to order groceries online and visit one of these stores for pickup, skipping the aisles." To summarise, Amazon has an omnichannel sales strategy and customers access its offerings through its websites, mobile apps, Alexa, and physically visiting Amazon stores. Amazon's business is highly seasonal. The company generated 32%, 34%, and 31% of its annual revenue during the fourth quarter of 2016, 2017, and 2018 respectively. This pattern of revenue generation has certain implications on Amazon pricing strategy. Amazon pricing strategy can be generally described as cost leadership nevertheless, the largest internet retailer in the world also applies alternative pricing strategies in certain segments. Cost leadership is placed at the core of Amazon pricing strategy. Analysts note that "Amazon's strategy is to frequently lower prices until they beat competitors-for all products". Famously, the online retail giant changed the price of Bible more than 100 times during the last five years. At the same time, Amazon uses premium pricing for its products and services, where the company possesses solid market share and competitive advantage. For example, publishers with Kindle Direct Publishing are offered 70% royalty option and make their books available in the Kindle Store Additional range of pricing strategies used by Amazon sparingly include penetration pricing, price skimming, psychological pricing, product line pricing, promotional pricing and geographical pricing strategies. The e-commerce giant earns fixed fees, a percentage of sales, per-unit activity fees, interest, or some combination of these according to its seller programs.

Question 2 (15 Marks)

Examine and discuss price skimming, penetration pricing and psychological pricing. Provide suitable examples of each strategy