With billions of dollars in revenue and a seemingly endless array of products for sale, Amazon has gained the upper edge in online shopping, attracting millions of customers worldwide.
However, considering Amazon’s undeniable popularity, you may be wondering – why Amazon is so expensive. Read on to explore the 9 reasons that make Amazon so expensive!
9 Reasons Why Amazon Is So Expensive
Amazon has a wide variety of products at both low and high price points, and can sometimes be expensive due to the third-party marketplace and on-demand shipping options. Additionally, Amazon has great retention rates, so it can charge more and still have customers returning due to the convenience and familiarity.
If you want to learn more about why Amazon is so expensive, how its pricing algorithms contribute to this, how much does it pay employees, and much more, keep on reading!
1. Third-Party Marketplace
Nearly 60% of Amazon’s retail sales are through small and medium-sized businesses on Amazon Marketplace.
Third-party sellers can charge however much they want for their goods, so sometimes prices may seem inflated.
Additionally, retailers may charge more for some products if they are made of high-quality materials or are relatively hard to find.
Amazon cannot discount items from third-party sellers either, so they are often more expensive than similar products from competitors.
2. Speedy Shipping Service
One reason Amazon is popular is its fast shipping times and reliable delivery network.
The vast majority of the U.S. is covered by Amazon delivery, made possible through partnerships with UPS and the United States Postal Service.
With various expedited shipping options, Amazon can sometimes seem more expensive than its competitors.
However, customers are actually paying for that extra convenience and peace of mind that their deliveries will arrive quickly and on time.
Amazon even offers weekend and rush one or two-day delivery for many orders, and these extra options can make it more expensive.
3. International Shipping
Along with shipping all over the U.S., Amazon offers international shipping on many products.
The Amazon Global program ships to more than 100 countries , and millions of products are available for international shipping.
Although the retailer has 110 active U.S. fulfillment centers and 185 centers worldwide, there are still hefty costs associated with shipping across the globe.
If you want to buy something from Amazon that ships from another country or you want delivery outside the U.S., you can expect to pay a lot more than going to a physical store down the street.
4. Product Availability
Product availability is another reason Amazon is expensive a lot of the time.
If a product you want is nearly sold out, Amazon can up the price, knowing that determined shoppers will probably pay more for it.
Amazon has warehouses nationwide where stock levels are monitored and updated immediately after sales.
If the retailer sees certain items are selling faster than others and impacting availability, there’s a good chance the price will change to reflect that.
Amazon can also charge higher prices for similar items because shoppers appreciate the wide variety and usually prefer an online retailer that carries everything on their list.
5. Exclusive Memberships
Amazon has over 200 million Prime members around the world, and this number is still growing.
The retailer draws shoppers in with the attractive perks of these exclusive memberships, such as free shipping, special discounts, and access to digital reading and streaming content.
Amazon charges fees for Prime membership: $12.99 per month, $119 per year, and $8.99 per month for Prime Video plus taxes.
While many people find these membership costs pricier, plenty of shoppers are still happy to pay them because the perks are well worth any cost.
Note that Prime members mostly save on shipping costs, and while there are discounts on some items, overall, Amazon still makes decent money on these memberships.
6. Pricing Algorithms
As a dedicated technology company, Amazon has world-class digital systems and pricing algorithms allowing rapid price changes.
Depending on how a competitor is performing, Amazon may adjust its prices accordingly.
That’s why a hot ticket item that’s for sale across all the major mass retailers may be more expensive than something that’s not as popular.
Along with that, Amazon also knows it can target a niche audience and still make sales on certain items, especially if that’s the only place someone can find it.
Amazon’s technology identifies unique products that aren’t available on other sites, so then the price is increased to reflect the item’s rarity.
So if Amazon is the only place you can find a certain item online, then it’s likely to be more expensive than widely available products in the same category.
7. Employee Wages
Amazon is known for its competitive wages; occasionally, higher prices may reflect the retailer’s higher labor costs.
All Amazon employees make at least $15 an hour, which is twice the federal minimum wage.
Since Amazon has close to 1.3 million employees around the globe, the company has high staffing costs to cover.
Other than that, full-time employees also have comprehensive benefits, because of which Amazon has earned a reputation for being a good place to work.
However, all of this means that it can adjust its prices to accommodate the higher wages for its workers.
8. Millions of Products
Amazon has one of the largest product catalogs in the world, and the sheer variety and volume of goods purchased daily make the retailer expensive in some areas.
Some Amazon products may seem more expensive while others may seem cheaper. It all depends on the sales and how many products are available in one category.
Amazon can charge a slightly higher price on one product while discounting another based on stock and sales volume.
Additionally, the company has incredible flexibility in pricing, so it can adjust prices quickly and still satisfy its huge customer base.
9. Global Leader
Brand recognition allows Amazon to charge slightly higher prices than its competitors and keep people returning for more.
In 2020 alone, Amazon recorded 38% revenue growth and continues to creep closer to the top spot on the Fortune 500, trailing only Walmart.
This shows that the future is bright for Amazon, and with its status near the top of the market, it’s firmly established in millions of households.
In fact, most returning Amazon customers or Prime members may not even compare prices because they prefer shopping on Amazon regardless.
Now that you know about Amazon, you can also check our related posts on what is Amazon’s choice, Amazon’s target market, and why Amazon is so successful.
Conclusion
As one of the most recognized online retailers in the world, Amazon has the upper hand over many competitors.
Its brand recognition, high-tech pricing algorithms, exclusive memberships, and extensive selection of products make it more expensive in many ways.
Amazon is able to charge higher prices on a lot of items, knowing that loyal customers will still make a purchase anyway because it’s easier, more convenient, and more familiar than going to another retailer.
Amazon’s super strong membership base also allows the retailer to charge more and still achieve an impressive sales volume because customers prefer to shop online with Amazon.
