JAIPUR NATIONAL UNIVERSITY

SCHOOL OF BUSINESS AND MANAGEMENT

DISTRIBUTION CHANNEL OF AMAZON

SUBMITTED TO:. SUBMITTED BY:

DR.SHREYA BHARGAVA AMAN JINDAL

ASSOCIATE PROFESSOR MBA ( DUAL)
SBM. SBM
JNU
What Is a Distribution Channel?

A distribution channel is a chain of businesses or intermediaries through which a good or service passes
until it reaches the final buyer or the end consumer. Distribution channels can include wholesalers,
retailers, distributors, and even the Internet.

Understanding Distribution Channels

A distribution channel is a path by which all goods and services must travel to arrive at the intended
consumer. Conversely, it also describes the pathway payments make from the end consumer to the
original vendor. Distribution channels can be short or long, and depend on the number of intermediaries
required to deliver a product or service.Goods and services sometimes make their way to consumers
through multiple channels—a combination of short and long. Increasing the number of ways a consumer
is able to find a good can increase sales. But it can also create a complex system that sometimes makes
distribution management difficult. Longer distribution channels can also mean less profit each
intermediary charges a manufacturer for its service.

Understanding Distribution Channels

A distribution channel is a path by which all goods and services must travel to arrive at the intended
consumer. Conversely, it also describes the pathway payments make from the end consumer to the
original vendor. Distribution channels can be short or long, and depend on the number of intermediaries
required to deliver a product or service.Goods and services sometimes make their way to consumers
through multiple channels—a combination of short and long. Increasing the number of ways a consumer
is able to find a good can increase sales. But it can also create a complex system that sometimes makes
distribution management difficult. Longer distribution channels can also mean less profit each
intermediary charges a manufacturer for its service.

Direct and Indirect Channels

Channels are broken into two different forms—direct and indirect. A direct channel allows the consumer
to make purchases from the manufacturer while an indirect channel allows the consumer to buy the
goods from a wholesaler or retailer. Indirect channels are typical for goods that are sold in traditional
brick-and-mortar stores.Generally, if there are more intermediaries involved in the distribution channel,
the price for a good may increase. Conversely, a direct or short channel may mean lower costs for
consumers because they are buying directly from the manufacturer.
Types of Distribution Channels

While a distribution channel may seem endless at times, there are three main types of channels, all of
which include the combination of a producer, wholesaler, retailer, and end consumer.The first channel is
the longest because it includes all four: producer, wholesaler, retailer, and consumer. The wine and
adult beverage industry is a perfect example of this long distribution channel. In this industry—thanks to
laws born out of prohibition—a winery cannot sell directly to a retailer. It operates in the three-tier
system, meaning the law requires the winery to first sell its product to a wholesaler who then sells to a
retailer. The retailer then sells the product to the end consumer.The second channel cuts out the
wholesaler—where the producer sells directly to a retailer who sells the product to the end consumer.
This means the second channel contains only one intermediary. Dell, for example, is large enough to sell
its products directly to reputable retailers such as Best Buy.The third and final channel is a direct-to-
consumer model where the producer sells its product directly to the end consumer. Amazon, which uses
its own platform to sell Kindles to its customers, is an example of a direct model. This is the shortest
distribution channel possible, cutting out both the wholesaler and the retailer.

Amazon’s Massive Distribution Network in One Visualization.

Last year, Amazon shipped over 5 billion (with a “B”) Prime packages, and the retail giant’s ecommerce
market share in the U.S. is on the verge of surpassing 50%.

Moving that kind of volume takes an impressive amount of technical sophistication, manpower, and
distribution infrastructure. While Amazon does lean on third parties for deliveries and warehousing, the
company is also building an increasingly expansive distribution network in an attempt to manage the
entire process.

Today’s visualization, which uses comprehensive data from MWPVL International, examines the
estimated 124 million square feet of active space in the U.S., as well as the 40 million in Amazon’s
construction pipeline.

To create our graphical footprint of Amazon’s warehouses in the infographic, we’ve used satellite
imagery of every Amazon facility in the U.S. and stitched it all together.

Pieces of the Puzzle

There are a few types of facilities that make up the vast network of Amazon’s warehouses:

Crossdock Centers

Containers from foreign vendors can be held at a crossdock facility until more stock is needed at the
fulfillment center. This is the back-end of the distribution chain.

Fulfillment Centers

Fulfillment centers are the most common type of facility in Amazon’s distribution empire, but they serve
a wide variety of purposes.

Amazon began building its distribution network in 1997, starting with two fulfillment centers in Seattle
and Delaware. The two spaces would be tiny compared to today’s standards at 93,000 and 202,000
square feet, respectively. Now, there is nearly 100 million square feet of active fulfillment center space,
with another 35 million on the way.

Sortation Centers

These facilities are responsible for sorting packages by zip code which are then typically delivered to
USPS sites. Since being introduced in 2014, sortation centers have allowed Amazon to speed up the
delivery process and to help control the distribution process up to “the last mile”.

Delivery Stations

In urban areas, delivery stations are often the last step in the chain before packages reach a customer.
Courier companies – and increasingly Amazon Flex drivers – typically handle these short-range
deliveries. These stations are often located near airports.

Prime Now Hubs

These smaller locations are specifically designed for speed. Prime Now hubs carry a more limited
selection of items – including Whole Foods inventory – that are delivered within two hours of clicking
“buy”. There are currently around 50 of these facilities in urban areas around the United States, but that
number is expected to increase dramatically in the near future.
Prime Air Hub

Amazon doesn’t own its own airport yet, but the recently announced $1.5B international Prime Air Hub
is a step in that direction.The 210-acre parcels will help Amazon expand its Prime Air fleet while
reducing its reliance on companies like UPS and FedEx. Kentucky is a natural choice for the hub as there
are already 11 fulfillment centers in the state.

Fighting for the Last Mile

Over the years, Amazon has optimized every aspect of the distribution system, but one final hurdle
remains.

Conquering the last mile – the final leg before a package reaches its destination – has proven tricky, in
part because USPS already has a well-honed strategy for delivering to all the nation’s residents.The
company’s earnest recruitment drive for Amazon Flex is the latest in a long line of attempts to decrease
reliance on third parties for package delivery. Also, by tapping into on-demand labor, Amazon hopes to
reduce costs and have more flexibility during volume surges like Black Friday.This desire to own the
entire process is being reflected in the company’s roster of distribution facilities. The massive fulfillment
centers aren’t going anywhere, but we may see a lot more smaller delivery hubs in cities and towns
across America.

All at once, the cloud provides instant access to all of your data, photos, music, and applications, without
you having to store any of that data locally. In fact, users can access the cloud from practically anywhere
in the world, and across multiple devices and platforms.Yet, this all happens without you actually seeing
any visible infrastructure. With data now being created at record speeds, where the heck is all this
information being physically stored.

The Rise of AWS

Even though you can’t see the vast infrastructure that runs the cloud, it does exist somewhere.As
today’s infographic from RapidValue shows, much of this infrastructure is owned and operated by
Amazon, through its extremely profitable subsidiary of Amazon Web Services (AWS).Here are the key
stats on this dominant service that powers much of the internet today:

The Impressive Stats Behind Amazon's Dominance of the Cloud

 Amazon Web Services (AWS) quietly launched in 2002, and in a short time has been able to scale
into the largest single player in cloud computing (IaaS, PaaS).

 While it is a well-known name to software developers, AWS emerged on a more mainstream

basis once its financials were separated from those of parent Amazon.com.

Even in 2018, AWS delivered most of Amazon’s operating income.

AWS By the Numbers

To understand the true scale of AWS, you need to look at the numbers.

 AWS has over 1 million active users in 190 countries

 AWS has 5x more deployed cloud infrastructure as their next 14 competitors combined
 Each day, AWS adds as much infrastructure as they used to run in total 7 years back.

Amazon S3 is designed to deliver 99.999999999% durability and scale past trillions of objects worldwide

AWS partner, Netflix, accounts for up to one-third of Internet traffic during peak usage times

AWS accounts for 41.5% of the public cloud market, bigger than Microsoft, Google, Rackspace, and IBM
combined

Through incredible economies of scale, AWS has decreased its prices at least as many as 60 times since
its launch – and despite this, AWS generated a whopping $26 billion in revenue for parent Amazon in
2018.

The Fight for Smart Speaker Market Share

Tech brands are betting that the future of personal computing will be driven by the sound of your voice,
and the fight for smart speaker market share is heating up.

If they’re right, this early stage of smart speaker adoption will have a massive impact on future profits.
Switching smartphone brands is relatively straightforward, but switching an entire voice assistant
ecosystem. That’s not quite as easy.

Voice Assistants like Siri and Alexa will transform behavior inside the home. At the center of that
behavior is a smart speaker, serving as the hub of a connected lifestyle.

Today’s infographic is an overview of the rapidly expanding smart speaker market, and how the major
players in the space are competing for critical early market share.smart speaker market share

Moving towards Majority

Adoption of smart speakers really began to gain traction with consumers in 2018, when the percentage
of American adults with such a device passed the 20% mark. Today, the U.S. adoption rate sits at about
25%, and by 2022, it’s expected to more than double to 55%.In just one year, China’s global share of the
smart speaker market went from almost zero to 30%, and the country’s smart home market was valued
at over $7 billion. Companies like Baidu and Alibaba are fighting their own battle for domestic market
share.

Amazon’s Head Start

It has now been almost five years since Amazon announced Alexa and the Echo to the world, kicking off
the age of the smart speaker.The sting of Amazon’s failed foray into the smartphone market was still
fresh, and the initial reaction to a device listening inside the home was mixed. That said, Amazon’s huge
built-in customer base and two-year head start was enough to bag a hefty portion of the smart speaker
market. Now, other brands are playing catch-up.

Here’s a look at U.S. smart speaker market share by device:

Company Device Voice Assistant Market Share

Amazon Echo Dot Alexa 31.4%

Amazon Echo or Plus Alexa 23.2%

Google Home Google Assistant. 11.2%

Google Home Mini Google Assistant 11.2%

Amazon Echo Spot Alexa 3.5%

Amazon Echo Show Alexa 3.0%

Apple HomePod Siri 2.7%

Sonos One Alexa 2.2%

Google Home Hub Google Assistant 1.2%

Google Home Max Google Assistant 0.2%

Source

The Fight is Heating Up

Companies are responding to Amazon’s market dominance in different ways.

Apple recently dropped the price of its HomePod smart speaker to $299, a rare price cut for a company
that is used to people lining up to buy its products. Unlike its competitors, Apple can’t go all-in on using
the device as a “loss leader” to support advertising or e-commerce. HomePod is positioned as a more
premium product, but price will be a sticking point for many.Google, on the other hand, is taking a
drastically different approach. The company released the Google Home Mini as a cost effective entry
point for consumers looking to try out a voice-directed device.As well, Google partnered with Spotify to
offer Home Minis as a free promotion for Spotify Premium customers. Spotify’s premium userbase is
nearly 90 million, so if even a fraction of users take the free offer, a massive influx of Google smart
speakers will enter the market.Over the last year, Amazon saw over 10% of its market share chipped
away by competitors, and Google accounted for about half of that loss.

What’s Next? It’s Hard to Say

With the promise of future connected home profits on the line, it’s hard to say what lengths companies
will go to outmanoeuver each other. One thing is clear though, the overall smart speaker market is still
in the midst of a major growth cycle, and we’re just seeing the beginning of what’s possible with voice-
directed devices.

:)