Prime Candidate for Analysis

Promotions in Retail

Promotions are part of the 4P's (Product, Price, Promotion, Place) of retail marketing. Promotions have always been a key part of the customer experience in retail. Promotional activities largely include a mix of marketing and advertising spend. 


Evolution of Promotions

With the onset of digital/online retail, the nature of promotional activity have been changing. 

Earlier in the world of physical retail, promotions were characterized by a sense of "theatre". It was about decking up the stores with banners, special merchandising and other ploys (such as the KMart Blue Lights). 

In the digital/online world, the "theatre" element has been replaced by one of "urgency". Flash sales, auctions, product launches etc. give customers a sense of urgency to grab the deals as they are available for a small amount of time.


The One that Started it All

Typically, promotions had been linked to major festivals or events such as Christmas (in most parts of the world), Diwali (in India), Chinese New Year (in China) and so on. Supplementing these festival events were the other smaller events such as - Back to School, Mothers Day, Valentines Day, etc. But, none of these events happened in July which was an "empty" spot in the retail calendar. 

So, Amazon picked up this time of the year for their "Prime Days". But, another aspect of Prime Days is that it is also aimed at shoring up customers for the "Prime" loyalty program. Of course, apart from quicker deliveries, Prime customers also enjoy other add-on services from Amazon such as Music, TV, Movies etc. 

The recent acquisition of MGM studios by Amazon is probably going to make these add-on services more compelling. Also, the copyright from MGM could potentially be leveraged for themed products. For example, the James Bond franchise is owned by MGM. Maybe next time, you fire up a drone, it's not Alexa but Bond who would do your bidding. Before I digress further, let's get back to Prime!


Analysis

As he has been doing for the past few years, Jeff Barr (AWS Technical Evangelist) has been revealing a few tidbits about the technical infrastructure powering Amazon Prime Day. So, I took the opportunity to study Prime Day in a bit more detail both from a business and technical perspective. 

The below table has some data on the different types of technical infrastructure used by Amazon. Of course, it may not be the full list, but still gives us an idea of scale (and therefore cost) of the infrastructure required to run an event as massive as Prime Day. It gives us some clues to the nature/style of the architecture as well. 

Apart from the technology, some of the other analysis is around sales, number of items sold and the split between Amazon and 3rd Party Seller share of sales.

Prime Day Analysis


Insights

Of course, some of the above data is based on assumptions and estimates. But, it can still help draw some interesting inferences and insights. Let's split these into business and technology. Potentially, we can also draw some correlation between the two as well.

Business

  • In terms of percentage to overall sales, Prime Day will probably contribute around 3% to overall Amazon sales in 2021
  • Compared to the first edition in 2015, duration of Prime Day has increased by around 50% to 66 hours
  • The average sales per item also probably increased from $26 in 2015 to around $54 in 2020
  • Over the years, the share of Amazon (vs Marketplace sellers) in Prime Day sales has increased from around 50% to 70%

Technology

  • If we look at a couple of the infrastructure metrics like AWS Cloudfront and AWS DynamoDB, they are not that different between 2020 and 2021. However, the sales seem to have doubled. This probably indicates a few things - 
    • We have already seen that mall footfall has been hit hard by the pandemic. More customers continue to shop online
    • More customers have shopped with an intent to purchase items and conversion has probably been higher
  • Compared to 2020, AWS EBS volumes have come down by 34% in 2021. It could indicate one or a combination of the below -
    • Optimization in the technical infrastructure or architecture
    • Leaner assortment of products 
    • Better customer targeting
    • Lesser number of deals
  • Depending on the cloud that you are using, one can punch in the above technical metrics from the table into the AWS Pricing Calculator / Azure Pricing Calculator / GCP Pricing Calculator to get a sense of the cost required to run an event like Prime Day

Summary

  • Assuming that more efficiency can be squeezed out of operations, there is a possibility that Prime Day may one day morph into a Prime Week (like the longer sales period done by retailers such as JD.com)
  • The profitability from Prime Day is probably higher as the supply chain network (warehouses and delivery fleets) can be leveraged for faster inventory turns than during normal periods. And, this profitability will only increase further with investments such as -
    • renewable energy for the warehouses and deliver fleet
    • better robotics
    • improved data and AI for supply chain
    • competitive pricing
  • Continue to retain and acquire customers for the Prime program
  • A trend probably exacerbated by the pandemic has been the rise of marketplace aggregators that are buying up the Fulfilled By Amazon sellers and Direct-to-Consumer brands. Examples of these are companies such as - Thrasio, SellerX, RazorPay etc. For example, Thrasio has so far acquired over 100 brands with around 15,000 products. Over a period of time, we may see a kind of triopoly on Amazon consisting of - Amazon, CPG Brands and Marketplace Aggregators.


References


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