Should-Read: Eugene Wei (2012): Amazon, Apple, and the beauty of low margins
Should-Read: Eugene Wei (2012): Amazon, Apple, and the beauty of low margins: “Amazon’s core retail business is, I’d argue, still very secure… http://www.eugenewei.com/blog/2012/11/28/amazon-and-margins
…I can’t think of a tech retail competitor that is a legitimate threat to Amazon in selling most physical goods. Where Amazon is most vulnerable in retail is those areas where the game shifted on them, and that’s in the media lines where physical books, CDs, and DVDs are being digitized. Since no physical product must be transported through a distribution system, Amazon’s operational efficiency advantages there are less effective against competition. But in the arena of buying something online and having a box delivered to your doorstep, who really scares Amazon?
Another advantage to low margin models is increased customer loyalty. Most of the products Amazon sells are commodity items…. In that world, the lowest price tends to win…. If you’re the low-cost leader, customers will forgive a lot of sins. That margin of error, like the competitive moat, buys you peace of mind. I could spend time price-shopping every item on Amazon, but these days, I don’t really bother. Amazon’s website design is not going to win any design awards, it’s a bit of a Frankensteinian assemblage thanks to distributed design decisions, but it’s fast, the shipping is cheap or free, the customer service is fantastic, and oh, did I mention, their prices are great! There is value in being the site of first and last resort for customers…