2 thoughts on “Killer App

  1. Killer of margin is more like it.

    My wife was out with a group of women the other night, and they all acted like paying for shipping was some kind of act of insanity. They had figured out some way to share an Amazon Prime account, and they all order everything from Amazon.

    One of them was literally complaining about having to pay $5 for shipping on something.

    Sorry, but you can’t send anything by UPS or FedEx for less than around $8.

    I asked FedEx about how I can ship for free, but they said it wasn’t possible!

    I sell a large number of oversized products that literally cost $79 and up to ship sometimes. No one believes that shipping could possibly cost that much, so we have to add it into the cost of the product and make an artificially low shipping rate instead. But that means that people won’t even click on your page to see the product sometimes, because the price “looks” too high compared to companies who add in shipping at checkout (where they probably get huge cart abandonment).

    Sometimes you’re taking money from the customer and giving it to Google (for your ad), the manufacturer (for the wholesale cost), and FedEx or UPS for shipping. There’s nothing left for you.

    Amazon has so many products, and such a high lifetime value of a customer and does so much repeat business that they can afford to lose money on shipping now and then. That strategy works great for them, but it’s slowly squeezing the life out of everyone else who doesn’t have the margin to do it too.

    It reminds me of the dot com bubble, where businesses only cared about “scale” and not profits. We know how that turned out.

    Only this time, Amazon is still doing it and turning a profit. It’s a huge threat and challenge, as far as I’m concerned.

    On the Internet, your money maker is someone else’s loss leader. So you’d better not depend too much on a single product or product category unless you control the manufacturing too.

    • Here is how I see it- shoppers are irrationally biased towards free shipping. Etailers respond by changing some other variable- some use Costco membership strategy, some adjust item prices, some focus on up-selling, etc. I’m not suggesting one has to give free shipping. What I am suggesting is that one needs to understand shopper preferences and respond accordingly.

      If you have an item whose shipping cost is $79 take a picture of the shipping bill and post it as proof on your product checkout page. Use marketing to make your point.

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