No Wonder Amazon’s Profit Margin Is Shrinking

Aug 16, 2014 10:14 AM  By

On Sunday afternoon, at 2 o’clock, I sat down in my home in North Carolina to place an order for my favorite, hard-to-find, tea over Amazon.  It occurred to me that my daughter in Orange County, California, would love this tea, so I ordered her up some as well.  It was then that I realized that she could have the tea by 9 PM that day for $5.99 extra.

That blew me away.  How can Amazon make money on that?  Her tea was less than $20.  I didn’t chose that delivery option, however, simply because I was in no hurry to get her the tea.  I chose my free prime option.  Still, she had the tea by 6PM on Monday!

I’m so pleased that she got the tea so fast, but I am left scratching my head on Amazon’s profit.  Could they just be training all of us to buy everything from them?  Will they eventually have the largest delivery network in the country?

They are also starting the next phase of upping consumer expectations.  I’m waiting for my tea on Tuesday morning….and I’m feeling impatient based on my daughter’s experience!

  • Andrew Galli

    Interesting thoughts, Ellen — I heard on the news the other day that Proctor & Gamble is eliminating 80% of their brands in favor of the 20/80 rule (20% of their brands reflect 80% of their profit). P&G’s CEO remarked that he was his own competitor — by having too many choices of the same type of product his retailers were deep discounting within P&G brands and he was losing profit. Consumers tend to ‘shop by price’ when overwhelmed by a myriad of choices, prices and options for the same thing.