Posted by Ronnie Diaz
What am I talking about?
Living Social and Groupon are relatively new websites featuring coupons and advertisements which target your local demographic.
Some of these coupons are backed by large names, such as Amazon, whereas others may be small businesses, like “Joe’s Pizzeria” down the road.
These sites are growing in popularity, even Google recently offered Groupon $6 billion to acquire it (this was turned down).
Yesterdays coupon on living social was a $20 gift card being sold for $10. Over 1.3 million gift cards were sold, as you can see in the image above. This equates to approximately $13 million gross for Amazon..
How they make money
Historically, individual products are marked up by retailers to cover their costs. Discounts on products simply lower the mark-up and in many cases there is still profit realized even when an item is “on sale”.
With e-commerce, many direct drop-shipping techniques have reduced the mark-up, however, shipping, freight and warehousing competition has increased the wholesale costs so the effect is relatively the same for the consumer.
Ask yourself, who makes more and less out of this scenario?
- Distributor / Warehouser
Amazon is fairly unique in the e-commerce world, with the exception of Overstock and similar others; they sell and warehouse their products directly.
This allows them to ascertain profits on much lower prices since their wholesale savings are much greater.
Selling a $10 coupon worth $20 in Amazon credits is not profitable for an item which is marked up less than double its value, but for many small items, such as Amazon’s Kindle books… there is almost no cost at all, so sales for almost any amount usually equates to profit.
What would you rather purchase, 8 books at 50% off, or 2 DVD’s at 50% off? Either way, these small items cost little or nothing to reproduce, so margins are high regardless of the price.
If you bought yesterday’s coupon, but had no intention of buying anything on Amazon, my advice would be to save it until you actually need something from Amazon then use it in conjunction with your normal purchase.
Consumers shift between tendencies to save or spend. Make sure you can rationalize any purchase, big or small. By simply spending the coupon on small items you may not have otherwise purchased, you would have bought directly into what Amazon was trying to get you to do. >:)
What does the future hold?
Imagine a large warehouse where everything you would like to purchase is stored (kind of like walmart)… There’s no need to walk down endless aisles looking for goods, because there are computer terminals easily accessible from multiple entryways where you can request a specific good which is sent to you via a pneumatic tube for you to inspect before buying. If you approve the purchase, you send it back in the tube and mark off on a list of inspected items which ones you want to buy. A box or other container is now dropped off via conveyor belt or by other machinery like warehouse robots with your requested items. You can choose to take it back home with you (that’s why you came to the store in the first place isn’t it?) Or have it shipped via any shipping method you choose.
On the front of this superstore will probably be a name you recognize, spelled across the top in huge letters visible from afar.. That name might be Amazon. Until someone bigger and better comes along.
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