Steve Dennis wrote an article on Forbes titled Retail Delivery Wars: Smart Strategy Or An Inevitable Race To The Bottom?
Amazon Prime was originally a two-day delivery benefit which has escalated to same day, which is “not necessarily so good for Amazon’s marginal economics as evidenced by Amazon’s growing fulfillment costs as a percentage of sales.”
Meanwhile, Target and Walmart have responded with their own competitive delivery options.
“The one rather obvious conclusion is that more, cheaper and faster home delivery and local pick-up options are a bonanza for consumers. Another thing that appears clear is that layering on all these additional features probably doesn’t expand overall spending. So for the brands engaged in this escalating service battle it’s all about preserving market share. I’m no mathematician, but it seems like if you lower prices, raise your operating costs and are mostly trying to retain your piece of the pie, that’s rather unlikely to be accretive to profits.”
On a side note, Rory Sutherland wrote about Amazon Prime in his book Alchemy:
“Nearly all pricing models assume that ten people paying for something once is the same as one person paying for something ten times, but this is obviously not the case. Ten people who each order ten things every year from Amazon will probably not begrudge paying a few dollars for delivery each time, while one person who buys 100 things from Amazon every year is going to look at his annual expenditure on shipping and decide, ‘Hmm, time to rediscover Walmart’… This explains why Amazon Prime needs to exist. Without it, Amazon cannot have regular customers.”
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