If your business depends on online sales and marketing, this statement from Amazon’s CEO, Jeff Bezos, given during an interview with the Harvard Business Review, should certainly catch your attention: “Percentage margins are not one of the things we are seeking to optimize.”
Are you getting that? The largest online retailer in the world isn’t worried about optimizing its margins. They’re not even trying. Believe it or not, this makes perfect sense. In the online space, where price transparency and competition put continuous pressure on prices, the absolute lowest price wins. So why compete?
The real competition is taking place around ancillary products. Ancillary products are the “fries and drinks” with the hamburger. Consumers like to buy them and they don’t shop for the best price. Retailers like to sell them because this is where they can supplement their poor core margins.
My prediction is that every online retailer – from airlines to electronics, from fashion to insurance – is going to need to examine how ancillary products fit into their strategy. There’s simply no other way to keep up. This means getting a core product in the cart and then getting some ancillary products in there as well.
In my next post I’ll explain the three E’s of ancillary products – enable, ensure, enhance.
What do you think – can online retailers remain profitable without ancillary revenue?
– Bob Dufour