Amazon.com-Brand built on cost advantege

  Amazon.com’s low price was achieved through structural cost advantage as well. Running a bookstore requires heavy capital investments and involves high fixed costs because books are bulky items that require physical display and storage space. Jeff Bezos’ genius was in moving the bookstore online.

ln the virtual world, you can display millions of books but not incur the kinds of fixed costs that would handicap any start-up. And Amazon.com also made arrangements to have orders shipped directly from publishers’ warehouses to the customer, thereby saving it a lot of money on warehousing. This structural cost advantage turned Amazon.com into the world’s No. I online book retailer and the world’s largest bookstore. While Dell’s strategy was to remove the middlemen from the equation, Amazon.com’s strategy was to insert itself as the middleman between the publishers and the customers using its virtual bookstore. But what both Dell and Amazon.com have done is to remove a very high-cost component from the business model and in Amazon.com’s case, it is the physical bookstore and the warehouse. Like Dell, however, Amazon.com is now using its well-established distribution channel to sell other items like CDs, DVDs, VCDs, etc. We feel it should stay focused on books because line-extending will dilute its focus and harm it in the longer run. But that’s another story for another time.