Amazon Versus Walmart. Who will emerge victorious?

To understand why Walmart survives while at the same time Amazon thrives you must look at the basic business models of each shopping experience.

Walmart is a traditional mass merchandise retailer. Walmart offers products for sale and hopes to make a profit on everything they sell. They also rely on the shoppers choosing to pick up additional items while they are in the store so the net shopping cart value can be quite high in many cases.

They have marketed themselves as having a large selection and generally low everyday prices. Shoppers may visit a Walmart store because they want to see the merchandise, try it on, touch the fabric, read the instructions on the box, or ask the department merchandiser a question. There is a lot of psychology involved in a Walmart shopping experience including the store layout and product placement. Thru marketing, they have convinced their customer base that Walmart is low priced on all items. If you do any amount of comparison shopping you know that Walmart is low priced on what they considered the Market basket products that every mass merchant retailer should be selling. These are also the products that most consumers can identify as a good value if the price is right. Everything else in the store may not be a great value but the customers won’t take the time to comparison shop. After all, who cares if that 300 pack of paper plates is 10% more expensive. The customer the customer is already in the store so they just throw it in the cart along with all the other impulse items they see as they shop.

Amazon is both an e-commerce retailer and a third party selling platform.

Amazon’s business model emphasized growth over profits. Jeff Bezos was fortunate to attract enough investment capital to grow the business without the pressure of trying to be profitable. Even with massive year over year growth, it still took around 15 years for Amazon to turn a profit.

As an e-commerce retailer, Amazon offers many private label products they have developed. They have these goods manufactured for Amazon, they buy and sell in large quantities, and they normally make money on the sale.

As a third party seller, Amazon charges sellers a fee after a listed item is sold. This fee includes some level of Amazon customer service, marketing services, and order payment processing services. The fee varies by product category. Amazon probably makes a little profit on each sale but not much. Amazon business model calls for cash flow growth rather than actual profit in these areas.

Amazon as a subscription service. Amazon sells Amazon Prime subscription services offering free shipping, Amazon prime video, and several other services. These services, will not necessarily profitable, do build customer loyalty.

The major differences between Walmart and Amazon with regards to revenue.

Walmart sells, or at least hopes to sell multiple items to every shopper coming in thru the front door. This increases profitability since many of the items are larger profit impulse items.

Many Amazon orders are single item checkouts. Customers come to Amazon, shop for a specific item, put it in their cart and checkout. Even with Amazon’s affinity sales algorithms, it is a difficult web site to shop. You normally will only search for your specific items of interest and seldom add impulse items.

Both retailers have a bright future and both are taking steps to build market presence in each other market strengths. Amazon is opening and has plans to purchase brick and mortar stores, and Walmart has made many major purchases of online, e-commerce sellers.

Strap in, the next 5 years or so in the retail world may become very interesting.

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What is Economy of scale?

In a production or manufacturing environment, Economy of scale is a simple concept that tells us that the larger the production run, the lower the per unit cost will be.

Think of it this way:

If I purchase component parts for 1000 units I pay my parts supplier x dollars per unit. If I purchase component parts for 10,000 units I might pay x- 10% dollars per unit.

The higher volume should mean lower handling costs per unit for your supplier, and also lower handling costs per unit for your receiving department and warehouse staff.

It costs me the same amount to issue a purchase order and pay my suppliers invoice if I order 1000 pieces or 10,000 pieces, so again, lower per unit cost.

Actual manufacturing production line set up costs are a major cost of production. It takes time to modify each production work station, set up tools and testing equipment, and assign workers to specific tasks. It may take several hours to set up a production line for a specific product. If I want to produce 1000 pieces I may keep my production line busy for 1 day to produce 1,000 pieces. Then I have to retool for the next new item on the production line. If I start a production run for 10,000 pieces I may not have to retool the production line for 10 days. That amounts to a significant cost savings.

When you add up all of the cost savings from a larger production run vs a smaller run, the savings might be significant. The manufacturer may elect to pass some of those cost savings along to their customer resulting in a lower product price.

How Soon Can You Expect To Make A Profit With A New Drop Shipping Business?

You could start to make a profit from drop shipping in your first month, or you could work forever and always lose money. It’s all up to you, the choices you make, and how hard you want to work.

  • You need to choose unique products that are not facing huge competition in the e-commerce world.
  • You need to choose products with a high enough selling price to maximize your chances to make a profit.
  • You need to negotiate the best prices possible from your suppliers.
  • You need to find suppliers that will give you rapid order processing and shipping service so customer satisfaction is outstanding.
  • You need to answer customer questions and handle customer service issues rapidly.
  • You need to target your marketing to the correct demographics to most efficiently use your marketing dollars.
  • You need to vigorously control your business expenses to try and maximize potential profits.

If you are successful in handling the issues above and choose the right products, you may have a chance of being profitable.

What strategies exist to identify profitable dropshipping products?

Research, then more research, then a lot more research.

To find a profitable product you need to know the potential competition, what they are currently selling, and what they are selling the product for.

You need to know what areas have problems with no current solutions.

You need to know what products people are looking for and what they are willing to pay.

You need to be an expert so you can identify products that are currently being sold that may be marketed incorrectly. These are the kinds of products you can create an effective advertising campaign to reach the right customers in the right markets.

Take a walk thru your local mass merchant. What do you see? If you just see a big mess of assorted products, you need to look more closely. In a big brick and mortar store, every product in the store is placed there for a reason. Each store is organized by departments, and each department has an employee or staff at the corporate level that is in charge of each department. These are called buyers, category managers, product managers, merchandisers, or some other descriptive term. These are the “experts” that have done their research and determined what should be in the product mix or what should be offered for sale.

You need to develop your research so you become the expert with regards to your chosen product. Research and product knowledge are your strategies.

Is e-commerce passive income?

E-commerce, especially with the acceptance and growth it has enjoyed over the last 20 years is still a great way to make money. But… and you know there is always a But with every question. E-commerce is about more than just throwing a few items to sell on a website or sales platform like Amazon or eBay. It is hard work and definitely not Passive Income.

Your success will depend on several things:

  1. Finding a unique product to sell. The competition for selling common items is intense. On all of the major sales platforms, you will find lots of sellers of similar products and razor thin profit margins unless you have something unique to sell.
  2. Developing unique and creative ways to advertise and market your product. You must figure out a way to make your products stand out from all the other similar products. You must give your customer a reason to buy from you instead of all the other competition. Write unique and creative sales copy. Take high-quality photos showing your products in their best way possible.
  3. Customer service. You must be able to answer customer questions in a timely manner, ship goods quickly, and handle any follow-up issues the customer may have. Be knowledgeable about your products so you can offer assembly or installation tips. You must appear professional and trustworthy before you can expect to give your customer sensitive information like credit card numbers.
  4. If you are going to sell from your own website you must market the hell out of your products so people know you exist. Customers can’t find you if they don’t know your name or if you even exist. You must be willing to use free marketing, social media marketing, paid advertising, email marketing, and whatever else it takes to drive traffic to your website.
  5. You must continually strive to improve. Add new products, seek out new marketing opportunities, and stay ahead of the competition.

Now when going thru all of the above points, nowhere do I mention passive income. E-commerce is not a passive business even with all of the advances made in the field of automation and performance apps. E-commerce takes hard work all the time. Researching and sourcing new products and new suppliers, writing and creating attractive advertising, and most importantly developing hands-on customer service.

Why you should try and sell higher priced items when you have a Niche.

Welcome to the world of retail. You will always have to remember that you have costs associated with any order. Then remember that it costs the same to process a $15.00 order as it does to process a $50.00 order.

When you have a niche, hopefully, you have chosen one that is unique that will allow you to sell higher priced items and make higher profits. If your product isn’t really unique or low competition, you really don’t have a “ Niche”.

You will pay someone to process an order, review it, make sure the payment has cleared, print a label and send it to your shipping department. They then must pick the merchandise from your inventory, choose the right sized box, package the merchandise securely, and ship it out. You then have to pay your customer service staff to notify the customer with a tracking number and to handle any customer service issues that might come up. You must also factor in the cost of potential returns.

Even if you are a solo operation and do all of these things yourself, you pay with your time and effort, because after all, time and your effort are valuable.

Here is a basic example. The numbers are just guesstimated to use as an example. I will assume you use Amazon to sell your merchandise.If you don’t use Amazon replace that selling fee with your sales, advertising, and marketing costs per order.

Item # 1 Sells for $15.00. The cost of goods, $7.50. Amazon selling fees ( estimated 15%), $2.25, order processing costs $3.00. carton costs, $1.00. Gross profit before fixed overhead and taxes= $1.25. That’s a lot of work to make $1.25.

Item # 2 sells for $50.00. The cost of goods, $25.00, Amazon selling fees, $7.50, order processing costs, $3.00, carton, $1.00. Gross profit before fixed overhead and taxes= $13.50. Decide for yourself. Which priced item would you rather sell?

You have to sell over 10 pieces of that $15.00 item to make the same gross profit as selling one $50.00 item. That is 10 times the effort and order handling.

Some people will say, “Let’s sell the low priced item and make it up on bigger sales volume”. It can be done but why work that hard?