If I had to do segmentation for Amazon.com's online business I would define one of the most valuable segments as those customers who:
- Don't have time (e.g. to go to a retail store just to find out that the book they wanted is not in stock!)
- Know in 95% what they want, but are open for suggestions (e.g. other books that the same author has written)
- "Bite more off then they can chew" (e.g. have 1000 unread pages in books sitting on their bookshelf, waiting for one of these periods where I will have to time to read them)
- Are not worried about paying more (range of 10-30 %)
This list of value attributes describes my personal preferences and I know from my buying behavior that I am willing to pay a slight premium to receive this value from an Online-retailer. One thing I want to note here is that my loyalty is based on convenience (Amazon.com is the URL that I know immediately) but is completely gone when I realize that BarnesandNobels.com provides similar service at a cheaper price, which in fact they do with their B&N Membership discounts!
Also compare the forecast long-run cost position of a successful online bookseller to Barnes and Noble's traditional business model. (Assume that Exhibits 4 and 7 in the case reflect average discounts of 10% off list price for Barnes & Noble's traditional bookstores and 25% off list for the online bookseller.)
In the short-run we typically focus on marginal costs that a business has to provide just the next unit of goods, while in a long-run analysis we look at a time frame that allows major decisions such as entry or exit of markets. The long-run perspective is focused more on fixed cost - including rent and opportunity costs of capital.
Revenues 2448124 668918
COGS 1569448 64.1% 506706 75.8%