When Sales Channels Get Hijacked

Abstract

It was not until Amazon’s Jeff Bezos met the “Yoda” of the Customer Trap that he learned how to deal ruthlessly with suppliers. In early 2001, Bezos’s intuition that a key to business success is to gain leverage over suppliers became the fundamental business strategy of Amazon. What had been only a gut feeling was transformed into an operating paradigm through a conversation over coffee with Jim Sinegal, the founder of Costco Wholesale Corporation. The Costco model is based on customer loyalty garnered by offering a limited selection of products at rock-bottom prices. Costco buys in bulk and uses a standard markup of 14 percent. Most of its profit is realized from an annual membership fee. It has the ability to create huge sales volume through low prices, and thereby demand low prices from its suppliers.

I had nothing to offer anybody except my own confusion.

—Jack Kerouac