January 27, 2014 | In: Technology
Amazon’s Greatest Trick to Make You Buy
I buy from Amazon (mostly from the Canadian site) frequently – and I noticed that they have this interesting practice when you add items to your shopping cart and you don’t buy. The next time (which can be the very next day) you check your cart, you will see a message telling you that same items have changed prices, some are up, others are down. For the ones that are up, you feel bad you didn’t buy them, for the ones that are down, you’re grateful that you waited a bit. But then, if you wait a few days, the ones that went up will go down again, and the ones that went down will go up again. This will make you think, OK, the ones that went up were correctly priced the second time and I won’t get a better deal elsewhere, and the ones that went down are now a bargain, and so you hit that Buy Now button and you make the purchase. If you don’t buy, then this whole up/down thing will continue like a yoyo with an unstoppable momentum.
I know only one thing about the marketing team in Amazon, they are geniuses. They exploit every human feeling of greed and frugality, and will turn it into a purchasing decision. But, regardless of how great Amazon’s marketing team is, Amazon’s stock is extremely overvalued at the moment, trading at a P/E of about 1,370. While this P/E is somehow acceptable for a new company, it is definitely not acceptable for a mature company with a more or less predictable earnings and sales. Unless the Amazon team has discovered another planet where people would buy (and read) anything (just like it is here on planet Earth), then that stock will soon experience a huge correction.
At the moment of me writing this post, AMZN is trading at $386.79, up 36% from a year ago.
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