This customer service model, where the CSRs go above and beyond to help the customer with as little hassle as possible, is what built the initial customer base for Newegg. Those customers have largely remained loyal even though other online retailers have caught up in price. This is also what made Zappos very popular (eventually bought out by Amazon). So the strategy clearly works. I assume Amazon has calculated that the number of frauds is greatly outweighed by whatever business is generated from returning customers and great PR.

Your model should be made more dynamic, to include that Amazon can adjust to new fraudulent methods. Once a method is discovered for making fraudulent purchases, it will be reused and broadened. Like the story of the Dutch boy and the dike, it will get larger and larger until it collapses. Amazon no doubt figures that they can plug the hole early enough, and reports like this are part of that detection system.

I ordered a TV from Amazon last week that never showed up. I don't know if UPS messed up or if it was stolen off my front step. Either way, I appreciated Amazon trusting me and dropping another one in the mail without making a big deal out of it. While it seems like Amazon have ignored this issue to date for all the right reasons, they may need to start addressing it since it obviously affects their real customers with worrying emails & the chance of being viewed with suspicion later on.

How can they afford to just give away TVs?

One tv isn't all that much to pay for a customer's loyalty on a site where he might potentially do all his shopping for the next 50 years.

Also, either they or UPS probably have a pretty good insurance policy.

Surely not. A company the size of Amazon/UPS doesn't need to pay someone else to shoulder the risk of them losing $500 now and again. But it must be factored into their margins.

Well, yes and no :) Even when you're self-insured (which is what you are when you've got risk factored into your margins), you're still insured.

That's a ridiculous twist of words. That's not self-insured, it's just planning for loss, which is exactly what it's called (Unplanned expenditures).

No it's not. If you book it under "Unplanned expenditures" then you're not insured. If you try to determine your risk in such a way that you can budget a fixed sum for coverage and reasonably expect not to exceed it (ie. not an unplanned expenditure) in the same way an insurance company would do it, they you're insured.

It's literally a line item in the budget for unplanned expenditures. Sounds ridiculous, but you are planning for the unplanned. I'm just saying calling that "insurance" dilutes the meaning of what insurance actually is, which requires a transaction between two separate companies.

Speculation: They probably force the supplier or courier to foot the bill. Maybe sack the delivery driver with a carefully vague intimation that they've been stealing?

Well, that's super-paranoid. Amazon uses major name suppliers like UPS. So it's not their employee to sack. And I doubt UPS would allow Amazon to go around randomly accusing their employees of theft.

They are not. Amazon can file a lost package claim with UPS and get reimbursed.

What Amazon does after first time shipping adress changes (in Germany as of yesterday) is to re-ask for your full credit card number. After that the new shipping adress is part of the account and valid.

But what I confirm is great customer service. Last week my sound card broke down after almost 2 years and it took about 5 minutes to get the return information and the according refund once the item showed up at amazon. No hassle what-so-ever with waranty issues and replacement of the original item, just a plain and simple refund.

That's what customer service should be like. And that things like that can be exploited is true, but that's equaly true for almost all other things. If it's a calculated trade-off from amazon's side there shouldn't be a problem.

I am surprised by your sound card story - I bought a graphics card last year where the initial batch had a lot of lemons, I got three broken graphics card in a row and each time Amazon refused to help me insisting that I should go through the manufacturer RMA process since the 1 month return window was over.

In most of EU, retailers are required by law to provide two year warranty on goods you buy as a consumer.

Maybe thats the difference. I've been pretty surprised anyway since I didn't have the warranty slip ready (sometimes tidding up isn't that a good idea).