Simply put it says that the optimal margin should equal the inverse demand elasticity. So for example, if you demand elasticity is -2, then your optimal margin is 50%.
Retail outlets usually have much lower margins: Amazon's margin is 4% and Walmart's margin is 8%. (For comparison, a traditional grocery store or gasoline vendor has 10% margins). The Financial Times wonders whether Walmart's move into online makes sense:
Initially the Walmart offer will only be available in a few US markets, but if it goes national, Amazon’s US retail margins, already under 4 per cent, could come under pressure. Amazon and its investors seem perfectly comfortable with low returns, though.
A trickier question is how much pain Walmart is willing to tolerate. Its US margins are 8 per cent and it mints cash. Competing properly online may well mean sacrificing some of that. Capital investment, as a proportion of sales, at Amazon is more than double Walmart’s. It is traditional to fault Amazon for sacrificing profit to growth. Perhaps Walmart should take some heat for sacrificing growth for profit.
In other words, Walmart is following the traditional MR=MC profit maximizing strategy, while Amazon is producing where MR<MC (it is selling too much), and is thus sacrificing some profit for bigger output (and hopefully future profit).