Shopping online has never been easier. If we need to buy something in a hurry it is one of the most convenient things to do especially since they offer same-day delivery. Without a doubt, one of the largest online retailers we have seen emerge is Amazon. They have steadily grown from being a small online bookstore to the retail giant we know today with millions of products available.
So, how exactly did Amazon become the second most valuable company in the world? Sure, there were strategies used by Jeff Bezos that helped them succeed but there were also sometimes that they just got lucky.
In this book summary readers will discover:
- How Amazon became the world’s most successful retailer
- What strengthens Amazon’s business model
- Innovative moves made by Amazon
- How Amazon works to serve their customers
Key lesson one: How Amazon became the world’s most successful retailer
When Amazon first launched in 1997, it was simply an online bookstore. Now it sells everything from electronics to groceries and their range just keeps expanding! In addition, over the years Amazon has developed more than 100 of their own brands. These brands include fashion labels, electronic devices and even coffee. This just goes to show that you can get absolutely anything on Amazon.
Amazon’s rapid growth is also due to the fact that it is both a vendor and a marketplace for third-party vendors. It is all part of its business strategy which is based on the principle of the flywheel. The flywheel operates on the fundamental value that low prices and good customer service will bring in more customers. More customers mean they will sell more products and this increase in sales will attract more third-party vendors. If more third party vendors are brought in, this translates to an increase in revenue for Amazon which they can readily reinvest keeping prices low and customer service a top priority. This flywheel strategy ensures success for the company if any part of the cycle increases.
To keep the momentum of the flywheel going, Amazon is constantly innovating. Their continuous expansion of its entertainment options keeps bringing in more customers to the platform. However, one must remember that this is not a cost-free endeavour. Amazon has to spend money to make money. In fact, it took eight years for them to even begin seeing a profit after they launched but their patience paid off.
Another important factor that has contributed to Amazon’s success is its dedication to its customers. Amazon has 14 leadership principles and customer obsession is number one on that list. They invest 6 per cent of their annual profits into improving their entire system – that is three times more than the industry standard. They aim to constantly improve the customer’s experience on the site. This approach has allowed Amazon to be the trailblazer of e-commerce. They developed one-click shopping, eliminating lengthy checkout procedures and offered delivery times previously unheard of. Their competitors were forced to improve if they wanted to retain their customers.
Amazon also always considers the customers first when developing a new product or service. They use the enormous amount of data at their disposal from customer searches and can develop products and services that they are looking for. It is for this reason that Amazon has such a loyal customer base and continues to grow from strength to strength.
Key lesson two: What strengthens Amazon’s business model
Amongst everything that contributes to Amazon’s success, there is one thing that definitely strengthens its entire business model – the way that Amazon rewards its loyal customers. Amazon Prime has become integral to Amazon’s success and keeping customers happy.
Prime members receive incredible discounts, have options to add on services and access to streaming services. The content of Prime Video and Prime Music has also grown to include hit television shows and over 2 million songs. This introduction of an entertainment option gave Amazon a huge boost in membership numbers but interestingly, membership fees do not cover the cost of all the extras Amazon offers. Once again, Amazon believes in the bigger picture and knows that low membership fees and loyal customer rewards will keep bringing in new customers. This alone feeds its flywheel strategy and indeed members of Amazon Prime spend almost five times more money on Amazon purchases than other customers.
Amazon also introduced Prime Day for members with exclusive offers and discounts. The company very cleverly made Prime Day occur in the summer when sales are generally slow. This brilliant move by the company brought in a whopping $2.4 billion in 2017 alone. Amazon clearly understands that keeping customers happy benefits the company in the long run and they definitely have a Prime example.
Key lesson three: Innovative moves made by Amazon
Amazon has continued to innovate over the years to give customers what they want. As much as online shopping is popular, Amazon also realized the value of having physical stores. It may seem a bit strange that an online retailer would venture out into physical stores it proved to be quite the success.
They started in 2015 with a bookstore in Seattle before launching Amazon Go, a supermarket without cashiers, in 2018. Amazon knew that as much as e-commerce was a booming business, there were some things it could not replace. Physical shopping gave customers the opportunity to touch objects, pick their groceries and try on clothes. These are things that are still important to customers. While online shopping is convenient and fulfils customer requirements, nothing quite beats the satisfaction of picking the best-looking fruit or trying on jeans until you find the perfect fit.
Physical stores also offered Amazon more visibility. Online, affiliate sites may direct traffic to the site, but walk-in traffic at a physical store will definitely translate to more sales. Amazon has also taken into account how customers operate in the digital age. Whenever we see something we like online, we might try to pop into a physical store to have a look at it. Then, after seeing it in reality and still want to buy it, we might do a quick online search to see if we can get it cheaper online. Amazon provides a blend of this behaviour with its physical stores.
What took everyone by complete surprise was when Amazon purchased Whole Foods, the US organic supermarket chain in 2017. Amazon had dabbled in online food sales with AmazonFresh but customer uptake of the service was slow. It was not unexpected though, customers were comfortable buying all other items – just not food. So, Amazon’s jump to purchase Whole Foods was an attempt to crack this market. It was risky but the fact that Whole Foods was an already well-established chain, had experience handling fresh produce and had a loyal customer base. It was with this foundation that Amazon began experimenting with both online and offline grocery sales. It also used Prime to play a part, offering members faster delivery and discounts on Whole Food purchases. They once again put their customer’s needs first and focused on faster, reliable and convenient shopping.
Key lesson four: How Amazon works to serve their customers
Amazon continues to innovate to be able to serve its customers. The good thing for Amazon is that they are just as much a tech company as they are a retail one. They aim to invent and simplify as one of their core principles and invest in many technological advancements. In 2012, they purchased Kiva Systems and invested in developing Amazon-specific robots. They also have the cashier-less Amazon Go stores and kept the technology to themselves leaving other retailers in a mad rush to replicate it. The Amazon Go system is able to detect what customers are leaving the store with and they are charged accordingly.
In addition, Amazon also uses technology to continuously update its online shopping system. They ensure that search and recommendation options are updated according to customer data. Amazon also has Amazon Web Services which is a cloud storage service that it offers to other companies including Netflix and NASA. Naturally, not all of Amazon’s technological advancements have succeeded – just look at the Amazon Fire Phone. It received nothing but bad reviews after its release but Amazon is nothing but resilient. They learned from their mistakes and moved on, dropping the phone’s price to just 99 cents a month after its release.
Finally, what Amazon has done best to meet customer’s expectations is by driving fast and free delivery. It launched Prime Now in 2014 that promises delivery within two hours. This has become customers go-to service for quick gifts. Amazon also offers their customers subscription options that guarantee monthly deliveries at reduced prices. These services ensure that customers are satisfied with their online shopping experience. Other retailers battle to meet the customer’s high expectations that they have developed with Amazon. To facilitate this faster delivery process for customers Amazon has invested in making sure that they have adequate fulfilment and sortation centres. These are warehouses that hold stock and pre-sort packages to make for easy collection and delivery. Amazon still uses third-party carriers for delivery but in time, they look to handle this part on their own too. They have also implemented Amazon Lockers where packages can be stored and Click and collect at participating stores.
The success that Amazon has attained is only a result of its continuous growth and innovation to keep customers happy. By constantly looking at ways to improve, they will continue to maintain their title as an online retail giant.
The key takeaway from Amazon is:
Amazon provides a great example of online retail success. It had a very humble beginning as an online book store but as the company continuously looked for ways to improve, it began to grow its product range. By keeping their customers as first priority, Amazon used technology to ensure that their customers online shopping experience was fast, easy and convenient. Their constant search for things that will make the customers life easier has led them to expand to include physical stores, entertainment options and ensure fast delivery. Other retailers have battled to keep up and until they can offer something that Amazon does not, they will still be operating in its shadow.
How can I implement the lessons learned in Amazon:
Amazon’s constant search for new opportunities for growth is something that everyone can learn from. Their success is only achieved because they keep their customers as a priority above profit. They know that customers will continue to make purchases if they are happy with their overall service. You too can look at the flywheel strategy as an option to achieve your goals. Just keep feeding the flywheel and never stop looking for new opportunities to bring in customers and keep them loyal.
