B2B International
B2B International

January 3, 2008

Shopping Basket - Reflecting on Amazon's success

As we’ve reiterated on countless occasions here on The Market Research Blog, the holy grail for any company is identifying and delivering upon your customers’ needs and expectations. To prove that point further, here’s just a small selection of some of our recent thoughts on the matter:

Today we look at a concrete example of an organisation that, from its very outset, has always been extremely highly customer-orientatedAmazon.com. The following thoughts from GEMS outline how the online retailer has managed to post ever-more impressive results and a level of year-on-year growth most companies would die for:

Amazon was founded in 1995 by Jeff Bezos, who had worked in a quantitative analysis group at an investment firm. He spotted an opportunity to sell books on the internet. He was no native of the book-selling industry. He arrived at his business model logically through analysis.

So, what’s different and special about strategy formulation at Amazon?

Strategic Direction for Amazon is set by the “S” team (=Senior) that meets 4 hours every Tuesday. Once or twice a year the “S” team gets together in a two-day meeting where different ideas are explored. Issues discussed are a few years out so that they can be talked about at length. Eventually they alight on just a couple of things, if they are big, and make bets.

The “S” team ensures this happens not only at the top but is spread to the different scale levels. The most important thing is that all of it is informed by a cultural point of view: As Alan Kay once said “Perspective is worth 80 IQ points”. Some of Amazon’s strategic capability comes from that.

Amazon is very unusual amongst US companies in pursuing a very long-term strategy (most are focused on quarterly results). Amazon (and their investors) are willing to wait a long time for things “to take offâ€? i.e. they are willing to plant seeds and wait a long time for them to turn into trees.

It tends to take five to seven years before it has a meaningful impact on the economics of the company. They share a belief in and commitment to what they are pursuing: “If we can get this to work, it will be bigâ€?. They base strategy on things that won’t change in the next five to ten years, so that energy spent today will be paying them dividends ten years from now.

What are the things that Amazon.com is counting on that will not change?

  1. Customer insights
    What is important to the customer in Amazon’s consumer-facing business?

    Consumers want:
    – selection;
    – low prices; and
    – fast delivery.

    Ten years from now customers will still want these three qualities.

  2. Information perfection
    The world is getting increasingly transparent and flatter.

    You must align yourself with the customer if you want to succeed and survive. Amazon believes that 70% of your attention must be devoted to building a great service and 30% of your attention to shouting about it (for many marketers, they believe and practice the inverse of this).

We’ll continue tomorrow by looking in more detail at how Amazon has arrived at its success, and at how growth strategues based on competitors rather than customers is to look at the problem from wholly the wrong perspective.