Amazon, one of the worldwide leaders in e-commerce, posted sales of $178 billion in 2017. This is an increase of 31% over the 2016 fiscal year. This growth is supported by a net profit of $3 billion over the same period, with a 28% increase over the previous year. This double-digit growth once again demonstrates Amazon's dominance in a market where competitors are finding it increasingly difficult to retain customers looking for new buying experiences.
Behind these staggering numbers, Jeff Bezos' business model and expansion strategy has become a success story, even beyond logistics and retail. However, how is this success so profitable and how can Amazon continually innovate, capture, and retain consumers in constant search of new experiences?
The peak of the Internet in the early 90s gave Jeff Bezos the original idea of creating an online virtual store accessible to all. The concept was born of a simple and avant-garde premise: using technologies, including the Internet, it is relatively simple to create an online sales site that will not be exposed to the constraints of a physical store. Also, the use of digital technology makes it possible to offer an endless supply of products to the end customer and thus satisfy their requirements.
Digital technology then became the cornerstone in the realization of its business model in 1994, quickly allowing it to stand out from its competitors. While the commercialization of digital technology was revolutionary in the early 1990s, the fundamentals of its strategy are based on basic precepts of retail activity. The bright idea of Jeff Bezos was to simply transpose these into a digital perspective, and more precisely by applying the following recipe:
A digital platform makes it possible to present an unlimited number of products. In 20 years, Amazon has been able to combine:
Thanks to digital technology, the experience with customers can be greatly improved. Amazon continually seeks to build a relationship of trust and loyalty with them. It is through a consumer-centric approach that Amazon's synergies are defined. Decisions are dictated by the customer and not by competition, because the basic assumption is simple: the money comes from the customer and not from the competitor. Amazon takes a proactive stance by investing money to build a meaningful customer experience and identify what brings value to the end customer.
At the same time, constant searching for the customers’satisfaction is a source of innovation. Amazon is always aiming to implement innovative solutions that will lower prices, increase supply and simplify the customer's journey during the ordering process. Concretely, the customer experience sought by Amazon is based on a short-term strategy that takes into account the man/machine dimension, in order to try to push the limits of technology and optimize the conversion rate. This experience is essentially based on the following foundations:
Digital technology can offer the lowest prices and take advantage of larger margins than in a store. Here again, to offer the best prices in the market, Amazon is continually looking for new business models based on the use of new technologies. The leader pushes the limits to optimize storage and transportation costs. To do this, the company reduces the variable costs associated with distributors by bypassing them or developing business models like Amazon Locker. All this is done with the aim of optimizing and controlling margins by offering the lowest prices on the market. This is possible by combining the following elements:
Jeff Bezos has undoubtedly been able to orchestrate his futuristic business strategy, including a focus on the customer experience, an essential element of today's online business. Stay tuned! We will soon publish this article’s second part soon, focusing on the technology initiatives that have helped this pioneer of e-commerce become a giant.
Source:
- The Four, The Hidden DNA of Amazon, Apple, Facebook, and Google. Scott Galloway