In Volume 1, Episode 3 of Patriot Act with Hasan Minhaj, the comedian discusses Amazon. He examines the role of the company in the United States economy, as well as its many controversies. The episode goes as far as the company’s unpleasant work culture and its mockery of America’s antitrust laws. Amazon is the big corporation every conspiracy theory warns us against. We are powerless against it.
Or are we?
Early enough in the episode, (after admitting his addiction to Amazon Prime) Hasan declares: “I am way more lazy than I am woke” – a statement that captures the millennial quagmire. We don’t trust that guy called Jeff Bezos, but we are also increasingly opposed to visiting stores. Later, the show host adds, “convenience is the commodity that matters most to our generation”.
It is true. He knows it. The generation knows it. Amazon knows it.
Oh, Amazon knows it best.
Each year, Jeff Bezos writes an open letter to Amazon’s shareholders. These letters offer unparalleled insight into what the world’s richest man thinks of the world’s most successful business. His first letter was written in 1997 when the company had its first IPO (Initial Public Offering). It was also the first documented account of the term “customer obsession”.
Under a heading titled “Obsess Over Customers”, a 33-year-old Bezos began with the following words:
From the beginning, our focus has been on offering our customers compelling value. We realized that the Web was, and still is, the World Wide Wait. Therefore, we set out to offer customers something they simply could not get any other way, and began serving them with books.
It concludes with: Word of mouth remains the most powerful customer acquisition tool we have, and we are grateful for the trust our customers have placed in us. Repeat purchases and word of mouth have combined to make Amazon.com the market leader in online bookselling.
At the time, Amazon was only an online bookseller that had been around for 3 years. But it had a clear and ambitious mission – to offer earth’s biggest selection and to be earth’s most customer-centric company. It took 7 years before it recorded its first quarterly profit – in the fourth quarter of 2001. Today, Amazon is the second publicly traded company ever to hit a $1 trillion market cap. After the company’s IPO, its stock was priced at around $18 per share. Today, it is nearly $1,800 per share, a more than 100x increase. In the first quarter of 2021, Amazon reported net sales of $108.518 billion, a 43.8% increase from $75.452 billion in the same quarter in 2020.
And what is the driving force behind this gigantic company? Customer obsession.
20 years later, Amazon follows a core set of Leadership Principles (LPs), ingrained in the company culture and guiding the behaviors it values. The first LP is predictably customer obsession. The company explains it succinctly –
Leaders start with the customer and work backward. They work vigorously to earn and keep customer trust. Although leaders pay attention to competitors, they obsess over customers.
Customer obsession involves focusing on a better customer experience from the customer’s perspective. It is a commitment to having a customer-first approach. This means that customer needs are at the center of everything you do. The entire customer experience – from sales to marketing to support is built around these needs. Essentially, Amazon is run according to a simple but unconventional rule – don’t worry about competitors, don’t worry about making money for shareholders, and don’t worry about the short term. Focus on the customers, and everything else will fall into place.
According to Jeff Bezos, there are 5 main ways of creating shareholder value: competitor obsession, business model obsession, product obsession, technology obsession, and customer obsession. While he acknowledges the perks of all the approaches, he believes customer obsession is the healthiest.
In 2005, Amazon launched Amazon Prime – a premium delivery service membership club that provides automatic next-day delivery to customers. Over the years, the company has increased the value offered by Prime membership to include a whole host of other benefits such as video streaming, music streaming, and data storage that vastly outweigh the price, increasing the amount all members buy from Amazon.
With the Washington Post, Jeff Bezos applied customer obsession to a more traditional business. In 2013, he shocked the world by acquiring the struggling newspaper. Instead of advertising, Jeff Bezos focused on creating quality content that piqued the interest of more readers. He hired another 200 journalists. Since 2017, Washington Post has returned to profitability.
Amazon introduced Amazon Web Services that revolutionized payment for web services. AWS offers a flexible payment where you pay for what you use. Its most revolutionary invention, however, was customer reviews. Jeff Bezos wanted to go beyond selling books, he wanted to help customers through their purchases. He, therefore, began the practice of encouraging customers to write and post reviews of books to help future buyers. He then allowed subsequent customers to rate previous reviews on whether they were helpful. This changed online retail forever. Today, customer reviews have become an expectation.
How to obsess over customers
Obsessing over customers is the right approach because they are the ones who pay your bills. You deliver for them, build trust and value. To grow a business, the most important thing to do is create more demand. To create demand, you should obsess over providing value for your customers. What do they value? How can you provide more of what they value, less of what they don’t? Now, use technology to build low-cost ways to add value and increase margins. Finally, increase your productivity to offer substantially more value for the same or lower cost. Demand will increase, and as long as you can supply this demand, you will generate cash flow to fix other problems. This is the Amazon way.
The ultimate result of customer obsession is proactivity – you do things before you have to. Jeff Bezos puts it this way,
One advantage – perhaps a somewhat subtle one – of a customer-driven focus is that it aids a certain type of proactivity. When we’re at our best, we don’t wait for external pressures. We are internally driven to improve our services, adding benefits and features, before we have to. We lower prices and increase value for customers before we have to. We invent before we have to.
Given Amazon’s customer obsession, it is not surprising that it maintains over 90% customer retention rate year on year. This ushers us into the next part of our discussion. How do you retain customers? Well, we will discuss this next week.
So stay tuned.