Ten Lessons that You Can Learn from Amazon’s Jeff Bezos
Few retailers have been more successful in recent years than Amazon.com (NASDAQ: AMZN). The Everything Store’s revenues grew by $6.41 billion during the fourth quarter of 2015 at a time when other well-respected retailers like Target (NYSE: TGT) and Walmart (NYSE: WMT) saw their revenues fall.
Jeff Bezos has certainly built a well-oiled and highly successful marketing machine, perhaps the greatest the world has ever known. That means that anybody who is engaged in any sort of marketing (which includes around 90% of the human race) can learn a lot from Bezos and his creation.
That creation is making a lot of money, even if it is not profitable. Amazon was America’s sixth largest publicly traded retailer after Walmart, CVS Health, Walgreen, Costco, and Kroger in terms of revenue with $107.01 billion in sales. If you want to move product, you had better take a close look at Amazon’s operations.
The best way to learn from Amazon is to simply go to the site and start using it. Buy from Amazon, and if possible, sell on it. Even if you do not make any money, you will learn a lot about marketing and business.
Here are Ten Lessons that Every Marketer Should Learn from Amazon
- Infrastructure is Everything. The real basis of Amazon’s success is the infrastructure Jeff Bezos has created. Its Amazon Web Services division, which operates data centers for other companies and the government, reported a net profit of $79 million in October 2015. Amazon ensures package delivery, with 104 fulfillment centers in North America alone. Chain Store Age reported that Amazon’s fulfillment center network is 10 times those of its competitors. The company also operates 69 centers outside North America. While other retailers created websites, Bezos built up the infrastructure that gets the packages to the customers. Build the infrastructure before you market the products.
- Control over the Supply Chain is Vital. The key to success in online retail is to be able to move the products to the customers quickly and efficiently; in other words, you must control as much of the supply chain as possible. Amazon has slowly expanded its logistics first with fulfillment centers, then with delivery experiments. It recently inked a deal to lease 20 Boeing 767 air freighters. There are also plans to create a fleet of Amazon trucks in the United States and local delivery services. The company has also experimented with next generation delivery technology – those famous drones.
- The Lowest Price Pays Off. In his excellent book, The Everything Store: Jeff Bezos and the Age of Amazon, author Brad Stone noted that Bezos learned one lesson from Walmart founder Sam Walton and Costco’s cofounder Jim Sinegal: charge the lowest price possible. In 2001, Bezos had breakfast with Sinegal, who told him “Value Trumps Everything.” After that meeting, Bezos started cutting prices on videos, books, and music by 20% to 30%. One reason why Amazon is so popular is that it charges some of the lowest prices around. Many shoppers go to Amazon first because its prices are so low. Offering a low price will pay off.
- Diversification Pays. One lesson that Amazon has clearly learned from Kroger and Walmart is to have multiple sources of revenue. In addition to straight retail, it offers Prime subscriptions, streaming video, digital books, Kindle, some financial services, and movies. The company also offers the widest variety of products possible, selling everything from sex toys to electronics to office supplies to old paperback books. It also offers a wide variety of services to other businesses, including Amazon Web Services and Fulfillment by Amazon, which offers warehouse and delivery services for other retailers. Multiple services
- Reciprocity Pays. In his classic work on marketing, Influence: The Psychology of Persuasion, Professor Robert Cialdini found that making a commitment is one of the most powerful means of influencing behavior. Amazon exploits this with its Prime subscriptions; people who buy Prime are more likely to order from Amazon. The Everything Store also rewards Prime subscribers with perks, including low prices, free shipping, low prices, and access to streaming video. By rewarding subscribers, it creates vast legions of return customers.
- Reinvestment in the Company Pays. A lot of stock market geeks hate Amazon because of the low amounts it pays back to investors. The company reported a net income of $596 million on $107.01 billion in revenues for the fourth quarter of 2015. The income is low because Bezos reinvests most of the revenue right back into the company to expand its ecosystem. His commitment to growth has paid off with massive revenue expansion.
- Build an Ecosystem. Amazon is far more than a retailer or a website, it is a vast ecosystem. The website is simply a portal through which customers enter the ecosystem and navigate. The ecosystem includes the fulfillment centers, Amazon Web Services, the financial infrastructure, and much more. By thinking of it as a connected system, Bezos may have built the greatest commerce network in history.
- Ignore the Crowd and the Experts. Over the years, Bezos has ignored the crowd and the experts. After the .com crash of 2000, when Wall Street pronounced ecommerce dead, he doubled down on his efforts. Bezos has ignored investors demanding he pay out dividends and profits and those demanding he change his business model. By sticking to his vision, Bezos has succeeded.
- Cash is Freedom. Part of the reason why Bezos is free to operate his company the way he wants is that he, like Warren Buffett and Google’s Sergey Brin and Larry Page, keeps lots of cash on hand. Amazon’s net income is low, but on Dec. 31, 2015, the company had $19.81 billion in the bank. It also reported $11.92 billion in cash from operations and a free cash flow of $7.503 billion in the fourth quarter. Having all that cash on hand gives Bezos the freedom to build rockets, buy newspapers, and build the company he wants. If you create a successful business, you must have a good cash flow.
- Patience and Persistence Pays Off. Perhaps the best lesson we can learn from Jeff Bezos is not to give up. Bezos succeeded and accumulated a $45 billion fortune not because he is a visionary. Instead, he became the world’s fifth richest man by simply not giving up. He had the persistence to keep trying and the patience to wait to achieve results. It has taken 20 years to build up Amazon’s ecosystem. Only a very patient man could do that.
For an excellent introduction to Jeff Bezos and the world of Amazon, see The Everything Store: Jeff Bezos and the Age of Amazon by Brad Stone. Naturally, it is available through Amazon and Kindle.