Guest Post: How Amazon Wins: Low Prices Don’t Require Bad Customer Experiences

Posted on Posted in Strategy

In 2005 CustomerThink gave Amazon.com a customer-centric leadership award. In an acceptance letter, Craig Berman, Amazon’s director of platform and technology communications, said:

It is simply in our DNA to approach our business by starting with the customer and working backward, and for the past ten years we have stayed laser-focused on this core principle.

In the following years, Amazon.com has shown that customer-centricity is more than a slogan. The company keeps innovating to serve existing customers by expanding what it sells and how consumers access its content (e.g., Kindle). But it has also been a pioneer into new markets like cloud computing with Amazon Web Services.

Without Amazon, we wouldn’t hear terms like “showrooming,” which terrifies traditional retailers. Using mobile phones, shoppers can visit a retail store to inspect merchandise, then shop for the best price online. Retailers think this is unfair because they have invested in the store experience but don’t get the order.

For all the talk about innovation, customer-centricity, and a great online experience, what underpins Amazon.com’s success is simply this: Low Prices. That’s right, low prices. Seriously, would you pay more for the convenience of shopping online? I doubt it.

In the real world, low prices are often associated with a bad experience. While there are exceptions like Southwest Airlines, the conventional wisdom is that there’s a tradeoff between price and customer experience. For brick-and-mortar retailers, that may be true, because it costs real money to run a store, train staff, etc. Just ask Best Buy, which has been struggling to find its way as electronics buyers shift online.

However, in the online world where Amazon reigns supreme, economics work a bit differently. Bezos has proven that you can offer popular products at a low price and do so packaged in a great shopping experience.

In the early days, Wall Street analysts told Amazon CEO Jeff Bezos he needed to increase prices to get his margins up. He didn’t listen. Instead, he challenged his leadership team to cut their cost of operation so they could continue to offer the best deal to consumers.

Frankly, the more I hear about Amazon’s strategy, the more it sounds like Costco or Walmart. Except Bezos doesn’t have to sacrifice the customer experience in exchange for low prices.

Of course, we’ve all seen too-good-to-be-true business models that were not sustainable. Sooner or later, you have to pay your bills. Bezos is more concerned with cash flow than making money because he believes the opportunity offered by the Internet, and by e-commerce, is huge and largely untapped. He’s prepared to cut prices to the bone and add all those freebies to cultivate customer loyalty and increase sales. Then he reinvests it all in more low prices and further expansion, creating additional customer loyalty.

How else can you explain all the freebies you get with Amazon Prime?

About Bob (please include this bio with the post)

Bob Thomson
Bob Thompson

 

Bob Thompson is an international authority on customer-centric business management who has researched and shaped leading industry trends since 1998. He is founder and CEO of CustomerThink Corporation, an independent research and publishing firm, and founder and editor-in-chief of CustomerThink.com, the world’s largest online community dedicated to helping business leaders develop and implement customer-centric business strategies. His book Hooked on Customers (April 2014) reveals the five habits of leading customer-centric firms.

For more information visit http://hookedoncustomers.com

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