By John DiLuna and Jonathan Miller
For anyone who has ever studied Amazon or its founder, Jeff Bezos, one thing is absolutely clear: the customer is king. Amazon’s focus on customer experience success was a founding principle for Amazon and remains deeply embedded in the company culture today.
After last week’s record earnings report, we wanted to see for ourselves where customer experience was integrated into Amazon’s operating model – not just as a corporate talking point but where it was really driving business decisions. We studied 20 years of shareholder letters for evidence about the role that customer experience plays in the long-term financial success of the company. What we discovered was an intrinsic interaction between customer experience and long-term financial thinking that acts as a catalyst for future financial success. We identified three general principles that we hope will be helpful for organizations hoping to mirror Amazon’s customer experience momentum.
Obsessing over customer experience is the long game
Amazon unleashed something powerful by placing customer experience success at the core of their business strategy. In addition, Amazon has always had a perspective of long-term success rather than short-term profits. Bezos has highlighted this perspective in his shareholder letters since the first letter in 1996. In his 2008 letter, he explicitly connects this concept to the customer:
“Long-term orientation interacts well with customer obsession. If we can identify a customer need and if we can further develop conviction that the need is meaningful and durable, our approach permits us to work patiently for multiple years to deliver a solution.”
By investing in the long-term satisfaction of customers, Amazon has created a relationship which drives lifetime customers. Early in Amazon’s life, the team identified three key things their customers valued in a retail experience: price, selection, and convenience. Since then, everything Amazon does focuses on lowering prices, improving selection, and maximizing convenience.
In the early days when Amazon was solely an online bookstore, their business decision to present new books side-by-side on a web page with used versions of the same items was initially criticized, but it makes perfect sense when viewed through their customer-centric lens. By creating this new environment of new and used books intermingled, they provided access for a wider audience of customers to be reached through price, selection, and convenience. It is the same for Amazon’s current experiments with drone delivery and same-day shipping. Antagonists are unsure as to the current feasibility of these services because they have never been done to this extent for customers, but Amazon, true to providing the type of service their customers value most, is pursuing both for one reason: convenience. From the 1998 shareholder letter:
“We must be committed to constant improvement, experimentation, and innovation in every initiative. We love to be pioneers, it’s in the DNA of the company, and it’s a good thing, too, because we’ll need that pioneering spirit to succeed.”
Through the bull and bear markets of the last two decades, Amazon has remained steadfast in its commitment to provide exceptional customer experience. This unwavering resolve to innovate around customers is a unifying force that helps the company push through the lean years when others may crumble or change course at the cost of their customers.
Use data to work backwards from customers and build customer experience success
When the entire workforce believes in customer experience success as the primary growth driver for your business, then it only makes sense that corporate strategy, business initiatives, and day-to-day operations fall in line. This is the way it works at Amazon. In many ways, this unified, corporate-wide belief simplifies governance and decision-making because culture provides a consistent framework to gauge the potential impact of new ideas.
Baked into the Amazon culture is the predisposition to work from the outside-in as well as to validate those decisions with data. Bezos highlights that just about every important decision can be made through data. From the 2005 shareholder letter:
“There is a right answer or a wrong answer, a better answer or a worse answer, and math tells us which is which.”
Starting with the desired customer outcome, quantitative methods help sort through alternatives and establish priorities around what should be done first. We see this exhibited in the analysis Amazon conducts prior to making any foundational decision, which confirms that the solution drives the intended customer behavior and is financially viable.
Amazon has remained steadfast in their decision making process by holding uniquely to their core values of building solutions based on their customers. How Amazon makes these types of decisions is highlighted in the 2005 shareholder letter:
“To shorten delivery times and reduce outbound transportation costs, we analyze prospective locations based on proximity to customers, transportation hubs, and existing facilities. Quantitative analysis improves the customer’s experience and our cost structure.”
By methodically approaching expansion locations, Amazon highlights the need to be there for their customers while at the same time improving their own cost model. Understand that the mindset Amazon uses embodies exceptional customer experience, an approach that leads to a repeatable pattern of customer driven decisions.
Customers benefit from improved service infrastructure
Continuous improvement is the third principle Amazon consistently emphasizes to create an exceptional customer experience. When Jeff Bezos says “continuous improvement,” he is not referring to the catchphrase that is commonly used in business marketing materials. His version of continuous improvement is fundamentally connected to customer experience and essential to Amazon’s business model.
Bezos explains this concept as driving the cost structure-price loop. Quite simply, by continually lowering the cost structure of the business, Amazon can maintain downward pressure on prices. Amazon’s customers like low prices, which keeps them coming back to the site. The growing demand of potential buyers is attractive to sellers who actively seek to offer more selection. Amazon’s customers like more selection, which not only retains current users but fosters new ones and keeps them coming back to the site day after day, fueling the growth of the company.
In the Amazon model, driving the cost structure-price loop to continuously improve the underlying service infrastructure is both good business and a boon to their customers. By systematically eliminating waste and scaling the value of their assets across the enterprise, Amazon also gets better at delivering new capability faster. By focusing these efficiency efforts squarely on the needs of their customers, Amazon is better able to translate latent customer demand into real solutions and differentiate themselves from competitors. Amazon has scaled this business for their long-term profitability through selection. In the 2003 shareholder letter Bezos explains:
“Increased volumes take time to materialize, and price reductions almost always hurt current results. In the long term, however, relentlessly driving the “price-cost structure loop” will leave us with a stronger, more valuable business.”
Every business system has some amount of waste, process variation, or inefficiency. For customers of an online retailer, waste can be seen in the form of hold times, extra mouse clicks, confusing checkout options, or cumbersome return policies – the list can go on. Waste results in effort a customer must expend in order to complete their order; and the more effort a customer has to exert, the less likely they are to come back a second time. Amazon pushes to reduce customer effort; their One-Click ordering feature is the epitome of simplicity, automating a complex order and logistics process into a single mouse click allowing customers to receive satisfaction immediately. Amazon’s continuous improvement initiatives reduce customer effort by improving the people, processes, and technology which have a direct and measurable impact on customer experience.
Bezos captures these three principles of customer experience success as foundations of “Operational Excellence.” Focusing on customer experience first provides a consistent framework for making strategically-aligned business decisions and a perfect filter for removing non-value add goods and services (things your organization does that customers generally don’t really care about). Through the disciplined, data-driven application of these principles, Amazon increases asset velocity, revenue, and margin across the business.
And Amazon is proving that the model works. Just last week, after nearly 20 years as a publicly traded company, Amazon announced Q1 earnings that shattered market expectations and raised stock prices by 12%. Here at Technical Assent, being a company that values customer experience as an engine of growth, we couldn’t help cheering as they reached this benchmark of success. Indeed, the customer is king.
From Amazon’s 1998 shareholder letter:
“We intend to build the world’s most customer-centric company…Our customers tell us that they choose Amazon.com and tell their friends about us because of the selection, ease-of-use, low prices, and service that we deliver.”