Clarus Commerce CEO Tom Caporaso discusses a theme that’s been consistent over the past 20 years of shareholder letters. There are 100 million reasons why customer focus has paid off for Amazon.
(As originally published on NASDAQ on May 2, 2018.)
On April 18, Amazon (AMZN) Founder and CEO Jeff Bezos shared in his annual letter to shareholders that Prime membership eclipsed 100 million members globally.
If there’s one thing that hasn’t changed for Amazon over the last 20 years, it’s a relentless focus on customers. And just as Bezos’ 1997 letter to shareholders mentioned in the first sentence, the 2017 letter also speaks to serving customers.
Bezos writes, “One thing I love about customers is that they are divinely discontent.”
That means there is always an opportunity to do better because customers demand it. And Amazon’s growth in 2017 shows it.
- In 2017, AWS, or Amazon Web Services, announced over 1,400 significant services and features including Amazon SageMaker. This changes the accessibility and ease of use for everyday developers to develop sophisticated machine learning models. This increased active users by 250 percent last year, accelerating the already healthy growth of this $20 billion business.
- Alexa-enabled devices were among the best-selling items across all of Amazon in 2017. Customers can now control more then 4,000 smart home devices from over 1,200 distinct brands with Alexa. Its spoken language understanding has also improved by over 25 percent making it even easier to customers to use the technology.
- Prime Video continued to drive member acquisition and retention. New, award-winning Prime Originals were added to the service to make the service even better for customers. NFL Thursday Night Football alone had over 18 million total viewers over 11 games. Amazon Music grew right alongside Video with tens of millions of paid customers. Membership more than doubled over the past six months.
- Amazon introduced its first fashion-oriented Prime benefit, Prime Wardrobe. This new service eliminates the pain of buying apparel online by bringing the fitting room directly to the homes of Prime members. They can try on the latest styles before they buy.
- One of the biggest milestones was the acquisition of Whole Foods, which Bezos stated was a commitment to, “making high-quality, natural and organic food available for everyone.” Prices were immediately lowered on many best-selling grocery staples. This broke Whole Foods’ record for turkeys sold during the Thanksgiving season. Coinciding with the Whole Foods acquisition was the opening of Amazon Go, a new kind of store with no checkout required. Bezos said, “Since opening, we’ve been thrilled to hear many customers refer to their shopping experience as “magical.””
- Amazon is the fastest growing marketplace in India, and the most visited site on both desktop and mobile, according to comScore and SimilarWeb. The Amazon.in mobile shopping app was also the most downloaded shopping app in India in 2017, according to App Annie. Prime added more members in India in its first year than any previous geography in Amazon’s history.
Truly listening to customers and focusing on their pain points has been the focus of Amazon. It’s what led to the launch of Amazon Prime 13 years ago.
Due to the vast, ongoing success of Prime, Amazon has listened to customers and added more functionalities and created several other multi-million-dollar companies, which Bezos discussed in his letter.
These Amazon businesses have found remarkable success due to the company’s unrelenting laser focus on its customers’ needs and desires.
Amazon does a great job of leveraging frequent customer engagement that focuses on acquisition for the Prime program, such as Prime Day and consistently offering free trials.
Amazon officials know that Prime members spend significantly more compared to non-Prime members.
For as large and successful a loyalty program as Amazon Prime is, it is also a perfect example of one that doesn’t rest on its laurels and continues to innovate, engage, and recruit new members.
Many industry experts have praised the letter, encouraging business professionals to read it to absorb the intricate layers that comprise Bezos’ core management beliefs and strategic thinking.
In his letter, Bezos posed the question: How do you stay ahead of ever-rising customer expectations?
“There’s no single way to do it–it’s a combination of many things,” he writes. “But high standards (widely deployed and at all levels of detail) are certainly a big part of it. We’ve had some successes over the years in our quest to meet the high expectations of customers. We’ve also had billions of dollars’ worth of failures along the way.”
Unrealistic beliefs on scope–often hidden and undiscussed–kill high standards, Bezos adds.
“To achieve high standards yourself or as part of a team, you need to form and proactively communicate realistic beliefs about how hard something is going to be,” he says.
Building a culture of high standards brings with it lots of benefits.
“Naturally and most obviously, you’re going to build better products and services for customers–this would be reason enough!” Bezos says. “Perhaps a little less obvious: People are drawn to high standards–they help with recruiting and retention.”
Bezos elaborates on high standards: “The four elements of high standards as we see it: They are teachable, they are domain specific, you must recognize them, and you must explicitly coach realistic scope.”
It’s safe to say that Amazon officials have nailed the “high standards” piece of the customer loyalty puzzle.
Creating a seamless customer experience, based on mutually rewarding customer loyalty, is why brands find success and strengthen their consumer relationships.
For many now the premium loyalty model is a shining example of how brands are rethinking customer loyalty by creating programs tailored to their specific needs, supporting their brand messaging, impacting the customer experience, and delivering results.
Amazon Prime redefines loyalty in that customers want to become members, stay engaged, and advocate for a membership that make their lives better.
This shift toward premium loyalty programs is real because consumers understand the simplicity and can easily see the attached value proposition.
To summarize Amazon’s relentless commitment to its customers, Bezos closes his letter with the following:
“This year marks the 20th anniversary of our first shareholder letter, and our core values and approach remain unchanged. We continue to aspire to be Earth’s most customer-centric company, and we recognize this to be no small or easy challenge. We know there is much we can do better, and we find tremendous energy in the many challenges and opportunities that lie ahead.”
On the flip side, 100 million Prime members have demonstrated their ongoing commitment to Amazon.
Loyalty is a two-way street and being committed to its customers has paid off richly for Amazon.