Retail Lessons from Amazon
Compared to other retail giants, Amazon is relatively young. What did Amazon do right that made it achieve such rapid success? What can other retailers, especially small-to-medium size retailers learn from Amazon?
Many bricks and mortar retailers attribute Amazon’s success to the internet. But is Amazon successful because it is an online retailer or is it successful in spite of it being an online retailer?
Amazon success is the result of the singular obsession of Jeff Bezos to good customer experience. Satisfied customer is an obsession in Amazon. Jeff Bezos is prepared to personally strangle any vendor that disappoints Amazon’s customers. So how is Amazon ensuring it keeps its customers happy? You will discover the answer in this article.
This article will outline the steps Amazon took in it quest to retail dominance. It provides step and step guide on how other retailers can use similar steps to achieve retail greatness.
What did Amazon do Right
Amazon is en route to overtaking Walmart to become the biggest retailer in the world and the first trillion-dollar business.
I am not sure Amazon’s founder Jeff Bezos will be pleased with me for calling Amazon a retail organisation.
He would prefer Amazon be characterised as a technology company.
Amazon was founded in 1994.
As retail life span goes, Amazon is relatively young.
Especially if you compare Amazon to other established retail organisations that have been in existence for close to a century.
Yet despite its age, Amazon is en route to becoming the biggest retailer in the world.
This is a massive achievement by any standard.
To put Amazon’s success into context, let’s consider the personal wealth of Jeff Bezos.
Mr. Bezos personal wealth exceeds all but five of the countries in Sub-Saharan Africa combined.
This valuation does not take into account the valuation of Amazon Inc.
So what was it that Jeff Bezos and Amazon did right that enabled it to achieve such phenomenon success within a short space of time?
Answer: Amazon focused on the three retail success fundamentals:
- Your market: Who you are selling to?
- Your message: What you are selling to them?
Your Media: How you are going to sell to them?
The Benefit of Understanding Fundamentals
It was rumoured that at the beginning of every football season, legendary American football coach Vince Lombardi started his talk to his new team by holding up a football and saying to the team ‘gentlemen, this is a ball’.
Now, he was speaking to a bunch of pro football players yet he felt the need to show them a ball and tell them it was a ball.
Mr. Lombardi was quoted as saying even if he gave his opponents his strategy book before the start of a game, his team was still going to win.
The reason for that was his team executed better.
Phil Jackson, arguably the most successful coach in the history of the NBA always started the training session with the players bouncing balls around.
This is the most basic of basketball training.
Yet it was how he chose to start every training session with his team made up of NBA title winners.
There were occasions when the players were frustrated.
Imagine a team packed with egos the like Michael Jordan and co and they are being asked to bounce ball around.
Imagine how that went down with the team the first time.
Despite what might appear their elementary approach to coaching, those guys were the most successful in their respective sports.
So what was it that made them so successful?
They understood it is the fundamentals that matter.
In my article introducing the ‘Lessons from Retail Masters’ series, I alluded to the fact that Jeff Bezos has Sam Walton’s book ‘Made in America’ that he reads religiously.
Think about this right.
Sam Walton built a bricks and mortar retail organization and Amazon is primarily an online retailer.
Yet Amazon’s founder uses the book of Sam Walton as an instructional manual.
How can that be?
Jeff Bezos like Vince Lombardi, Phil Jackson and other successful individuals understands that it is the fundamentals that matters.
And there are no new fundamentals.
Saying there are new fundamentals is like saying there are new antiques.
If something is an antiques, it will not be new.
This article is about the simple retail fundamentals Jeff Bezos used to make Amazon into one of the biggest retail organizations in the world.
I will focus on Amazon’s four critical success factors:
- 1-Click checkout button
- The effective use of data
- Operations efficiency
Amazon’s Critical Success Factor One: 1-Click Checkout Button
When I was creating my 3 Steps to Increase In-Store Conversion, I logged onto Amazon to check the correct terminology of Amazon 1-Click checkout button.
While there, I bought a book.
I had no intention of buying a book.
I simply went to the site to search for info but I ended up buying a book.
So why did I buy a book when I was on the site?
Answer: it was easy for me to do.
If I had to complete order form or fill in my payment details, there was no way I was going to buy that book.
All I needed to do was click buy, confirm my shipping address and my order was complete.
That’s the magic of the Amazon 1-Click order button.
The introduction of the 1-Click order button was a revolution in retailing.
It was a huge coup for Amazon.
It solved one of the biggest problems many retailers face: the ‘mañana effect’
‘mañana’ is Spanish for tomorrow.
What is the ‘Mañana Effect’?
Think about this.
Let’s say you wanted to purchase something online and your credit card was in another room.
Except if you needed the item urgently, if you are like most people, you will tell yourself you will get it tomorrow.
When tomorrow comes, your day gets swallowed up with the chaos of life and you forget.
Amazon being aware of the ‘mañana’ excuse, removed it by introducing the 1-Click order button.
In Amazon’s own words, to remove the friction to buying.
Or what Alfred Taubman calls ‘Threshold Resistance’: those invisible barriers that stand between your merchandise and your customers.
You no longer need to fill in your credit card details to purchase on Amazon.
All you need to do is click on the order now button and voilà your order is processed.
In hindsight, the process appears so simple.
It is indeed simple.
Yet many retailers are not adapting such simple strategies in their stores.
I don’t know.
But what I know is this, retailers that have implemented such simple friction removing strategies in their stores are the most successful in their categories.
Bricks and mortar retailers might argue they cannot implement such strategies in their stores.
Well, Richer Sounds implemented friction removing strategies in its stores.
As a result, for over twenty years, Richer Sounds held The Guinness World Records for the highest sales per Sq. Ft.
Holland & Barrett is the second most profitable business in the UK.
I did not say second most profitable retailer.
I said second most profitable business.
What makes Holland & Barrett so successful, like Amazon and Richer Sounds, its removed the friction to buying from it stores.
In upcoming articles about Richer Sounds and Holland and Barrett, I will show how they removed buying frictions from their stores.
There are lots of frictions to buying that might be preventing sales in your store.
And the sad thing is, you might be unaware of those sales prevention frictions in your store.
Identifying and removing the friction to buying in your store will go a long way to helping you build your own Amazon.
Amazon’s Critical Success Factor Two: The effective use of data
One of the keys to Walmart success was Sam Walton’s effective use of data.
In the early days of Walmart, Mr. Walton had pigeon holes in his office where he kept the account details of each store.
At the end of the week, he will manually go through the account of each store.
He visited all of the unprofitable stores for that week to have quiet words with the managers.
As Walmart grew bigger making it difficult to perform manual computation of each store account, he introduced IBM’s technology into Walmart.
But his focus on a data driven management was a key component in the Walmart success story.
Jeff Bezos having studied Walmart’s success strategies built metrics for measuring customer engagement with Amazon.com in the early stages of the creation of Amazon.
In fact, one of Mr. Bezos famous sayings is he believes in physics and mathematics, everything else is open to debate.
Being obsessed with customer experience, Mr. Bezos installed metrics for measuring customer satisfaction and staff interaction with customers.
This is Mr. Bezos take on Amazon’s role in the life of its customers:
““When I read that letter, I thought, we don’t make money when we sell things. We make money when we help customers make purchase decisions…
We raise the bar across industries, and around the world, for what it means to be customer focused…
We first measure ourselves in terms of the metrics most indicative of our market leadership: customer and revenue growth, the degree to which our customers continue to purchase from us on a repeat basis, and the strength of our brand”
Amazon’s Critical Success Factor Two: The effective use of data
A lot of Amazon’s customer service staff finds the emphasis on customer satisfaction daunting.
This is how author Brad Stone describes staff aversion to Amazon’s customer centric policies:
“For years, customer service reps were graded on a formula that attempted to measure their productivity, taking into account how many calls they took per hour and the average length of each call. Then Amazon started putting more weight on the most desired outcome: customer satisfaction.
Now an associate’s job performance is based almost entirely on how customers answer an e-mailed survey they receive after they hang up the phone.
Did I solve your problem?
Amazon sets targeted goals for the ratio of yeses and nos and call center employees are ranked based on their number.
(Yet associates can not ask customers to answer the survey or click ‘yes’ – that is a dismissible offense, according to numerous interviews with employees in Kennewick.)
If an associate falls into the lowest 15 percent of the rankings, they are placed on a ‘PIP’ – a performance improvement plan – and can be fired if they don’t boost their numbers”..
As to the fairness of the process, that is something you might want to take up with Mr. Bezos or the Pope.
We are not having morality discussions here.
I am only making the point that Amazon is completely uncompromising when it comes to customer satisfaction.
What you need to pay particular attention to about Amazons data regime is what is being measured.
What is Your Core Metric?
One of the keys to Tesco’s success under Sir Terry Leahy’s leadership was the placement of additional checkout counters in Tesco stores.
At the time, Tesco identified its target market as the individual who might sneak out of his office during lunch break to get a quick bite.
That person will not want to be stood in supermarket queue for half of his lunch break.
To avoid losing such customers, Tesco increased the numbers of checkout counters in its stores.
But at the time, the length of time customer spend at the checkout counter was a core metric of Tesco success.
Today that same metric will not be a core metric for Tesco.
Many retailers have metrics to measure their activities.
Many of them are measuring the wrong things.
Amazon like most businesses has metrics of measurement.
But what makes Amazon more successful than other retailers is, Amazon’s core metric relates directly to customer satisfaction.
This is because Amazon understands that a satisfied customer is a customer for life.
I have never hesisted to press the buy button on Amazon because I know if I was dissatisfied I can easily request a refund and my funds will be returned with no questions asked.
I am also a seller on Amazon.
I sell my books and home study courses on Amazon.
I know the expectation that is placed upon me as a seller.
If I made a mistake and violated Amazon’s terms of service and it impacted its customer, I am out.
The lesson here is simple: ensure you have a metric of measurement but most importantly, ensure you measure the right activities.
Consumers are data but customers are people.
There are mothers, fathers, brothers, sisters, husbands, wives, friends and loved ones behind your data.
The extent to which you understand this simple fact, is the extent to which you will succeed as a retailer.
Amazon’s Critical Success Factor Three: Operations efficiency
If Amazon’s business model was sketched, it will look something like this according to author Brad Stone:
“Lower prices led to more customer visits. More customers increased the volume of sales and attracted more commission-paying third-party sellers to the site. That allowed Amazon to get more out of fixed costs like the fulfillment centers and the servers needed to run the website. This greater efficiency then enabled it to lower prices further. Feed any part of this flywheel, they reasoned, and it should accelerate the loop”. .
When Amazon started, it took weeks to fulfill orders.
Some obscure books even took more than a month to deliver.
As the company grew, its order fulfillment became more complex.
This is how a senior executive described Amazon’s order fulfillment structure in the early years:
“it was extremely difficult for the company to plan ahead from one shipment to the next. The company didn’t store and ship a predictable number or type of orders. A customer might order one book, a DVD, some tools— perhaps gift-wrapped, perhaps not— and that exact combination might never again be repeated. There were an infinite number of permutations.”
Then the retailer applied the principles of Six Sigma and the lean manufacturing process from Toyota, which requires a business to rationalise every expense in terms of the value it creates for customers.
The implementation of Six Sigma and the lean manufacturing process transformed Amazons’ fulfilment process.
The transformation of the fulfilment process also led to the transformation of the retailer as satisfied customers placed repeat order.
The retailer was able to provide customers approximate dates of arrival of their purchase.
But what was most important about the transformation was its focus on expenses in terms of value to the customer.
The metric measurement of success was based upon the value to customers, which subsequently translated to improvement in the retailer’s bottom line.
Amazon’s Critical Success Factor Four: Trust
A while ago, I bought an iPad from a retail store called CeX.
A few days after buying the iPad, while travelling on the train the screen broke.
I took it to be repaired, only to be told that the parts in the iPad were not the manufactures original parts.
I took the iPad back to CeX, explained what had happened and requested a refund but added they could deduct payment for the screen repair.
What I paid for was an iPad.
What they gave me was an iPad shell with parts from another brand, which was dishonest.
They insisted they did not promise in their terms and conditions they were not going to refurbish the gadgets they sold.
Before my bad experience with the retailer, I had bought lots of different gadgets from them.
Needless to say I will never buy anything from them and if I knew anyone who wanted to buy from them, I will dissuade them from doing so.
What CeX did bordered on the lines of criminality.
If my iPad screen had not broken and I had not taken it for repair, I would not have known that they had different components instead of Apple original parts in their gadgets.
This is one of the things that gets retail businesses into trouble.
Violating customers trust.
Many bricks and mortar retailers keeps complaining that Amazon is putting them out of business because Amazon is an online retailer.
But Amazon success is not the result of its being an online retail with less overheads.
Neither is Amazon’s success predicated on the fact that it has the the ability to reach millions of people.
Amazon success steams from the fact that it adheres to simple rules of human psychology.
One of those rules is being trust worthy.
How Amazon Overcame Early Customer Scepticism
Imagine how it felt in 1994 when Amazon was asking shoppers to place their credit card details online.
Imagine the amount of people that were willing to place their credit card details on a website they have never heard about.
I am writing this article in 2016.
There are millions of people still afraid of placing their credit card details online, despite all of the security measures in place.
So what did Amazon have to do to convince customers to entrust them with their details?
They had to build trust.
One of the things Amazon did to build customer trust was introduce the 30 day return policy.
Shoppers knew if they bought from Amazon and for any reason they were dissatisfied, they could return the product and get their money back.
Jeff Bezos was adamant about the implementation of this policy despite the enormous financial cost to Amazon when the company could least afford it.
This is how one of its staff explained Mr. Bezos thought process at the time:
“Bezos insisted that Amazon had to have a customer-friendly thirty-day-return policy, but it had no processes in place to handle returns; it had a line of credit but would regularly max out its account, and MacKenzie would then have to walk down the street to the bank and write a check to reopen it”.
This is what Amazon’s first managing editor has to say about the subject of trust:
“We were asking people to put a credit card into the computer, which at the time was a radical concept,…it was important both in creating a good shopping experience but also in getting people comfortable about the idea that there were people on the other side of the screen that they could trust.”
Every successful retailer understands the value of building trust.
There are a few retailers like CeX who might get away with screwing customers for a short period but it will eventually catch up with them.
Success in business is the result of like and trust.
Without those two, no retail business will succeed.
Key Lessons from the Creation of Amazon
Even though Mr. Bezos would prefer Amazon be considered a technology company,
Amazon is basically a retail organization that has successfully used technology.
While there is no disputing the fact that Amazon’s innovation of proprietary technology was critical to its success, those technologies on their own were not responsible for Amazons success.
The keys to Amazon success were its:
- 1-Click checkout button
- The effective use of data
- Operations efficiency
Amazon’s 1-Click checkout button removed the friction associated with buying.
Shoppers could easily make purchase without the need to fill in their credit card details.
Amazon also made effective use of data to measure customer satisfaction.
However, what made Amazon’s data more effective was it measured the right things.
Many retailers fail to take advantage of data because they measure the wrong metrics.
In the beginning, Amazon struggled to fulfil customer orders.
But borrowing from Six Sigma and Toyota, Amazon was able to fix its supply chain problems, giving the retailer huge advantage over it competitors.
Finally, when Amazon was established in 1994, the idea of placing credit card details online was foreign to many shoppers.
In order to build consumers trust, Amazon introduced its 30 day return policy and provided lots of great contents about it products.
Based upon its success so far, it will be difficult to bet against Amazon overtaking Walmart to become the biggest retailer in the world.
But Amazons success will not be based upon technology but upon its ability to develop the right strategies to support its technology.
Retail lessons from Amazon
I am not suggesting it will be easy for any retailer to overtake Amazon.
The aim of this article was to not teach you how to overtake Amazon but to show you how to use Amazon’s success strategies to build your own retail organization.
The following steps will guide you in your quest:
Identify all of the friction to purchase in your store and remove them.
The friction to purchase might be something as simple as having the wrong store colour, the wrong lighting system or unattractive merchandise display.
Or it could be lack of trained staff.
Identify those barriers and remove them.
Change your refund policy.
Building trust with consumers is critical for success in the new retail environment.
Revisit your current metrics for measuring success.
Are your current metrics of measurement in line with your core business objective?
If not change them.
If you will like to receive a step by step template for achieving your own Amazon like success in your retail organisation, please click on the red ‘Next Action Steps’ button now.
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About the author
Romeo Richards is an experienced retail trainer and consultant with knowledge of retail marketing, store performance and retail loss prevention.
He has the ability to choreograph the customer journey, boost store conversion and enhance in-store experience using store design and visual merchandising.
Specialises in increasing retail profit through shrinkage reduction.
He is the author of 23 retail and marketing books including:
• How to Increase Retail Sales
• How to Make Profit In Retail
• Store Design Blueprint
• Visual Merchandising Display
He is the creator of five retail home study courses.
Frequently presents webinars on shoplifting prevention and boosting retail sales.
Featured in Professional Security Magazine, Retail Week & Retail Technology Magazine