A letter from Amazon CEO Jeff Bezos to shareholders in the company makes fascinating reading and a revealing explanation of how the company sees itself:
Bezos noted that the company’s “determination to deliver low price and customer experience is generating financial results. Net sales this year increased 26% to a record $3.9 billion, and unit sales grew at an even faster 34%. Free cash flow—our most important financial measure—reached $135 million, a $305 million improvement over the prior year.”
In many ways, Amazon.com is not a normal store. We have deep selection that is unconstrained by shelf space. We turn our inventory 19 times in a year. We personalize the store for each and every customer. We trade real estate for technology (which gets cheaper and more capable every year). We display customer reviews critical of our products. You can make a purchase with a few seconds and one click. We put used products next to new ones so you can choose. We share our prime real estate— our product detail pages— with third parties, and, if they can offer better value, we let them.
“One of our most exciting peculiarities is poorly understood. People see that we’re determined to offer both world-leading customer experience and the lowest possible prices, but to some this dual goal seems paradoxical if not downright quixotic. Traditional stores face a time-tested tradeoff between offering high-touch customer experience on the one hand and the lowest possible prices on the other. How can Amazon.com be trying to do both?
“The answer is that we transform much of customer experience— such as unmatched selection, extensive product information, personalized recommendations, and other new software features— into largely a fixed expense. With customer experience costs largely fixed (more like a publishing model than a retailing model), our costs as a percentage of sales can shrink rapidly as we grow our business. Moreover, customer experience costs that remain variable— such as the variable portion of fulfillment costs— improve in our model as we reduce defects. Eliminating defects improves costs and leads to better customer experience.
“We believe our ability to lower prices and simultaneously drive customer experience is a big deal, and this past year offers evidence that the strategy is working.”
Bezos noted that the company’s “determination to deliver low price and customer experience is generating financial results. Net sales this year increased 26% to a record $3.9 billion, and unit sales grew at an even faster 34%. Free cash flow—our most important financial measure—reached $135 million, a $305 million improvement over the prior year.”
- KC's View:
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Bezos also made a statement that we think ought to be emblazoned on the walls of every supermarket headquarters and board room:
”In short, what’s good for customers is good for shareholders.
