What marketing lessons can we learn from Amazon?

Discussion
Photo: RetailWire
Oct 11, 2017
Kiri Masters

We live in an era in which 50 percent of U.S. households are Prime members and over 50 percent of searches for consumer products start on Amazon.com. To get to this point, Amazon has placed some big bets, from a strategic marketing perspective. The Prime membership program, a laughable concept at its launch in 2005, is now central to almost every new consumer initiative. Amazon’s “flywheel” has driven growth that was unimaginable even a few years ago.

Looking at the classic “4 P’s of Marketing” model gives us a framework to dissect some of Amazon’s strategy over the years.

Product. Amazon’s flywheel model maintains that expansive product selection is key to customer activation and adoption. Instead of only carrying inventory held on its balance sheet like other retailers, Amazon allows third-party sellers to list products, resulting in a rapidly expanding product assortment without capital constraints. Today, Amazon is estimated to carry 372 million products, according to Scrapehero.

Place. One of Amazon’s core values is customer obsession. Prioritizing customer needs over competitors has allowed Amazon to build a shopping destination that is notoriously ugly, but converts browsers into buyers at an industry-leading rate. A Millward Brown Digital study found that 63 percent of Prime members and 13 percent of non-members buy something during a visit to Amazon.

Price. Amazon is frequently not the cheapest place to buy products online, but that doesn’t really matter to convenience- and assortment-driven consumers. Amazon’s vendor agreements generally result in price leadership on its core assortment. Meanwhile, marketplace sellers are free to set their own prices. Similar to grocery stores, where loss leaders are used to attract shoppers who also add higher-margin items to their carts, Amazon has a small assortment of competitively-priced items and a long tail of profitable marketplace products.

Promotion. The Prime membership program is at the core of Amazon’s flywheel, creating a psychological “lock-in” effect for consumers. Prime Members spend almost twice as much money on Amazon purchases each year than non-members, according to Consumer Intelligence Research Partners. And less than one percent of Prime members are likely to consider other mass-market retail sites in the same shopping session.

DISCUSSION QUESTIONS:  Which of Amazon’s marketing strategies was most responsible for moving the company to where it is today? What lessons should marketplace competitors adopt from Amazon’s marketing strategy?

Braintrust
"Whereas Amazon is a great place to buy, competitors can succeed by being great places to shop for products."
"What all retailers and marketers can learn from Amazon is to understand everything you can about your consumer."
"An 'f word' deserves a place among the musty Ps: Fulfillment IS marketing."

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22 Comments on "What marketing lessons can we learn from Amazon?"

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Kim Garretson
BrainTrust

I pick promotion for the simple reason that it drives positive word-of-mouth from Prime Members to Prime Members and non-members. I frequently hear in casual conversation such things as, “I can’t believe it. I placed my order at 7:30 p.m. and when I went to get the newspaper at 6:30 a.m. the box was on my doorstep.”

Bob Phibbs
BrainTrust

An open wallet from Wall Street drives all of this. It is the prime strategy followed closely by undercutting competitors early to dominate markets second. Finally, first to market wins the battle, everything else is just details.

Max Goldberg
BrainTrust

Amazon launched selling books at below market rates, so price was the initial success factor for the company. Product was also central to launching — remember the spots where the Amazon spokesman called the Vatican to see if they had more books than Amazon? Today the four Ps work in conjunction for Amazon. Presently, Amazon only has one true competitor in the U.S. — Walmart. Walmart is the only company that has the scale to potentially overtake Amazon.

Phil Masiello
BrainTrust

The lesson that can be learned from Amazon has absolutely nothing to do with four Ps. Amazon is a consumer-centric company which learns everything it can about how consumers shop and what they love.

What all retailers and marketers can learn from Amazon is to understand everything you can about your consumer. Deliver exceptional service and continue to innovate service. Deliver extreme value across all of your platforms and every consumer touchpoint.

The four Ps model is about product, not consumers. Amazon is about consumers.

Charles Dimov
BrainTrust

Amazon did not use silver bullets. They took an evolutionary approach. They started with place (convenient online), then focused on price (highly competitive, becoming the cheapest place to find books), then built their product breadth/depth and, finally, have become a mass promotional engine.

Retailers can best learn from the fact that “Amazon is frequently not the cheapest place to buy products online.” Too many focus on price when there are many other attributes that customers also seek. Maybe we should focus on the speed/convenience of omnichannel shopping, quality of product offered/procured, online and in-store service, in-store returns, etc. All of these are non-price competitive means.

Brandon Rael
BrainTrust

I believe when it pertains to Amazon, what we are missing here from the classic four Ps of marketing model is Prime membership, which is the most critical value-added component from a customer experience standpoint. One of Amazon’s wisest strategic moves was to establish the Prime membership program, which provides seamless second-day guaranteed free shipping, exclusive membership-only pricing promotions and the added on benefits of Prime video streaming.

From a customer experience perspective, it’s clear that Amazon has won the hearts and minds of their customers via the Prime membership model, vast assortments, ease of shopping, etc. However this perception may cloud the consumer’s judgements when it comes to the actual product, place, price and promotional strategies. Amazon may not actually have the advantages in these areas, however, the Prime membership strategy and now Alexa voice-activated commerce are clear competitive advantages.

Dick Seesel
BrainTrust

The discussion of the “four P’s” makes sense as far as it goes — and it rightly points out that assortment is more important than price to the Amazon customer. But there are other secrets to Amazon’s success that deserve at least as much attention.

First, Amazon’s predictive technology does an industry-best job making purchase recommendations based on shoppers’ past buying and browsing behavior. Second, Amazon has created an Apple-style “ecosystem” (from the Kindle to the Echo) enabling its own hardware to drive e-commerce sales. And finally, Amazon’s TV advertising does a great job creating an emotional connection between the company and its customers.

All of these points would mean little if Amazon didn’t execute well. The level of trust between Amazon and its customers may be the most important brand-building exercise of all.

Chris Petersen, PhD.
BrainTrust
In todays marketplace, the whole is greater than the sum of the parts. The greatest strength of Amazon is that marketing has been built as an ecosystem with the consumer at the core. For Amazon it is not about selling products, it’s about building lifelong relationships with customers. Kiri has adeptly summarized Amazon’s strengths across the traditional four Ps. However, the real key to Amazon’s success is that they have ALSO mastered the four Cs: Customers: Amazon is customer-centric in everything that they do, from systems, to service, all the way to engaging customers in reviews. Costs: Amazon has built an ecosystem designed to drive out costs so that they can be consistently competitive on price. And more significantly, they create perceived customer value through Prime music, videos and free shipping. Convenience: From one-click ordering to ease of returns, Amazon has been built from the ground up to make it convenient and easy for customers. Amazon Alexa is the new wave of AI for convenience and subscriptions. Communication: Amazon is the epitome of ongoing communication about your order, tracking shipments, and satisfaction. They have built their amazing traffic and first site search status by engaging customers with reviews and Q&A.… Read more »
Doug Garnett
BrainTrust

Amazon has made itself a great place to buy product when you know what you want. So it starts with product.

And we need to remember that the product “P” is about product strategy — different competitors choose different strategies. The successful Amazon strategy is necessarily different from, say, Walmart’s strategy. Or the Home Depot/Lowe’s strategy for product.

Whereas Amazon is a great place to buy, competitors can succeed by being great places to shop for products.

Richard J. George, Ph.D.
BrainTrust

Amazon is now a retailer, a cloud-services provider, a film studio, a device company, a parcel carrier and a technology giant. An estimated 40 percent of U.S. online spending goes to Amazon. Clearly the success of Amazon comes from its willingness to innovate and take risks in ways that are meaningful to its target markets.

While the four Ps noted in the article are critical to the success of Amazon, I would argue that the one C, namely, the customer best explains the company’s success. Amazon is probably the most customer-centric organization in today’s economy. While other companies are more concerned about the competition or Wall Street, Amazon focuses on Main Street. This obsession with the customer drives every strategy and tactic the company executes. Clearly, Amazon’s success has left many clues for competitors to emulate — the primary one being that everything begins and ends with the customer.

Manish Chowdhary
BrainTrust
I believe that Amazon’s leadership in the Ps is actually an outgrowth of its relentless focus on the Cs. Customers: Amazon has always been fanatically focused on customer satisfaction, regardless of near-term profit impacts. More than any other retailer, with the possible exception of Nordstrom, Amazon chooses paths that turn shoppers into loyal lifetime customers with their return policies, shopper experience and the astounding investment in infrastructure. Company: Back to customers, the company has a deep culture of customer focus at nearly any cost. The core belief/strategy is that if we always give the best experience we will gain customers for life. They develop a tech infrastructure that is so much better than all others that they rent it as an additional income source. They develop a commerce infrastructure that is so much better than all others that they rent shelf space for additional income. Competition: Amazon doesn’t seem to look to competitors for inspiration. If there’s an opportunity to do something five times better than the next best thing, Amazon will pursue it. The Ps are all an extension of this. And they’ve selected one over the other depending on the moment in time. Price: They sold the same… Read more »
Keith Anderson
BrainTrust

First, I’d challenge the claim that Amazon’s prices are “often” not the lowest on the web. We have data that suggests otherwise (and will publish it very soon).

Of the elements presented here, the comments about Amazon’s customer obsession (under “place”) is probably closest to what has driven Amazon’s growth. Amazon builds and helps people buy products and services that are in-demand with as little friction and fuss as possible. And they’re always striving to outdo themselves.

Art Suriano
BrainTrust
There are several factors for bringing Amazon to where they are today. First, they were the front runners of e-commerce when so many other companies didn’t even have a website. They built a reputation of low price and convenience and stuck to it without change and every program or service they’ve added, like Prime stays focused on low prices and convenience. I would bet that if polled, most of their customers would say they believe that Amazon has the lowest prices on almost everything. That’s why they remain successful because their marketing hasn’t changed and they have convinced customers that Amazon is the first place to shop or, after researching, the last place to shop. Where Amazon has had as an advantage is with a substantial money machine backing them allowing them to undercut competitors when necessary. And when they do, customers say, “Amazon has the best prices.” So it’s a strategy that has worked very well. To date they haven’t made much money as a company, and nothing lasts forever. So over the next 10 years we’ll have to see who gives Amazon the best competitive run but, for now, they are the leaders in their field and if… Read more »
Dave Bruno
BrainTrust

I think it is difficult to identify one single aspect of the marketing strategy as being “most responsible” for Amazon’s growth, but if forced to choose only one, I would say promotion, if you allow me to consider Amazon Prime part of their promotion strategy. The extremely high conversion rates and retention rates of Prime members say all that needs to be said about the promotional program’s effectiveness.

Carol Spieckerman
BrainTrust

A disruptive, three-word sentence sums up Amazon’s contrarian advantage, with an “f word” deserving a place among the musty Ps: Fulfillment IS marketing.

Mark Heckman
BrainTrust

Early adopters to Amazon enjoyed the concept of buying almost anything they could think of through their website. The flywheel concept of having affiliated retailers offer their products in addition to Amazon’s own massive warehouse selection was and continues to be a major catalyst for adaption and growth. Individual retailers that now compete with Amazon for online market share are still largely disadvantaged with their relatively limited offerings.

Seth Nagle
BrainTrust

Back in the early 2000s Amazon did some amazing things, the one that sticks out to me and caught my attention was the UX and reliability of the products. A user could log on and could easily navigate the website and if there was any issues with your order Amazon addressed them for you.

That was one of the biggest deterrents for eBay, a major competitor at the time when it came to e-commerce. If there was an issue you had to deal with the seller, PayPal, then hopefully eBay. Amazon avoided this issue with great customer service which allowed users to take the plunge into digital.

Peter Charness
BrainTrust

Amazon went around some of the 4 P’s and added an R and a C. They took the Risk out of internet shopping, making Amazon a safe place to buy (and return). The C stands for convenience, from one click to 2-hour delivery how much easier can shopping be for the consumer. As for product, an overwhelming assortment with at least “fair” pricing, if not best price.

Kai Clarke
BrainTrust

Amazon is about 2 key things: price and place. The Internet gives them an everywhere and everything presence. Amazon is not confined by traditional retail place issues or space issues. More importantly, it gives them unlimited inventory, since space for inventory is not an issue either since products can be fulfilled by the manufacturer or FBA.

Pricing is what originally drove Amazon’s model, and to a large part still does. Pricing clarity allows consumers and competitors to easily see the price point they need to sell products at and what it will take to be successful from there.

Ricardo Belmar
BrainTrust

The lessons to be learned are not necessarily found in the four P’s.

#1 is an obsession with customer-centricity.

#2 is to constantly innovate — even if you get it wrong! (Anyone remember the Amazon Fire smartphone?)

#3 isn’t quite a marketing lesson. I’ve said here previously that Amazon can be defined as a logistics company first and foremost. They are constantly optimizing their costs both from the supply chain through to last-mile fulfillment. One can make the argument that this is a reflection of their obsession with being customer-first and delivering the best value to their customer.

The article is correct in that Amazon isn’t always the best price, but they do deliver on value. The Prime program is the best example of that. What other loyalty program can claim to be so successful as to have over 50% of households in the program? Every marketer would like to have those stats!

Alex Levashov
Guest

An important factor of Amazon’s success is marketing to its investors.

Mr. Bezos managed to successfully sell them an idea that Amazon’s game is very long term, so the business operated with no profit for very long time. It started to be profitable just recently and not from retail, but from Amazon Web Services.

Noelle Barnes
Guest

Kiri, you’re spot-on about price and promotion in particular — this is what Amazon built its reputation on, so much so that I, as a constant Amazon consumer, don’t even bother to check whether I’m getting the best price anymore. I figure I am, but I know for sure I’ll get my item in two days as long as it’s in Prime. That convenience has ultimately become more important to me and keeps winning me back.

Amazon has completely re-written the model for these four Ps by pretending it wasn’t actually doing marketing, at least initially. For the first 15 years of their existence, they didn’t even use the word “marketing” at corporate, eschewing it in favor of words like “merchandising” — even when it was clear that what you were doing at your job was, in fact, marketing. (I saw this as a long-time Amazon “marketing” veteran.) Bezos believed that if you built something that was great, customers would advertise it for you, and he was right — until a point. That point was Kindle.

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Braintrust
"Whereas Amazon is a great place to buy, competitors can succeed by being great places to shop for products."
"What all retailers and marketers can learn from Amazon is to understand everything you can about your consumer."
"An 'f word' deserves a place among the musty Ps: Fulfillment IS marketing."

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