What marketing lessons can we learn from Amazon?
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?