2002 – Customer Experience & Low pricing are not Oxymorons

I have always been intrigued by the letters sent to shareholders by both Warren Buffet and Jeff Bezos. They are inspiring and for wannabes like yours truly a source of motivation and hope. So I am creating a series of articles on what learnings I took away from the letters of Jeff Bezos. This is the sixth letter in the series.

You can check out the complete series here: https://alphonserajdavid.com/category/book-reviews/non-fiction/jeff-bezos-stakeholder-letters/

This was more of a conversational letter than the previous two.

Jeff starts off comparing Amazon to Offline stores. After laying out the obvious differences, he makes an interesting observation; Most offline stores either offer Great customer selection or the lowest prices. You don’t go to Walmart expecting to have a private concierge. But Amazon is focused on giving both and that’s possible only through tech.

Learning #1: Technology enables scalable growth

The cost of servicing the millionth customer is almost the same as serving half a million customers. Once the fixed cost on infrastructure is done, technology allows for scalability at almost nil cost. As scalability ensues the overall operations become cheaper and this benefit is then given to customers.

Better customer experience means more orders and thus better unit economics thereby leading to lower costs again. This is a virtuous cycle

Learning #2: Scalable growth models leads to lower customer acquisition and service costs

Another interesting point was the increase in selections in existing categories.

Learning #3: Depth of selection is as important as width of the selection

Another important facet touched upon was pricing. This was explained in detail last year as well but here he doesn’t talk about discounts. He talks about consistent lower pricing to provide continuous value, “

Our pricing objective is not to discount a small number of products for a limited period of time, but to offer low prices everyday and apply them broadly across our entire product range.”

Learning #4: Disconunts are temporary hooks; Low pricing is a consistent customer value addition strategy

In the end, what’s good for customers, is good for shareholders and that’s how Amazon become a trillion dollar company.