This week’s Businessweek magazine has an article on Amazon’s free shipping service, Amazon Prime. The offering has been a gigantic success for the company and the article covers what Amazon did to bring the product to market.
Here is my takeaway on what I think Amazon didn’t do that helped make Amazon Prime work so well:
- Amazon didn’t ignore an idea that came from inside the organization. Lots of companies have suggestion boxes. Most are black holes where ideas go to never be heard from again. Amazon not only took the time to review ideas from its employees, but also made sure that it happened at the highest executive level.
- Amazon didn’t wait for the competition to define the offering for them. They had the insight that a loyalty program could offer a boost to the business but spent almost a year researching programs. Amazon didn’t take an existing program and try to shoe horn it into their model but took the time to find what was right for their customers and business.
- Amazon did not wait for all the data before launching the program. Analysis paralysis can kill even the best idea. Even though Amazon didn’t have a financial model to prove the program would be a success, they took the program forward anyway showing they where willing to take a calculated risk.
- Amazon didn’t build a program targeted at every customer. Amazon created a loyalty program that would encourage its best and most frequent shoppers to sign-up. Any customer who was willing to pay $79 a year for free second day air shipping was one who made at least several purchases a year. These customers saw the offering as valuable and in return, now had another reason not to look elsewhere when shopping.
Amazon essentially convinced users who were spending a lot on their site to spend even more. The Businessweek article notes,
Amazon Prime may be the most ingenious and effective customer loyalty program in all of e-commerce, if not retail in general. It converts casual shoppers like Tinsley, who gorge on the gratification of having purchases reliably appear two days after they order, into Amazon addicts. Analysts describe Prime as one of the main factors driving Amazon’s stock price—up 296 percent in the last two years—and the main reason Amazon’s sales grew 30 percent during the recession while other retailers flailed.
It’s hard not to be impressed by Amazon and their ability to continually innovate with new products and services. I think it is a great company to study for what they are doing and what they chose not to do.
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