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Customer Obsession: The secret to Amazon's success

Customer Obsession The Secret to Amazon's Success

We’ve been researching Customer Obsession extensively over the last 12 months. There is one organisation that comes up time and time again and it’s Amazon.

Amazon's success can be attributed to a number of factors, however Jeff Bezos gives to top spot Customer Obsession.

jeff-bezos-quote-2

It’s so important to Amazon that it's the first of their leadership principles. Apparently all the other leadership principles are interchangeable, Amazon is only explicit in the position of Customer Obsession - it must be first.

Here's the key messages from this blog post in a nutshell

  • Everyone of your customers' expectations are being set by Amazon, so it's important you take action
  • Customer Obsession is a healthy, long term business strategy
  • It is much more than Customer Focus
  • It's a step by step approach and businesses of any size can adopt it

Why is Customer Obsession important when you’re running a small or medium business?

Customer obsession is a different approach to success for any customer serving organisation. As a commercial organisation with shareholders to answer to, Amazon is accountable for delivering shareholder value.

Jeff Bezos sees that there are 5 main ways of creating shareholder value.

  • Competitor obsession
  • Business model obsession
  • Product obsession
  • Technology obsession
  • Customer obsession

While he acknowledges merits of all the approaches he believes that Customer Obsession is the healthiest approach.


A short story about my first job

In my very first job in the school summer holiday, I 👦🏼 worked at a local watersports 🏄 shop (it’s still there but Maggie isn’t unfortunately).

On my first day the owner Maggie 💁🏻 asked me:

💁🏻 - “Steve, before you get started I want to ask you a question”

👦🏼 - “Umm OK” (I was a pretty shy teenager 😳 back then...)

💁🏻-  “Who pays your wages💰?”

👦🏼- I thought about it for about 2 seconds and said - “You do”

💁🏻 - “Yes, but No... Think about it again”

👦🏼 - “Ummm, the 🏦 bank?”

💁🏻 - “One more chance”

Long pause….. 💭 Brain cogs whirring, cold sweats…😬😰

👦🏼 - 💡“The customer?” (...finally)

💁🏻 - “Yes that’s right👌

👦🏼 - “Phew” 😌(I thought if I got that wrong, I’d have a long walk home with my tail between my legs😿)

💁🏻 - “Steve, if there is one thing you learn from working here - always remember it’s the customer who pays you and all of us our wages. Keep them happy at all costs.”

If Maggie could have summed it up in a few words, I’m sure she would have said

Always be Customer Obsessed.

Amazon hadn’t invented the Alexa back in 1992, so Jeff couldn’t have been listening👂in on that conversation. So where did Customer Obsession start for Amazon? 

Where did Customer Obsession start for Amazon?

Amazon’s 1997 shareholder letter is the first documented account of the term Customer Obsession - in the heading Obsess over Customers.

While the whole letter makes an interesting read, not least the growth between 1996 and 1997 of 838% from $15.7 million to $147.8 million. It’s this paragraph discussing their relentless focus on delivering value for customers as the driver of their growth.

amazon-shareholder-letter-1997-obsess-over-customers-paragraph

Customer obsessed growth has taken Amazon from a start-up in a garage to one of the leading companies in the world - leaving a highly disrupted retail industry in its wake.

It’s essential that every business leader understands it inside out.

Is word of mouth the most powerful customer acquisition tool for your business?

Why did Amazon adopt Customer Obsession

For Jeff Bezos it was all about the long term, delivering shareholder value through market leadership. He knew that market leadership and revenue is ultimately determined by the customers.

It took 7 years before Amazon recorded its first quarterly profit back in the fourth quarter of 2001.

amazon-quarterly-earnings-2007-2017

That's because they were investing in their customers' experience. 

Whenever a business is publicly traded and answerable to external shareholders it’s prone to short term thinking. We see this time and time again. Jeff was likely acutely aware of this from his time on Wall Street.

It’s a pure hunch, but I think that his belief in Customer Obsession provided Jeff with the strength of mind to take bold and pioneering approaches where others wouldn’t have.

Obsessing over customers is the right thing to do because ultimately they are the ones who pay your bills. Obsessing over your customers means that you deliver for them. Building trust, brand value and ultimately market leadership.

Jeff Bezos is also very mindful of retaining Amazon’s Day 1 vitality. To the extent that he works in a building named Day 1.

amazon-day-1

Here’s what Jeff has to say on it:

...in my view, obsessive customer focus is by far the most protective of Day 1 vitality.

Why? There are many advantages to a customer-centric approach, but here’s the big one: customers are always beautifully, wonderfully dissatisfied, even when they report being happy and business is great. Even when they don’t yet know it, customers want something better, and your desire to delight customers will drive you to invent on their behalf. No customer ever asked Amazon to create the Prime membership program, but it sure turns out they wanted it, and I could give you many such examples.

How does Amazon define Customer Obsession

Here’s how Amazon defines Customer Obsession in their leadership principles:

Amazon's definition of Customer Obsession

Leaders start with the customer and work backwards. They work vigorously to earn and keep customer trust. Although leaders pay attention to competitors, they obsess over customers.

Even better is Jeff’s continuation of the Day 1 vitality quote above.

Jeff Bezos' definition of Customer Obsession

...experiment patiently, accept failures, plant seeds, protect saplings, and double down when you see customer delight. A customer-obsessed culture best creates the conditions where all of that can happen.

Customer Obsession vs Customer Focus

Gibson Biddle former VP of Product at Netflix wrote an interesting blog post explaining how Netflix adopted Customer Obsession in his time there.

In the post Gibson compares Customer Obsession with Customer Focus. I think this comparison does a great job of summarising the various quotes and references that Jeff Bezos has discussed.

Screenshot 2019-05-17 at 21.39.05

So to sum up

Test and learn, to invent and deliver. Lead with customer delight, to create market leading products and service where higher margins follow.

Examples of how Amazon is Customer Obsessed

There are so many examples of how Amazon is customer obsessed, but here 3 I want to share with you.

Amazon prime

amazon-prime-screenshot

Amazon wanted to launch a premium delivery service membership club to provide automatic next day delivery to customer. When it was launched in 2005 it provided so much value that it actually made the business a loss in the short term. They soon realised that by providing such exceptional value the spending levels from Amazon Prime membership customers increased significantly (7 x non prime customers). Over the years they have increased the value offered by Prime membership to include a whole host of other benefits such as video streaming, music streaming and data storage that vastly outweigh the price, increasing the amount all members buy from Amazon.

Amazon Web Services (AWS)

aws-screenshot

Web services such as website hosting used to work just like a mobile phone contract where you decide in advance how much you are going to use each month and then commit to a pricing plan with the same cost each and every month, no matter how much you use. With a relatively high price for any over usage and no reduction for under usage.

AWS changed this. It provided a great product with flexible payment terms where you pay for what you use. Perfect for businesses with large spikes in web traffic, like at Christmas. Wouldn’t it be great if we could all have this on our mobile phone contracts!

Washington post

washington-post-screenshot

Jeff Bezos is not just revolutionising the online world he has also applied Customer Obsession to a more traditional business. In 2013 he shocked the world by buying a traditional struggling newspaper - the Washington Post.

The Washington Post was struggling with declining advertising revenue and as a result they had to cut back in all areas, leading to a demise in readership.

Rather than focusing directly on advertising revenues, Jeff Bezos invested in creating quality content that attracted the attention of readers, with the investment in another 200 journalists. The advertising revenue followed the readers. As of 2019 the post has been profitable for the last 3 years.

What can small and medium sized organisations learn from Amazon’s Customer Obsession?

In an SME you’re unlikely to have the cashflow luxuries of Jeff Bezos or his Wall Street credentials. However, you can still use Customer Obsession to your advantage.

If you want to grow your business the most important thing you need to do is create more demand for your product or service. If you obsess over providing value for your customers an increase in demand will follow. As long as you can supply the demand, you will generate  cashflow to fix any other problems you have.

To maintain demand you need to create trust and market leadership, that takes a long term view.

To do this it’s important to think about how you can sustainably increase the value you provide to your customers.

Here are 3 tips

  • Really understand your customers: what they value, how you can provide more of what they value, less of what they don’t and solve more of their problems
  • Use technology to build low cost ways to add value and increase margins
  • Increase your productivity to offer substantially more value for the same or lower cost, while maintaining or increasing your margins

As a recap Customer Obsession is:

  • Testing and learning by consumer science
  • Invent and deliver on future needs
  • Aspire to long term customer delight
  • Pioneer new frontiers with less competition
  • Lead with customer delight, to create market leading products and service where higher margins follow

Why is it important that your organisation adopts Customer Obsession?

Everyone of your customers has probably experienced the customer obsessed experience from companies such as Amazon and Netflix.

The expectations of your customers are being set by these companies. If the value and experience you provide is not as good as Amazon then your customers will be disappointed.

Amazon and other companies adopting Customer Obsessions have set the bar so high that you need to step up and become obsessed about your customers before someone else does. 

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