Customer Focus at Amazon.com
Warren Buffett, the well-known financier and CEO of Berkshire Hathaway, has never been a big
backer of technology businesses.1 However, he owns $459 million worth of Amazon.com’s
bonds, making him one of Amazon’s biggest debt holders. Buffet observes, “I’ve been using a
The concept of Amazon began in 1994 when Jeff Bezos, its founder and CEO, read a
study that predicted the Internet would explode in popularity. He settled on selling books online
because almost every book was already catalogued electronically, yet no physical bookstore
could carry them all. Bezos has a rare talent for a relentless focus on the customer, and a studied
disregard for short-term pressures to show results on the “bottom line.” The original Amazon
model envisioned giving customers access to a gigantic selection without the time, expense, and
From the beginning, our focus has been on offering our customers compelling value. We
realized that the Web was, and still is, the World Wide Wait. Therefore, we set out to offer
customers something they simply could not get any other way, and began serving them with
books. We brought them much more selection than was possible in a physical store (our store
would now occupy 6 football fields), and presented it in a useful, easy-to-search, and easy–to–
and we are grateful for the trust our customers have placed in us. Repeat purchases and word of
mouth have combined to make Amazon.com the market leader in online bookselling.2
In its 2002 Annual Report, Bezos’s letter made numerous points to explain how that
vision of customer service had developed and expanded, including:
• We have deep selection that is unconstrained by shelf space.
• We turn our inventory 19 times in a year.
• We personalize the store for each and every customer.
• We trade real estate for technology (which gets cheaper and more capable every year).
• We display customer reviews critical of our products.
• You can make a purchase with a few seconds and one click.
Many of the customer-pleasing features of Amazon’s operations are not noticed, or even
known, by Amazon’s customers. These fall into the categories of technology, order fulfillment,
and retailing strategies. In technology, the company’s website has been, and remains, leading
edge. In an effort to serve customer needs, Amazon was one of the early pioneers to develop
software for collaborative filtering of customer data. Basically, the filter is used to suggest
similar or related products to a customer after he or she has focused on a product or product
In order fulfillment, the capabilities of its high-tech warehouses continue to drive costs
down, as mentioned earlier. For example, Amazon has a nearly perfect process for sorting
multiple item orders. As it expands its offerings and adds more retail partners, Amazon’s
Its retailing strategy is based more and more on partnerships with those who, in most
businesses, would be considered competitors. Amazon proclaims that it seeks “to offer Earth’s
Biggest Selection and to be Earth’s most customer-centric company, where customers can find
and discover anything they might want to buy online.” However, at any time, its competitor-
partners may be offering the same item through their linked websites at a different price. For
example, when a book is being viewed, the web page will also permit the viewer to go to a
linking web page of a partner’s book company, where the same title used (or even new) book is
With millions of customers and potential customers accessing its global sites in the
United States, the United Kingdom, Germany, Japan, and Canada daily, Amazon.com’s
sophisticated technology allows it to build an in-depth and potentially valuable database of many
of its customers. In 1999, Amazon.com experimented with a highly controversial feature on its
website. It started featuring thousands of individual bestseller lists categorized by Zip codes,
workplaces, and colleges—wherever its customers were ordering from. With a mouse click on its
Key Issues for Discussion
1. How does Amazon.com’s CRM software help it to gain market share and maintain its
competitive advantage?
2. How are operating efficiencies realized in order fulfillment activities of Amazon.com?
Will costs continue to fall, given that their warehouses are currently operating at less than
50% of capacity? (Note: This measure is expected to change over time, depending on the
state of the economy.)