What Amazon Understands That Others Don't

Apr 26 2014, 9:17am CDT | by

Since 1995, I’ve been focused on the potential of personalization as a business strategy to attract customers and vanquish competitors. I was one of the original partners of the 1to1 marketing consultancy, Peppers and Rogers Group, and in 2001 I wrote Making It Personal: How to Profit from Personalization without Invading Privacy.

For much of this time, Amazon has been the single best example of the power of personalization. It’s 1-Click ordering – patented in 1997 and granted in 1999 - was a brilliantly obvious idea that removed friction from the buying process. To this day, I buy goods from Amazon that it never before occurred to me that they carry; it is so easy to make a 1-Click purchase, I always check first to see if Amazon carries an item for a reasonable price.

In the late 90s, when my partners and I were delivering hundreds of 1to1 marketing workshops worldwide, Amazon was already doing the things others only dreamed of doing. In the ensuing years, they have never given up their relentless and aggressive pursuit of growth through personalization.

By many standards, their stock remains ridiculously overvalued. But this is largely because Jeff Bezos does what so many management teams refuse to do: he manages for the long term.

To be fair, Amazon has fallen short of many of the standards I hoped they would achieve. It is nearly impossible to find a real human being at Amazon to help solve your customer service problem. They have been arrogant, to say the least, in their attempts to revolutionize the publishing industry. My perception from afar is that Amazon is anything but a great place to work.

Amazon has not demonstrated the power of personalization to treat both customers and employees in a more humane and responsive manner. But they have demonstrated its power to annihilate competitors and win fierce loyalty from customers.

New York Times columnist James B. Stewart points out that:

Even after this week’s plunge, Amazon’s shares remain expensive by most measures. Its price-to-earnings ratio was still over 500.

But, he says, that is largely because investors have focused more on Amazon’s rapidly growing revenue and less on its minuscule profits. Amazon now accounts for about two percent of global retail sales and many analysts believe it has plenty of room to keep growing. Stewart observes:

If history is any guide, this week’s drop in Amazon based on one quarter’s results may just be another buying opportunity, and not a reversal of a 20-year trend.

Way back when, the foundation of 1to1 marketing strategy was this: the greatest competitive advantage a business can have is knowledge about a customer that its competitors lack.

On this basis, Amazon has just begun to fight. No other competitor knows so much about individual consumers across such a wide range of interests and activities. In personal terms, Amazon knows what I read, for how long, and which passages in each book are most meaningful to me. They know which books I consider buying, but don’t. They know many of the movies I watch, what I do in my spare time, what I wear. They know – better than even I do – when and how I spend money. You get the point.

Today, Amazon sells nearly everything. More importantly, they are obsessed with solving some of the most intractable  problems in retailing: how to lock in customer loyalty, how to anticipate customer needs, and how to deliver products the last mile to a customer’s home.

One of my lessons from studying personalization over these past 20 years is that granularization becomes increasingly important to business success. That is, to remain competitive, companies will have to zoom into higher and higher levels of detail. It will not be enough to have lower prices, faster delivery, or better advice. They will need to have all this plus a deep and quantifiable understanding of what each customer wants.

Amazon strikes me as a company that continually re-calibrates the ideal level of granularization. It understands before nearly the rest of the world when and where it needs to go deeper. It has the courage and tenacity to invest in its future, even when doing so causes investors to pound its stock.

As long as Jeff Bezos continues to lead Amazon, I would never bet against them. He understands personalization better than any person on the planet, and 20 years later, I still can’t name a more powerful path to competitive advantage.

Bruce Kasanoff (@BruceKasanoff ) is the author of How to Self-Promote without Being a Jerk.


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