Amazon's core strategy: thrift

If corporate genetics does exist, then the reason why the world’s most successful technology company can rise in the past 10 years must be thanks to the company’s genes. Google is obsessed with data; Apple is fascinated with the simplicity of the style; Facebook is characterized by social relationships that span the globe; Amazon is more simple and practical. That is: frugality.

The successful transformation of this Seattle-based online bookstore into an e-commerce giant relies on the thrifty philosophy embodied in operations, brand positioning, and new products such as the Kindle Fire tablet. "Reducing costs is the cornerstone of Amazon's success," said RJ Hetovi, director of stock research at Morningstar. Amazon does not have to bear the huge cost of maintaining physical stores, so it can provide customers with the same goods at a low price.

Data from William Blair & Company, a Chicago-based investment bank, shows that Amazon can sell products at prices as low as 13% compared to online and physical competitors. Currently, the company has 160 million active users and sales account for 20% of total online retail sales in the United States. Analysts expect their sales to increase further, with annual customer growth reaching 20%. The online retail business currently accounts for 10% of total US merchandise sales. It is expected that this share will continue to show growth, although some analysts estimate that its annual growth rate may be only about 1%. Forrester Research, a market research firm, predicts that total US online retail sales will exceed $226 billion this year.

The above data forms the brand image of Amazon in the minds of consumers. Amazon is increasingly challenging its competitors. For example, the closure of the retailers Circuit City and Borders is somewhat related to the rise of Amazon.

Last year, the company’s market strategy was even more aggressive. On a Saturday in December last year, Amazon provided buyers with extremely attractive preferential prices. If the user uses the free "price inquiry" mobile app provided by the website, comparing the physical store item price with the Amazon price, the user can get a 5% price discount when purchasing the product. (The maximum discount for each item is $5.) According to reports, the use of "price query" applications tripled on the weekend when Amazon announced the preferential policy, but it also caused media condemnation. The New York Times published an editorial urging that this promotion tactic was tantamount to "scorched-earth capitalism." Amazon countered: "The purpose of launching the 'price query' application is to allow users to easily access information such as product information, pricing information, and customer reviews, just like on the Internet."

In Amazonia, frugality is not just a means to increase competitiveness. Instead, it considers thrift as one of the company’s 14 leadership principles. (The company said on the website that it “provides flexibility, self-sufficiency, and innovation.”) In 1994, company CEO Jeff Bezos founded the e-commerce company and used a door to serve as a desk. In 2006, Greg Linden, a former company employee, said that even after years of listing on Amazon, “wooden tables” were not only visible inside the company, but also became a “classic paradigm” that reflected the hard-working style of the company. Now, the company will also issue the “Door Desk Award”, which is dedicated to the employees who have used their brains to make savings. The coups they came up with not only saved the company a large sum of money, but also reduced the price of end customers. cost.

This thrifty awareness also penetrates into other aspects of corporate culture. In 2009, Bezos disclosed at the company’s annual shareholders’ meeting that he had removed all light bulbs from the company’s canteen vending machines. "Every vending machine will have several light bulbs placed in it so that the ads appear more attractive," Bezos explained. "So, they went to all the logistics centers and took all the light bulbs out." Amazon estimates that this measure can save the company's electricity bill for only tens of thousands of dollars, but it fully reflects the company's worth of 48 billion US dollars. The company upholds the philosophy.

The question now is whether Amazon can ensure its low-price policy in the process of rapid development and expansion. The company spent $4.6 billion last year and built 17 logistics centers. As a result, the company's operating expenses for the year increased by 44%. This year, Amazon plans to continue to increase spending, increase distribution centers, and upgrade products such as the Kindle Fire tablet. Many analysts believe that Amazon has been losing money on this tablet. Some investors questioned Bezos’s spending plan.

In addition, the company’s management also continues to conduct large-scale acquisition transactions. For example, Amazon spent $775 million to acquire Kiva Systems, a company that specializes in robots used to move animals in warehouses. This will be Amazon’s second-largest acquisition, and it will even use Kiva’s robots for its Zappos and Quidsi business units. Quidsi is Diapers. Com and Soap. Com's parent company. Mark Mahaney, an analyst at Citigroup, explained: "Ordinarily, sellers can provide quality products and services and more choices at lower prices by reducing infrastructure costs or distribution costs."

Perhaps in the short term, the acquisition of Kiva will be costly, but doing so will help improve Amazon's ability to handle and distribute items, further reducing operations. Correspondingly, this can enhance the company's competitive advantage and, over time, it can also reduce costs. Although analysts interviewed by Fortune magazine could not quantify the potential savings of the acquisition in the long run, they made it clear that this move can indeed gradually reduce the huge cost of distributing orders. (The data provided by Citibank shows that Amazon's distribution cost last year was $4.5 billion, equivalent to 9.5% of the company's 2011 operating revenue.)

In addition, there are problems with state business taxes. So far, Amazon has not paid business tax in many states, which is also an important factor that can drastically reduce product prices. According to The Wall Street Journal, so far, Amazon has taken a series of measures to achieve this result. According to reports, the company has adopted a number of strategies, one of which requires the company’s domestic staff on business trips to be staffed with a map showing which states require a company permit to enter. The starting point of this move is that employee behavior may be the reason for these states to tax Amazon. Many analysts believe that Amazon will inevitably have to pay state sales tax, which will undermine its competitive advantage, at least to lose its cost advantage. William Blair & Company makes an analogy. It's like a high jumper can easily cross a crossbar before he can lift his leg. However, the height of the crossbar is now raised by 6 inches.

However, whether by trying to reduce shipping costs or changing Amazon Prime's pricing structure, Amazon still has a way to control prices. "I don't think that paying a sales tax will have a big impact on Amazon," Hetovi said. “Given Amazon’s current customer acquisition costs, I believe that even if some of the site’s products are priced at the same level as other competitors, people will remain loyal to Amazon.”