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Amazon has become one of the most successful companies in the world. The model it uses—the Amazon Flywheel—is not a secret and any seller who understands and applies it can increase their revenue.
In this article, we will take a look at all aspects of the Amazon Flywheel, and how you can apply it to your own brand.
If you aren’t familiar with a flywheel, picture a massive metal desk mounted on an axle. Your end goal is to get the flywheel rotating fast on its own.
The idea is you need to apply an enormous amount of force to start moving the flywheel. But as you keep turning it, enough momentum builds up that the whole thing begins to rotate on its own.
In much the same way, Amazon’s growth resembles that of a flywheel—each step in their growth strategy is a turn in the flywheel that helped the company build momentum and become what it is today.
The Amazon Flywheel is responsible for Amazon’s fast growth.The idea is that every aspect Amazon exerts effort on should result in the improvement of all others. Bezos wants Amazon to be the most customer-centric company in the world, so they determined that the best way to strategize is to consider what the customer wants and work backwards from there.
In order to be appealing to customers, Amazon made its prices very low. This results in a better customer experience, which leads to increased traffic to the site. Soon, the Everything Store is flocked with people who are looking for a good bargain (a.k.a. most people).
Traffic is not limited to customers, however. Instead of selling only Amazon-exclusive products, Bezos and his team welcomed third-party sellers to fuel the next most important aspect: selection.
This might seem counterintuitive at first. Why would you allow competitors to join your platform when you can easily monopolize it?
However, as mentioned earlier, Amazon prioritizes customer experience above all else. And yes, that sometimes includes foregoing the chance to earn more profit.
Sure, people are attracted to low prices, but it would be more appealing to have a platform that offers more options. As more brands join the Amazon world, it creates diversity and increases the supply, resulting in further decrease in prices.
Whatever Amazon gains is then reinvested into structures that help lower prices and improve customer experience. For example, more FBA (Fulfillment by Amazon) warehouses are built and more delivery trucks and planes are purchased.
Any improvement made on any of the items in the Flywheel positively affects all others, further fueling the Virtuous Cycle.
Third-party sellers are welcomed by Amazon because they provide customers with more options. Thus, the Flywheel benefits sellers in that they are allowed to market their products on the platform, reaching more people.
This also means that brand owners are able to take advantage of Amazon’s other services such as fast delivery through Prime as well as storage and fulfillment through FBA. There is also an option to bundle products easily for a more effective promotion.
In “The Everything Store: Jeff Bezos and the Age of Amazon,” journalist Brad Stone explains that the “flywheel effect” in the company’s early stages worked like this: “Lower prices led to more customer visits. More customers increased the volume of sales and attracted more commission-paying third-party sellers to the site. That allowed Amazon to get more out of fixed costs like the fulfillment centers and the servers needed to run the website. This greater efficiency then enabled it to lower prices further. Feed any part of this flywheel, they reasoned, and it should accelerate the loop.”
Essentially, the Amazon flywheel model is centered around price value. The lower and more competitive the prices are, the more appealing the products are to prospective customers, propelling more third-party sellers and brands to want to sell on the marketplace. This influx of stakeholders increases Amazon’s vast and diverse product selection — which acts as a competitive differentiator against competitive marketplaces — and continues to drive down costs, further fostering increased customer engagement and conversion.
With the growth that accompanies a rich customer experience comes the ability to lower cost structures and simultaneously offer customers lower prices and reinvest capital into new initiatives, which for Amazon includes continuously optimizing its Prime services, for example.
Every improvement you make to your own version of the flywheel business model will help accelerate your growth cycle and help you achieve your key business objectives for the year. Here are a few ways you can apply the principles of the Amazon flywheel to your own brands:
While fueling the Amazon flywheel to the point that it moves entirely on its own is not an overnight process, it is one that should be carefully examined based on what you know works for your business, your unique performance indicators, and strategic objectives. Each optimization you make to improve your business can influence your flywheel, so it remains your responsibility to regularly find new avenues to keep the flywheel in motion.