How Jeff Bezos' 'customer obsession' transformed Amazon from an online bookseller into a $1.4 trillion retail giant that's burrowed into every corner of daily life

  • In 25 years, Amazon from went from a small-scale online bookseller to a retail behemoth.
  • Earlier this November it launched its pharmacy delivery service, marking the company's expansion into healthcare. 
  • Marketing experts and past Amazon employees attribute the company's successful diversification to Jeff Bezos' customer-obsessed approach to strategy. 
  • By working backwards from an end product meeting a specific need, Amazon successfully anticipates customer needs and tailors its services to meet them. 
  • Visit Business Insider's homepage for more stories.

In 2011, Ian McAllister, Amazon's former director of Alexa and Smile, went to CEO Jeff Bezos with a series of new program ideas.

At Amazon, that means presenting Bezos with an internal press release, or a document presenting a clear problem that consumers are facing and an explanation of how the idea in question will solve that problem. 

Not every idea made the cut. McAllister said that Bezos would point out when a press release didn't clearly explain the problem for consumers. If he wasn't able to come up with a compelling problem paragraph, there might not be a problem worth solving. But the ideas that were able to present a solution to a clear problem made it through.

This process, known as "working backwards," allowed McAllister's team to eventually develop Amazon Smile. While charitable giving directly to organizations can involve many steps, Smile allows Amazon shoppers to give back to causes they care about by donating a portion of their eligible purchase to charity at no cost to themselves, all while feeling good about the purchase they've made. 

"To me, this was a clear example of how Jeff is truly customer-obsessed," McAllister wrote in an email to Business Insider. "It's not just lip service. From that point forward, every press release that I wrote, or someone on my teams wrote, was required to have a problem paragraph, and the customer problem was invariably the first topic of discussion in each meeting."

Amazon confirmed that a 2011 meeting between McAllister and Bezos took place, but could not confirm specific details of the conversation. 

The principle of customer obsession, which Bezos explains in his new book, "Invent and Wander," has allowed Amazon to anticipate and provide nearly every purchase a consumer would need to make on a daily basis. And November's launch of Amazon pharmacy, a two-day prescription delivery service free of cost for Prime members, is the latest example of that strategy.

Today, the $1.4 trillion retail giant serves over 150 million paying Prime customers across the globe and employs 1.2 million people worldwide. Here's how Bezos made it happen.

Work backwards, scale forward 

To understand why Amazon's ambitious ventures have been so successful, it's worth taking a deeper look into CEO Jeff Bezos' customer-obsessed approach, which centers the company's strategy around addressing the customer's needs and problems. 

"Because you're customer-obsessed, you find ways to satisfy customers," Sunil Gupta, a professor of business administration at Harvard Business School, said recently on the podcast IdeaCast. "If that means developing new skills that we don't have because we are working backwards from what the customer needs are, then we'll build those skills."

According to Gupta, most companies tout having a customer-centric model, but they're actually primarily focused on enhancing offerings rather than thinking about how the customer will experience them.

For example, Gupta said a gas company might add additional services to their gas stations without considering that customers want to avoid gas station altogether. By contrast, Amazon takes customer focus to another level. At meetings, Bezos often leaves one seat open and tells his team that they should imagine it's occupied by the customer, who is the most important person in the room. 

That's one reason it's standard practice for Amazon employees to start developing a product by writing an internal press release.

"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," Bezos wrote in a 2016 letter to shareholders. 

"It requires that the author of the idea crisply identify one or more very real customer problems, and be thoughtful about how those problems are described and ranked," McAllister wrote.

Kindle is a case study in customer obsession 

The Kindle Paperwhite, pictured, has gone through several rounds of updates since the original 2007 version was released.Amazon

Gupta cited Amazon's development of the Kindle in 2007 as an example of working backwards with consumer needs in mind.

Like all Amazon inventions, Kindle started with the internal press release presenting a problem: More customers were beginning to transition away from their paper copy books and towards electronic devices. Amazon wanted to be at the forefront of the trend. 

Despite having no prior experience in hardware, the Amazon team spent three years learning about hardware manufacturing to produce the Kindle. Then they took it a step further.

Bezos insisted that Amazon make the Kindle as simple as possible for the non-tech-savvy, which meant they shouldn't have to connect the device to a PC to download content. While other e-readers at the time required people to connect to their computers to download new books, Amazon pursued a wireless route so that consumers could download new content from anywhere. 

It wasn't the easiest venture for Amazon to pursue, but it was overwhelmingly successful. The Kindle sold out of its initial inventory in six hours.

Thirteen years later, the popularity has yet to wane: In 2020, Amazon accounted for 60% of e-reader device sales worldwide. 

Becoming second nature: Whole Foods and Pharmacy

Amazon Pharmacy.Amazon/Handout via Reuters

Most recently, Amazon has been doubling down on food and grocery products — and now pharmaceuticals.

In 2017, Amazon acquired Whole Foods for $42 a share, 27% higher than Whole Foods' closing stock price at the time. This past August, it opened its first physical Amazon Fresh grocery store in Los Angeles to cater to more price-sensitive customers. 

According to Gupta, as people turn to Amazon for groceries more regularly, it will become routine for them to purchase other products from Amazon, too — reinforcing the ecosystem approach.

The result is a one-stop shopping experience where customers don't have to think twice about where they'll shop for their daily needs. 

The same logic applies to Amazon's recent decision to branch out into the pharmaceutical industry, said Scott Galloway, professor of marketing at New York University. 

"In my view, the fastest-growing healthcare company in the world is Amazon," Galloway told Business Insider.

Galloway said that Amazon is the only company with enough assets to compete with the current leaders in healthcare. The company's current product offerings and production assets allow it to produce and deliver pharmaceutical products at a lower price than its competitors. 

Technology plays a pivotal role. Amazon's smart cameras, speakers, and information drawn from purchase history can draw inferences about a consumer's health and nutritional habits, relationship status, age, and other demographic information. Alexa and Prime also allow consumers to order medications with a few clicks or a voice command.

These assets makes it easy for the company to know what kinds of healthcare products a customer might require and deliver them to their doorstep.

In other words, even customer centricity is getting automated. So when Amazon customers look for their usual medications, they won't need to take extra steps to order from a separate healthcare provider. Instead, they can turn to Amazon without a second thought, trusting that the service will be inexpensive, quick, and convenient. 

"The biggest opportunity in healthcare is savings," Galloway said. "But it's not economic savings. It's time savings."

Because of the healthcare industry's size and power, Galloway says, it "has purposely made it difficult to get reimbursements," or payments for services from insurance providers. 

Jeff Bezos, meanwhile, is forward-thinking enough to know what customers really want.

"Amazon," Galloway said, "will make all of this easier."  

Shana Lebowitz contributed reporting for this story.

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