(1) Pillar: Something that supports, an important and basic part
The pillars of the economy are manufacturing, retail, and finance.
(2) Liquid Asset: Cash and other assets that can quickly become cash
Liquid assets are very important in acquisitions because they can be used to buy stock.
(3) On behalf of someone: For someone
All of our actions need to be on behalf of the customer. They can’t be for someone else.
1. Jeff Bezos says “your margin is my opportunity.” Let’s say you’re selling something for $5 and it costs you $3 to make it. What will Amazon’s price be?
2. How does Amazon innovate?
a. By thinking about low prices
b. By thinking about the customer
c. By thinking about margin
3. What does it mean for something to be an article of faith?
a. You just believe it. You don’t worry about evidence
b. You worry about it before anything else
c. You believe it and try to make others follow you
By Jeremy Schaar
In today’s lesson you’ll learn about Amazon’s strategy. You’ll study a few quotes from Amazon’s CEO Jeff Bezos. You’ll learn some vocabulary and some strategy theory.
A Quick Overview of Amazon’s Strategy
Amazon is the world’s most important online retailer. In ten years, they might just replace WalMart as the world’s biggest retailer. Their strategy has two pillars. First is to keep prices low. Second is to always focus on helping the customer. They constantly invest in new facilities and technology. They don’t worry at all about having cash on hand. Many people focus on Amazon’s net income which is always close to zero, but cash is just one asset. Non-liquid assets are growing at a remarkable rate.
Here are some great quotes from Amazon’s CEO Jeff Bezos:
Commitment to Low Prices
“There are two kinds of companies: Those that work to try to charge more and those that work to charge less. We will be the second.”
“Your margin is my opportunity.”
“We’ve done price elasticity studies, and the answer is always that we should raise prices. We don’t do that, because we believe — and we have to take this as an article of faith — that by keeping our prices very, very low, we earn trust with customers over time, and that that actually does maximize free cash flow over the long term.”
Staying Customer Focused
“We innovate by starting with the customer and working backwards. That becomes the touchstone for how we invent.”
“If you’re long-term oriented, customer interests and shareholder interests are aligned.”
“When [competitors are] in the shower in the morning, they’re thinking about how they’re going to get ahead of one of their top competitors. Here in the shower, we’re thinking about how we are going to invent something on behalf of a customer.”