Amazon Flywheel Explained [2021]: Is It Worth Applying To Your Business?

Ecommerce sites like eBay, Walmart, and Amazon have listed more than a billion products for sale in their marketplaces. As such, it is undeniable that a thoughtfully constructed strategy is critical.

At the same time, a listing serves as a package for your products. It gives the buyer an idea of what to expect from your brand and has the power to influence a purchase. If you compromise the quality of your listing, you also compromise the quality of the customer experience.

Coming up with a flywheel can either hurt or help your business, and for Amazon, it did the latter. Here’s how.

What Is the Amazon Flywheel?

Funnels have been in existence for the most extended period. The amazon flywheel is a strategy that leverages customer experience to drive traffic to third-party sellers and the platform. When explaining the flywheel effect, Jeff Bezos and Brad Stone say that the lower prices lead to more visits from customers.

The customers, in turn, lead to increased sales volumes. They also attract more third-party sellers who pay a commission. This effect allows Amazon to get out of fixed costs such as those required by servers and fulfillment centers to run the website.

It is this greater efficiency that led to a decrease in prices. Jeff and Brad said that feeding any part of the flywheel leads to an acceleration of the loop.

Jeff Bezos sketched the flywheel model in 2001 in a napkin. Since then, Amazon has been using it as a business model and a key marketing strategy. However, it is not just a concept or a strategy. It is a mindset that guides a business.

The flywheel speeds up the growth of a business by investing as much as possible in customers’ experience. This is because the customer is responsible for generating the impetus for the flywheel to spin.

The primary standpoint of the flywheel model is the current price value. If a product has more competitive and lower prices, the product seems more appealing to prospective customers. This propels more brands and third-party sellers to want to sell in the marketplace.

The stakeholder’s influx at the marketplace increases the diverse product selection. The selection serves as a competitive differentiator against competitive marketplaces. It also leads to lower costs and fosters increased customer conversion and engagement.

With rich customer experience comes growth. The growth is then associated with lower cost structures which will lead to lower prices. Often, the brand will end up reinvesting the capital in new initiatives. For Amazon, they keep on optimizing their exceptional services.

How Does the Concept Work?

Amazon FlyWheel

To initiate the spinning sequence, you must have put in a lot of work. However, once you start spinning and feed a part of the flywheel, it will spin faster and accelerate at a speed you will grow at. Alternatively, it could also spin by its momentum, which is built up. This is referred to as the virtuous cycle.

When comparing the Amazon flywheel to a standard marketing funnel, you will realize how outstanding it is. Unlike topical marketing funnels, which rely on driving new customers to the funnel, this flywheel builds momentum and influences every part of a business, leading to a better customer experience.

The overriding benefit of the amazon flywheel is increased market dominance, more customers, and more profit.

Main Focuses of the Flywheel

Jeff Bezos came up with a strategy and identified the three most essential aspects which he believed would lead to the success of Amazon. Jeff Bezos, Amazon’s CEO, noted that if his employees focused on customer experience, selection, sellers, or traffic, the flywheel would receive more energy, and the whole system would grow. Jeff understood the importance of the linkages.

The second tenet of Bezenomics states that flywheels are not static. For the momentum at Amazon to keep on moving faster, Amazon has to keep on renewing each element of the flywheel. This they have to do by innovation.

Amazon has had major innovations. There was Kindle then AWS, and Echo, with each taking years to develop. Whenever Amazon failed, it rose and became innovative. According to Jeff, the outcome did not influence their decisions because they felt they would eventually rise.

The three aspects are lower prices, superb selections, and a fantastic delivery experience. By coming up with a lower cost structure, Amazon gets bigger, which gives them more leverage in the logistics structure and the fulfillment. Having customers who are content means, you get more traffic. So, instead of monetizing the traffic, Amazon increases customer satisfaction.

Amazon does not rely on what they have alone. If it realizes some stock is hard to hold and deliver, they sell that stock. Third parties are commonly known for doing this, even if they are too small and have no more than six employees.

Amazon works on a very tight profit margin, but they have huge volumes. However, a significant part of the flywheel model is to reinvest the profits to the business. This will lead to a decrease in prices and other Amazon Web Services.

The flywheel gains momentum with the reach and advantages, which are then passed into third-party suppliers and customers.

Applying the Amazon Flywheel to your Business

Jeff Besoz Amazon Fly Wheel

You have to put your customers at the core of everything if you want to implement Amazon’s flywheel. While many business owners are always concerned with the profits, which is understandable, you should focus on the customers who will give you the profits.

Working on improving the customer experience and changing your perception is the best way to improve your profit. Try and fit in the shoes of the customer and look at your business from their perspective. Find out things that would make the experience of a potential first-time customer better.

To start with, look at the bigger picture and analyze your performance in the catalog. Look at the products performing well, and which ones need improvement. For successful products, look for complimentary products to boost them. If, for instance, you were selling curtains, it is likely someone might also be interested in curtain rods.

By using the traffic, you already have to improve sections, you make it easier for the customer. You also benefit since you stand to gain more profit. If you add a complementary product and a customer purchases it, your organic ranking on Amazon becomes boosted. This is how you can implement the amazon flywheel in your business; by harnessing its momentum.

To get more profits, optimize your listing pages for search engine optimization. Find detailed pages with relevant keywords and answers to potential questions buyers might be looking for.

If you are unsure of the questions your buyers might be asking themselves, use reputation management statistics. Reputation management increases the perception of a brand. People will always buy from a trustworthy person, so be one.

Read through your bad and good reviews and respond to all. For the negative ones, inform the buyer of improving your brand to cater to the mishap. But, do not be so focused on replying to them externally that you do not attend to them in an absolute sense.

If you spot more than one negative review on the same issue, have a goal to work on it. You could work with your manufacturer and ask them to improve the product. Updating your listing could also clear up the confusion.

If you do not have reviews on your page, you could request previous buyers to give you feedback through the buyer-seller feature in your account. Doing this might be time-consuming if you have several sales to attend to, so be sure to invest in software to automate the process if you plan to rely on this method solely.

Any Amazon FBA business relies on reviews for it to succeed. Reviews provide potential buyers with social proof, which gives them the confidence to buy from you. If potential buyers believe they can trust you, you will witness a positive effect on how your products are organically performing.

Reviews contribute to the momentum of the flywheel and increase your conversions. Improving your product listing does more than converting organic traffic. It also helps in converting the paid traffic through Amazon DSP, PPC, and other methods. This leads to a lower cost per click, meaning you get more for spending on ads.

Everything about the flywheel has a knock-on effect. You build your business to a reputable brand and one that will succeed in the long term.

What the Flywheel Is Not

Growth

The Amazon flywheel is a game-changer but does not perform some roles. Below are some of the things you should not confuse the flywheel for.

A Line of Business

The Amazon flywheel is not a line of business. Instead, it is an underlying architecture of momentum extended and renewed into different activities and businesses. The emergence of new technologies helps in accelerating the ever-powerful flywheel. It can move from a million turns to a billion turns with such technologies.

A-Line of Priorities

It is a mode of thinking. You should not expect to make one big push, and it starts turning. The Amazon flywheel gives a lot of attention to the customer. Amazon aims to drive down the costs of products and improve service.

In the sketch of the flywheel, the first spot is lowering the cost for customers. The lowered costs involuntarily lead to an increase in the number of customers visiting amazon’s site. As if that’s not enough, the lowered costs also attract more third-party sellers who want to achieve the growing traffic at Amazon. Consequently, Amazon acquires more revenue.

How Effective is the Amazon Flywheel

Amazon is the biggest online marketplace globally, and Jeff Bezos is among the wealthiest people today. This should be enough evidence to prove that the strategy is effective. If you are not convinced enough, below is more proof showing how the strategy has enabled Amazon to grow to what it currently is.

Forbes says that by July 2020, the stock price at Amazon rose to $3,200. This can be attributed to the pandemic, which has seen many people switching to online shopping. The current circumstances favor e-commerce, and it is no surprise that Amazon dramatically benefits from it.

In 2018, the share of Amazon in American online spending was 43.5%. In 2019, the net profit of the company was $2.6 billion. This doubled in 2020, even with the pandemic, to $5.2 billion.

Even if we are saying the pandemic has a thing to do with the rising stock price, it would not arise if the revenue did not grow. Bezos garage started in 1994 in humble beginnings, and it has accelerated to employing 935,000 employees. Amazon also has more than a hundred warehouses globally, and some of them are twice the size of a football pitch.

The main reason why the flywheel is practical is the adaption of third-party sellers to Amazon. Previously, we would call them competitors. The effect of inviting the ‘competitors’ was to improve the potential selection of the goods offered. This would, in turn, leave the company with the ability to focus on the customer experience and improve the cost structured and decrease the prices.

Including the third-party sellers led to an expansion in the selections. Also, it allowed Amazon to sell through its platform or use Amazon fulfillment to manage and deliver orders.

Frequently Asked Questions

Question: What is the Amazon wheel of growth?

Answer: Customers visiting sites lookout for three things i.e. selection, value and great experience. By partnering with top sellers, Amazon can drive selection at a good level of customer experience which drives value and eventually leads to growth. Traffic brings in more sellers and the wheels move faster and faster, a great strategy behind the impressive growth of Amazon.

Question: Can the Amazon Flywheel be applied in any business model?

Answer: A flywheel can be built in any business. Amazon has built it into the ecommerce model, but it can work in any model. To build a good one, you should understand the key five principles behind it. First, it takes a lot of work initially to get the flywheel moving.

As you build momentum the flywheel rotates faster and more efficiently while storing energy for future use. When it is at full speed, it releases energy and becomes harder to stop. It all starts and stops with a customer experience that powers up economies of scale and faster growth. It is more of a mindset, and if incorporated in any part of a business, can be the key to unlocking new heights.

Question: What are the disadvantages of the Amazon flywheel model?

Answer: The main downside of the flywheel is that it takes a lot of effort in the initial stages. Investing in customer experience is not easy if your business is struggling and requires some of these resources to keep it afloat.

Bottomline

The virtuous cycle of the Amazon flywheel is a clear indication that if you are doing well, you can do even better. With the model, you will become less reliant on working on getting more customers through the door. If you adopt the model, every customer should help you in coming up with new ones.

The customers will experience such a good service that they cannot help but buy from you again and recommend you. The basis of the model is letting the customer be at the center of everything. Even if you find it hard to move up by doing so, you will reap incredible benefits once the wheel starts turning.

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