By January 7, 2008 6 Comments Read More →

Amazon & Putting Customers First

Put Buyers First? What a Concept – New York Times

I’m a huge fan of Amazon (AMZN), having first ordered a “required pre-reading” book from them in March 1997, before I went to grad school. I’ve hardly had anything go wrong with an order or a shipment in that decade, but, if something goes wrong, they take care of it without hassle. In a trivial example, my Simpsons Movie DVD was recently shipped in a flimsy paper envelope (instead of a cardboard shipper) and was damaged, so they overnighted another out no questions (with a pre-paid return mailer for my damaged one).

This recent NY Times story talks about their “customer obsession” principle and an example of customer service that was more “costly” in a traditional, short-term sense: a customer ordered a PlayStation3 for her kid’s Christmas gift and, apparently, an apartment neighbor signed for it, leaving it (oops!) in their landing…. well, the box got stolen (Amazon box markings will draw attention, eh?). Even though she had no proof and it wasn’t Amazon’s problem:

After assuring himself that I had never actually touched or seen the PlayStation, he had a replacement on the way before the day was out. It arrived on Christmas Eve. Amazon didn’t even charge me for the shipping. My son was very happy. So, of course, was I.

Pretty amazing choice on Amazon’s part, isn’t it? Some might say a stupid choice… Amazon absorbed the cost… but probably built life-long loyalty with this customer (who, it turns out, could write about it in the New York Times… I assume Amazon didn’t know that).

The article talks about the trade-off between Amazon’s long-term view of building customer loyalty and doing what it takes for the customer versus the Wall Street view that costs need to be managed in the short0-term and giving away PS3’s is hardly good short-term business.

The NY Times writer continues:

But I couldn’t help wondering if maybe there wasn’t something else at play here, something Wall Street never seems to take very seriously. Maybe, just maybe, taking care of customers is something worth doing when you are trying to create a lasting company. Maybe, in fact, it’s the best way to build a real business — even if it comes at the expense of short-term results.

Founder and CEO Jeff Bezos is the driver of the customer obsession principle:

It has been the guiding principle behind Amazon since it began. “Jeff has been focused on the customer since Day 1,” said Suresh Kotha, a management professor at the University of Washington business school who has written several case studies about Amazon. Mr. Miller noted that Amazon has really had only one stated goal since it began: to be the most customer-centric company in the world.

Pete Abilla (over at Shumla.com) has written about Bezos as well.

But many on Wall Street don’t appreciate that view:

Wall Street, however, has never placed much value in Mr. Bezos’ emphasis on customers. What he has viewed as money well spent — building customer loyalty — many investors saw as giving away money that should have gone to the bottom line. “What makes their core business so compelling is that they are focused on everything the customer wants,” said Scott W. Devitt, who follows Amazon for Stifel Nicolaus & Company. “When you act in that manner many times Wall Street doesn’t appreciate it.” What Wall Street wanted from Amazon is what it always wants: short-term results. That is precisely what Dell tried to give investors when it scrimped on customer service and what eBay did when it heaped new costs on its most dedicated sellers. Eventually, these short-sighted decisions caught up with both companies.

So what are the parallels to Lean or the Toyota Production System?

1) Customer focus — Lean teaches us to focus on customer needs and to realize that value is defined by the customer

2) Long-term thinking — principle #1 of The Toyota Way says to base decisions on the long-term, even at the expense of the short-term.

Toyota’s stock (TM) was down 24% last year even though they became the #1 sales volume automaker in the world. Toyota apparently isn’t trying too hard to manipulate their short-term stock price. At least one analyst praises their long-term thinking:

Long-range planning is one reason Mr. Yoshida of UBS remains upbeat on Toyota. “They aren’t looking 10 kilometers down the road, they are looking 100 kilometers down the road,” he says.

Then again, Amazon’s stock has doubled in the last 12 months, so they aren’t being punished too badly by the Street. The WSJ listed Toyota as a good stock buy… but the law of averages kicks in and stocks that underperform one year tend to recover the next…

But I don’t obsessive track stock prices. What I do know, as a customer, is that Amazon is consistently offering new, innovative services and is doing their best to take care of customers. I remember, back in 1998, when it was impossible to find a phone customer service rep for Amazon (they wanted you to do it all online). They’ve evolved and started offering phone service as their customer base grew. I’d bet Toyota and Amazon both have a good decade ahead.

Now that I’ve written my “love letter” to Amazon, I’m sure some of you have customer service beefs with them… feel free to use the comments feature. In terms of your company, how are you balancing the short-term of customer service “costs” versus long-term customer loyalty? Would you deliver the “free” PS3 or not?

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Mark Graban's passion is creating a better, safer, more cost effective healthcare system for patients and better workplaces for all. Mark is a consultant, author, and speaker in the "Lean healthcare" methodology. He is author of the Shingo Award-winning books Lean Hospitals and Healthcare Kaizen, as well as The Executive Guide to Healthcare Kaizen. His most recent project is an eBook titled Practicing Lean that benefits the Louise H. Batz Patient Safety Foundation, where Mark is a board member. Mark is also the VP of Improvement & Innovation Services for the technology company KaiNexus.

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6 Comments on "Amazon & Putting Customers First"

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  1. Neutron Jerk says:

    I think further evidence of Bezos being a lean thinker his daily uniform — khakis and a blue oxford shirt.

    I remember an article where he said it wasn’t worth the time or hassle deciding what to wear each morning. I love it.

  2. Anonymous says:

    It sure seems to me that Amazon would be a good study in lean principles. Their fulfillment systems seem to be the best in the business…if you buy direct from them (vs. their many integrated vendors who can add some complication to an order).

    Has anyone seen a value stream map of their process? Do they use VSM techniques? Perhaps a more traditional process mapping method might be a better method for them(captures more detail).

    My only beef is they seem to use excessive packaging. I get mostly air in the box when I order from them…

  3. Mark Graban says:

    The shipping box issue — my understanding is that there’s a tradeoff between perfectly fitting box to item and variety… they can’t have an infinite number of boxes. I ordered a wire cooling rack (for the kitchen) once and that flat item was in a box that was 95% air.

    I like it, actually, when they ship in the manufacturer’s box, requiring no overpackaging. They warn you of that, in case you’re buying something as a gift (or don’t want it stolen from your doorstep, I guess).

    I have some friends at Amazon… if there’s enough interest, I can try to get someone for a Podcast.

  4. Jason says:

    In a column on BoingBoing last November, Cory Doctorow points out that Amazon is only good at customer service when it comes to physical products. Whenever Amazon starts messing around with digital products (the Kindle’s books, Unbox, MP3 downloads, PDF books), it completely screws the customer in about 20 different ways.

    From an environmental standpoint, I hate the excessive packaging that comes with Amazon. I’d far prefer that they work with their suppliers to have stock delivered to them in boxes that can easily be shipped via UPS without repackaging wherever possible.

  5. Pete Abilla says:

    @Anonymous,

    Yes, Lean and Six Sigma has been practiced at Amazon since 1999. You can learn more about what Bezos has said about Lean and Six Sigma at Amazon.

  6. Mark Graban says:

    Our Curious Cat pal, John Hunter, had a bad experience with amazon recently.

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