Table of Contents Hide
- What is the Amazon Flywheel?
- Why Amazon’s Flywheel Business Model Was Created
- The Operation of the Amazon Flywheel
- Sellers on Amazon Flywheel
- The Amazon Flywheel Approach
- How to Use Amazon Flywheel to Strengthen Your Brand
- Final Reflections
Customer centricity is if there is one basic philosophy that Amazon has remained steadfastly devoted to since its inception. To maintain this customer-first mentality while undergoing the transition from an online bookstore to a marketplace with hundreds of millions of products, Amazon has relied on its customised variation of a business framework first coined by strategist Jim Collins in 2001, known as the “flywheel effect.”
A flywheel is a heavy rotating wheel that is used in a machine to boost momentum and, as a result, provide the machine with more stability. The flywheel is heavy, making it challenging to push from a standstill, but once it begins to move, it generates momentum gradually, allowing the wheel to finally turn on its own and build momentum further through a self-reinforcing loop.
What does this business approach entail? Amazon alludes to the “virtuous cycle” and the “flywheel effect” as concrete ways to drive traffic to the platform. Utilizing an AI-driven advertising optimization solution like AiHello will also help you raise your product listings’ sales rank and increase conversions.
What is the Amazon Flywheel?
The flywheel is an economic motor in Amazon’s business strategy that significantly enhances the customer experience by increasing variety and reducing expenses. Amazon obtains momentum in this flywheel model by improving the customer experience and lowering pricing.
Jeff Bezos redesigned Amazon’s business model with the Flywheel Effect, a concept popularised by strategist and consultant Jim Collins, in mind: to give customers the most popular option at the best price. He said that Amazon has a clear growth plan that builds momentum and enables the business to take a back seat and watch events play out. He asserted that the flywheel, which comprises a few major activities that feed and push one another to develop a long-term business, is a self-establishing loop.
According to the flywheel business model, Amazon leverages reduced pricing to draw in more customers and independent sellers, expanding its selection of low-cost goods.
The flywheel strategy produces a cyclical pattern of success for businesses:
Low costs > Having a Prime membership increases customer service, sales, and subscriptions.
The Amazon Flywheel, like all other flywheels, is designed so that each stage of the process helps the others spread, creating a positive feedback loop. More clients, increasing market dominance, and, of course, higher profits are Amazon’s main advantages.
Why Amazon’s Flywheel Business Model Was Created
Over the years, Amazon has developed a unique organisational structure and growth strategy that have allowed them to dominate the US e-commerce market. The flywheel effect has been fully utilised by them in their firm. The business model described in “The Best of the Greats” by Jim Collins has been adapted by Amazon as the “Amazon Flywheel.” Since Jeff Bezos invented it in 2001 when he scribbled the chart on a napkin, it has been the envy of other businesses. Those with the necessary confidence, self-control, and aggressiveness are employing the approach he used for the Amazon flywheel to increase their incomes.
The Operation of the Amazon Flywheel
Amazon set its prices extremely low to attract customers. As a result, customers have a better overall shopping experience, which increases website traffic. The Everything Store quickly fills up with shoppers in search of a great deal (a.k.a. most people).
However, traffic is not only customers. To support the next crucial factor: selection, Bezos and his team welcomed third-party merchants in place of just offering Amazon-exclusive goods.
At first glance, this could seem counterintuitive. When you can simply control a platform, why would you let rivals join it?
However, as was already noted, Amazon puts the user experience first. Yes, there are situations when giving up the possibility to make more money falls under this category.
Yes, reduced pricing is attractive, but a platform with a wider range of possibilities would be more desirable. As more companies enter the Amazon marketplace, it diversifies the market and boosts supply, which drives down prices even further.
Any profits Amazon makes are subsequently put back into programmes that try to reduce costs and enhance the shopping experience for customers. As an illustration, new FBA (Fulfillment by Amazon) warehouses are constructed, and more delivery vehicles and aircraft are bought.
Amazon made investments in its delivery system, notably Prime Air, as opposed to only relying on more expensive third-party logistics (3PLs).
Any enhancement to one component of the Flywheel has a positive ripple effect on all the others, enhancing the Virtuous Cycle.
Sellers on Amazon Flywheel
The original Amazon Flywheel is the foundation for the aforementioned recommendations. However, there is a different flywheel design that places more of an emphasis on seller success. The Amazon Sellers Flywheel has the following appearance:
The flywheel’s primary objective is growth. You should concentrate on the following three areas if you want to build your company:
- Getting more testimonials
- Increase in sales
- Getting higher rankings
The flywheel operates as follows: to improve rankings, you must increase sales; to increase sales, you must increase reviews; and so forth. One will feed the other once the flywheel starts turning.
To start, you must make sure that your product is sold. This is crucial since Amazon’s algorithm mainly relies on sales to decide where products rank, i.e., the higher the rank, the more units sold.
But what about brand-new goods? You should be aware that during the honeymoon phase, Amazon will send some traffic to new listings to increase sales. Although there is traffic, how you design your product page will determine whether or not you earn a sale. As a result, you must raise your conversion rate.
You can improve your listing by doing the following things, for example:
- Use bullet points to highlight the advantages of your product.
- Use photographs of the highest quality to highlight the features of the product.
- Include all details in the description.
The subsequent flywheel component—more reviews—will then be driven by these sales.
You will have a better chance of having more customers submit reviews if you sell more of your products, especially if you encourage them to do so.
You might ask clients who have given you 4- or 5-star evaluations to guarantee that you
- Submitted a favourable seller rating
- Your company has offered customer service.
You can also use inserts to remind customers to post reviews, but be careful not to suggest that they should be favourable.
Better rankings make up the last element of the Amazon Sellers Flywheel. Amazon is more likely to award you a spot on the first page of search results and perhaps one or two Amazon badges in light of the increasing sales and quantity of reviews.
Each component of the Flywheel feeds the others as the cycle continues.
The Amazon Flywheel Approach
It’s crucial to consider the flywheel business model as a mindset and style of thinking rather than a precise course of action or road map to follow when incorporating it into your strategy. Even though certain modifications to your strategy will inevitably have a more obvious impact than others, the overall goal of any change you make to it should be to speed up growth and bring you closer to your KPIs.
Include the following key components of the Amazon flywheel strategy in your campaigns:
1. The Client’s Experience
Customer experience is any interaction or occurrence that takes place during a consumer’s relationship with a brand. Keeping a careful eye on every part of your customer experience is crucial to getting your flywheel model running.
To achieve this, keep a tight eye on all of your customer performance data on Amazon and other online marketplaces, including ticket volume, backlog, average resolution time, average response time, customer happiness score, and much more.
As a seller, you should constantly be considering fresh approaches to enhance your consumers’ user experience and their purchasing journey, from the moment potential customers first discover your products to the seconds after they’ve made a purchase.
Prices, product options, delivery methods and experiences, as well as customer service management, are a few apparent ways to enhance your customers’ experiences.
2. Show dynamism
Whether it’s Amazon Prime, Prime Video, Same-day Shipping, or other new initiatives, Amazon is well known for announcing and launching them. Never let your internet marketing tactics or promotion efforts become stale by taking a page out of Amazon’s book.
Sellers should constantly be experimenting with new approaches to garner attention, whether it is through better advertising campaigns or more alluring product deals, to jump-start the flywheel model and keep generating momentum for growth.
3. Improve SEO
If you don’t thoroughly optimise all of your product listings for search engines to rank on Amazon and other online marketplaces, you’ll be at a competitive disadvantage. No increase in SERP visibility will occur.
The target keywords for each of your items should be taken into account and incorporated into the product names, descriptions, feature lists, and other areas. More sales will come your way as a result of increased search visibility, and as sales rise, so do your ranks. With these tiny efforts having long-term and ongoing consequences on your overall selling methods, SEO is a good example of the flywheel model.
4. Examine Your Items
The things you sell are a further crucial component of the flywheel idea. It’s crucial to periodically review your product catalogue and manage your inventory proactively. Sellers should constantly be aware of their best-selling items, any that are underwhelming or have outlived their usefulness, and so on.
When stocks go low, replenishing your inventory is insufficient. Instead, you should constantly be on the lookout for fresh methods to broaden your product selection and not be afraid to stop selling a product if it falls short of expectations.
5. Keep an eye on your standing
Last but not least, give your reputation top priority. Reputation is crucial when it comes to generating any e-commerce sales, let alone third-party transactions. Before making a purchase, many of us in reading a product review or brand review to increase our sense of security.
By making sure you have a reliable website, social platforms, an established client base, and a bank of positive product evaluations, online sellers should strive to provide as many trust signals as they can online. Each stage of your customer experience is connected, so by making an effort to monitor, manage, and expand on your reputation, you will profit in sales, rankings, and overall revenue.
How to Use Amazon Flywheel to Strengthen Your Brand
As an entrepreneur, you must first mentally get ready for the challenges that lie ahead. I realise that this seems like some sort of woo-woo, self-help nonsense, but bear with me.
Do you still recall the first force I kept mentioning earlier? This is a crucial factor to take into account when using the Amazon Flywheel in your own company.
To get the Flywheel rotating, you must be able to give it that first push. It won’t be simple, and you could have to lose money—Amazon most certainly did. You must thus commit to it for the long term.
The actions listed below can help you adapt the Flywheel to your brand.
Create top-notch items.
No amount of advertising or first-rate customer support will make up for poor products. You must create top-notch products that your clients will genuinely value.
The actions you can take to make the ideal product for your company are listed below:
- Choose a niche that interests you, or better yet, one that you are knowledgeable about.
- Investigate which items are likely to be successful, taking into account factors such as the number of competitors and keyword search volume.
- Make your product unique so it can stand out from the competition.
- Find a manufacturer or supplier who can satisfy your quality requirements.
- Talk to your chosen supplier about lowering the product’s starting price or your MOQ. This will make it simpler for you in the future to draw in more clients by offering reduced costs.
The last thing you want is for a full container of faulty or subpar goods to arrive at your home port, so after your supplier has finished manufacturing, you should request samples.
Entice people to visit your listing
The following action you can take is to spread the word about your products to more individuals. There are a few options for doing this, both inside and outside of Amazon.
The following are some actions you may do within Amazon to boost traffic:
- Invest in PPC advertising to successfully launch your products.
- Get as many reviews as you can in the beginning to gain traction.
- During the initial weeks after debut, think about offering discounts and prizes.
However, the best thing you can do to enhance external traffic is to produce high-quality material that benefits your readers. Building something may take several months or perhaps years, but it will be worthwhile in the end.
Developing and launching your flywheel business model can take some time. However, as a result of your combined efforts, once your plan has achieved traction, your brand’s growth will become unstoppable to the point where, like Amazon, it becomes nearly fully self-sufficient.
The Amazon flywheel concept, in a nutshell, is about making modest changes that will eventually have an impact on other factors and keep the wheel moving. Customer experience and affordable rates should be given priority. Your flywheel will start thrusting immediately away if these two elements of your strategy are executed correctly and are continuously monitored.