The Amazon Flywheel
The Flywheel concept
The first thing to say about the flywheel is that it’s a growth strategy that has been used in business for many years and was a concept introduced by Jim Collins in the book ‘Good to great’.. As stated in the book “good-to-great transformations never happen in one fell swoop. In building a great company or social sector enterprise, there is no single defining action, no grand program, no one killer innovation, no solitary lucky break, no miracle moment. Rather, the process resembles relentlessly pushing a giant, heavy flywheel, turn upon turn, building momentum until a point of breakthrough, and beyond.” (1)
By definition, a flywheel is a heavy revolving wheel that is used in a machine to increase momentum and therefore provide greater stability to the machine. Given its weight, the flywheel is difficult to push from a standstill, but once it starts moving it gradually builds momentum, which eventually enables the wheel to turn by itself and create even more of its own momentum through a self-reinforcing loop (2).
So the premise of the flywheel concept is that a flywheel takes a lot of effort to start, but once it gets spinning, it gains momentum quickly and spins faster and faster (3).
So how does the flywheel relate to Amazon?
The infamous story goes that Jeff Bezos sketched the Amazon’s flywheel, what he called the “virtuous cycle” on a napkin that looked like this.
Source: Amazon
The idea was that every aspect Amazon exerts effort on should result in the improvement of all others. Bezos wants Amazon to be the most customer-centric company in the world, so they determined that the best way to strategise is to consider what the customer wants and work backwards from there (4).
In “The Everything Store: Jeff Bezos and the Age of Amazon,” journalist Brad Stone explains that the Amazon flywheel Sellers drive selection, so by having more sellers, you have more products in the marketplace. At the same time, having more sellers and more selection drives an efficient cost structure for Amazon, because they don’t have to invest capital into infrastructure and inventory. Increased competition drives prices down, which attracts first time customers. The greater the value and lower the price, the better the customer experience. Better customer experiences generate more organic traffic to the platform, and as the platform becomes more popular, it attracts more sellers, and more traffic, and the system gains more and more speed as it goes (5).
Then when you layer Amazon’s advertising capabilities around the whole system, that starts to drive everything even faster; it brings more customers to the site, drives more sales, attracts more sellers, and a huge amount of revenue is generated as the cycle goes on and on.
What does this all mean for your brand?
In order to initiate a successful flywheel for your own brand on Amazon, you need to ensure that each component of the flywheel feeds another (6).
Good quality primary and enhanced brand content, optimal price pack architecture, effective inventory management, a cost-effective and impactful advertising strategy, traffic driving non-Amazon marketing activity (i.e brand social campaigns), a healthy number of 4*+ ratings and reviews, complete multi-channel integration and maybe most critically, the ability to take a longer term view are essential for building a sustainable and successful business on Amazon.
Whilst all brands & sellers would like to list their products on Amazon and achieve a high volume of sales overnight, it doesn’t quite work like that. The flywheel takes some time to speed up, because there are many components that go into creating that momentum and consistent sales growth such as those listed above. So unlike other retail and digital channels, growth on Amazon tends to be slower and much more involved. Its therefore critical to factor this spinning up into your timelines and ensure you have the dedicated & capable resource for managing your Amazon business.
Sources
1. https://www.jimcollins.com/article_topics/articles/the-flywheel-effect.html#articletop
2. https://feedvisor.com/resources/amazon-trends/amazon-flywheel-explained/
3. www.podean.com/amazon-expained-the-flywheel/
4. https://www.ecomcrew.com/amazon-flywheel/
5. The Everything Store: Jeff Bezos and the Age of Amazon. Brad Stone. 2014
6. Amazon For CMOs: How Brands Can Achieve Success In The New Amazon Economy. Kiri Masters, Mark Power, 2019.