THE AMAZON FLYWHEEL

The Amazon Flywheel or Amazon Virtuous Cycle is a strategy that leverages on customer experience
to drive traffic to the platform and third-party sellers. That improves the selections of goods, and
Amazon further improves its cost structure so it can decrease prices which spins the flywheel.

This process is well known within Amazon and as explained by Jeff Wilke, CEO of Amazon Worldwide
Consumer this idea was first sketched by Jeff Bezos back in 2001 and would become Amazon
marketing strategy for years to come. That contributed to the Amazon business model success.

More than a tool this is a mind-set, a way to seize opportunities within industries, where
inefficiencies are the rule. At the same time, it helps speed up growth by investing as much as
possible on customer experience.

Breaking down Amazon Virtuous Cycle

The Amazon Flywheel, what they call a Virtuous Cycle starts from the customer experience. As
explained by Jeff Wilke customer experiences might focus on a few key elements:

Low prices

Really big selection

A great delivery experience

Therefore, from customer experience, you get a lot of traffic.

Rather than monetizing that traffic just by selling Amazon products, the company focused on
allowing third-parties to sell their products on Amazon; this is the foundation of third-parties stores.

Instead of focusing on products Amazon already has, the company allows third-parties to bring a
selection that – at least initially – is hard for Amazon to have. That selection makes the customer
experience even richer.

Therefore, it allows the cycle to reinforce itself. At the same time, Amazon is known for its cash
machine strategy where the company can operate efficiently at very tight profit margins.

Rather than distribute the cash as dividends to its shareholders, Amazon passes it in the form of
lower prices to customers (Costco does something similar), while still generating enough money to
sustain its short-term operations.

That cash generated is also used to fuel other initiatives, like Amazon Prime. On the other hand, the
army of dozens of thousands of sellers that as of 2018, sold on Amazon, are all small organizations
that employ up to six people, which when combined, make up another large organization.

Yet, when those small companies send their inventories to Amazon so it can get fulfilled (managed
and delivered) by Amazon, the whole flywheel strengthens as those advantages are passed along the
same third-party sellers on the platform. In something that looks like the image below:
To simplify even further this marketing strategy, we can start from two key elements:

A lower cost structure, where cash is reinvested in the business, to offer even lower prices, better
selection, and more efficient inventory management

The customer experience improves as prices get lower and selection broadens up, which in turns
spins the flywheel with more momentum!

Find your flywheel

A flywheel can be built in any business. While we’ve seen Amazon flywheel is built specifically on an
e-commerce platform, you can try to find your flywheel.

Remembers these five elements:

1. Initially, it takes a lot of force to allow the flywheel to spin around

2. As you build up momentum, the flywheel rotates more efficiently
3. As it turns, it also stores energy for later release
4. When the flywheel has built momentum, it keeps releasing energy
5. At that point, it becomes harder to stop!