Wednesday, January 22, 2014

"The Everything Store" Builds on Metrics

Amazon has famously focused on customers throughout its meteoric rise. How much do they buy? How much does it cost to acquire one? How much more do Prime customers buy? Above, founder Jeff Bezos shows this customer focus and bias for long-term strategy in his 1997 letter to shareholders.

Metrics help Amazon measure short-term progress toward long-term success. Writer Brad Stone traces the pioneering company's path from startup to today in his excellent book, The Everything Store: Jeff Bezos and the Age of Amazon. In one section, he discusses how Amazon used metrics to clean up the chaos in its warehouses (aka distribution centers).

In a nutshell, Stone says that Amazon growing at an incredible, unprecedented rate as the millennium came to an end. Its warehouses could barely keep up with the diversity and volume of orders. Just in time, an Amazon exec supervised the development of new systems to tame the chaos that threatened to derail Amazon's ability to ship the right products to the right customers, on time. Among the metrics he and his managers used to manage and monitor performance in fulfillment centers were:
  • Number of shipments of merchandise received
  • Number of customer orders shipped
  • Per-unit cost of packing and shipping each item
  • How many shipments were backlogged
  • How many trucks were outside each center, ready to ferry shipments to carriers
These metrics helped Amazon bring its fulfillment centers under control and prepare for intense competition and future growth. Even today, with announcements such as the possibility of delivery by drone and new technology for "anticipatory shipping," Amazon is innovating at a rate that nimble startups would envy.

Stone also lists "Jeff's reading list," books that Bezos and his team read as they manage the sprawling Amazon business. One is Data-Driven Marketing: The 15 Metrics Everyone in Marketing Should Know. Written by Mark Jeffery, on the faculty of the Kellogg School of Management, this book covers essential metrics such as:
  • Brand awareness
  • Customer churn
  • Internal rate of return
  • Customer lifetime value
  • "Bounce rate" 
  • Word-of-mouth social media reach
What new metrics will Amazon use as it pursues relentless growth and innovation in the coming years?

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