Virtuous Feedback Loop
Focus on expanding and deepening trust to create a self-reinforcing feedback loop of that increases the flow of goodwill through continuous learning from data generated by running experiments intended to create meaningful progress in the lives of customers.
Principles
- Core Strategy: The flywheel model focuses on enhancing customer experience through low prices, a wide selection, and a great delivery experience. This generates traffic, which is monetized by allowing third-party sellers on the platform, further expanding the selection and reinforcing the cycle.
- Implementation: This strategy transitioned Amazon from an e-commerce company to a platform business model over a decade, with most products sold by third-party stores by 2017-18.
- Financial Strategy: Amazon operates on tight profit margins, reinvesting cash into the business to lower prices and improve customer experience, similar to Costco's model.
- Broader Application: The flywheel concept can be applied to any business by focusing on building momentum and releasing energy to drive growth and success
Energy
Initially, allowing the flywheel to spin around takes a lot of force and brute momentum. As you build up momentum, the flywheel rotates more efficiently.
- As it turns out, it also stores energy for later release.
- When the flywheel has built momentum, it keeps releasing energy.
- At that point, it becomes harder to stop!
Examples
The virtuous cycle of the flywheel starts with customer experience, focusing on low prices, a wide selection, and a great delivery experience. Traffic generated from a positive customer experience is monetized by allowing third parties to sell their products on Amazon, expanding the selection.
Amazon operates efficiently at tight profit margins and passes the cash generated through lower prices to customers.