Case Study: Amazon, Customer Retention and AI
We analyze Amazon's customer retention success story, and share business lessions on how the use of AI in sales and marketing can improve customer experience
We all witnessed Amazon's breakthrough in January 2019, by overtaking Microsoft and becoming the largest company in the world with $797 billion in market value. Just a couple of months later, in July, Amazon reached a historic number by becoming the first-ever company to reach $1 trillion in market value.
The whole world watched Amazon climbing the top of the mountain and many of us asked ourselves: how did they do it?
First of all, we all understand that not all companies have the same reach and capital as Amazon, but as technology becomes more and more accessible, more and more companies are finding inspiration in how Amazon uses Artificial Intelligence (AI).
For that reason, we decided to analyze some aspects of Amazon's customer retention success story, and uncover how Amazon is using AI in sales and marketing to improve customer experience. We also share some business lessons companies can learn and apply to their retention strategies.
How Amazon's AI journey started
A relatively young journey
In early 2014, an Amazon employee named Shrikanth Thirumalai came to propose to CEO Jeff Bezos a sweeping new plan for incorporating AI in Amazon's recommendation team (i.e the team managing personalized marketing on Amazon's website). Thirumalai spotted the growth potential in machine learning, especially in a new, supercharged form known as deep learning. The proposed project would require skills that his team did not have, and tools that Amazon did not use until that point in time - Bezos loved it, so the project began.
From a leader in AI-based marketing ...
The results of the idea had an impact far beyond anyone's expectations. Just within a few years, Amazon managed to spread personalized recommendations in various parts of the company's sales and marketing operations. Machine-learning innovations in one part of the company led to an uptake of different teams, including sales team, marketing, product management, etc. Today Amazon is smarter in suggesting what items you should add in the shopping list, what you should read next, and what movie you should watch tonight. You can read more about Amazon history here.
...to a world leader in AI-powered business
Whereas many companies still test or implement AI in very specific business areas, Amazon is now basing most of its business on Machine Learning (Artificial Intelligence) systems. The company even says that without ML it would not be able to grow its business, improve its customer experience and selection, optimize logistic speed and quality at such a high rate. In one of their articles, Amazon explains in-depth the power of Machine Learning and Artificial Intelligence in solving company's business challenges.
How Amazon uses AI in sales and marketing
Amazon is gathering immense amounts of customer data on a daily basis, as well as data about merchants' sales and inventory, and the rest of the work is done by machine learning algorithms. By knowing a customer's purchase history, searches, page views, and even GPS-based location, the system can compare a customer's profile to thousands of "customers just like you" and make the perfect recommendations. Having this customer information, Amazon is capable to approach its customers with the best personalized offerings, predict customer churn behavior and design the best customer retention strategy.
Forecasting and personalizing
To remain competitive and differentiate itself in a crowded market, Amazon took the relationships with their consumers to the next level. Using personalized recommendations, the company managed to increase their sales and their average customer basket size by offering products and services personalized separately for each individual customer. Personalization begins at the marketing stage, and continues down the sales funnel at each stage. What is more, AI-based algorithms get smarter with each additional set of data, making it only better and more precise with time. Whereas this approach was disruptive a few years ago, it has now become possible for any company to, like Amazon, personalize its marketing and sales, or more generally to use predictive analytics to predict customer behavior.
Increasing customer loyalty
Increasing customer loyalty whereas customer retention is a key struggle in retail and e-commerce, Amazon manages to successfully retain its customers. Having the power to define what are the best offerings thanks to machine learning, Amazon continues to increase its growth by forming and offering more loyalty clubs and special, targeted offerings. For example, the company does a great job of retaining their Prime Members. One study even shows that customers go to Amazon for almost every possible activity in their shopping experience.
Business lessons from Amazon
Started as a Seattle-based internet bookstore, Amazon has managed to transform itself and grow in at least 5 major industries: logistics, retail, consumer technology, cloud computing, media & entertainment, and most recently in pharmacy. What can we learn from Amazon's experience?
Use your data
With the help of AI and machine learning, Amazon is doing a phenomenal job, not only at knowing its customer's preferences but also at transforming large amounts of data into action, in real-time. Without AI, Amazon would simply not be able to transform its data and extract value from it.
Focus on customer's experience
In today's world of so many choices, the entire customer experience is what leaves the customer satisfied and loyal after having an interaction with a brand and its offerings. AI plays a great role in Amazon's seamless Customer Experience Management, and drives the customer operations of Amazon.com.
Focus on the long-term goal
Amazon is well known for its strategic genius and incentive for innovations, that helped the company to position itself ahead of competitors, by investing in promising new technologies. In one speech for 'Internet Association Annual Gala - 2017' Bezos talked about the importance of long-term investments, and how "AI and machine learning is a Renaissance bringing the golden age of solving problems in business", and making good ideas operate even better in time.
Promoting awareness of AI throughout the company
AI can have many uses for companies, and promoting AI to the employees with an accent on the value and the purpose of the use cases, can lead to a larger integration and impact on the company. As the Amazon's VP of devices and services once admitted: "We went out to every (team) leader, to basically say, How can you use these techniques and embed them into your business?"](https://www.wired.com/story/amazon-artificial-intelligence-flywheel/)
The role of the CEO and the executive team
The Amazon story illustrates how the role of the CEO and executive team is important, in terms of vision, leadership, and stakeholder engagement. In the 2016 Shareholders Letter, CEO Jeff Bezos wrote extensively about Amazon's AI strategy going forward highlighting it how it would improve even more: "Machine learning drives our algorithms for demand forecasting, product search ranking, product and deals recommendations, merchandising placements, fraud detection, translations and much more". Today, the majority of Amazon's success is based on an innovative mindset and continuous investment in new solutions and technologies.
Business Impact and ROI
Increased customer satisfaction did not only improve Amazon's reputation, but also led to stunningly increased customer retention and customers started returning to buy at the company again and again. Today, Amazon Prime members have 93% retention rate after the first year, and 98% after two years. The company managed to reach an astonishing result in terms of customer retention, as from June 2019 around 105 million Amazon subscribers were estimated only in the US. The company continues to have an insatiable appetite for new markets, triggering competitors to always be on their guard against its next strategic move.
And on the top of the cake, customers are loving it.
Having these lessons in mind, businesses can focus on improving customer experience, increase customer retention, and implement AI solutions to make them stand out from competitors. Yet, not all businesses are able to implement everything on the same scale as Amazon did, but these business lessons can be applied to companies at all sizes operating both B2B and B2C. And who knows, your business may just be the next big thing.
Kantify is a team of business and machine learning specialists, helping businesses maximize growth by implementing the latest technology into company operations. We help companies take advantage of the market potential and tailor their best strategies, by building most effective and sustainable AI solutions.
If you are curious to find out how your organization can leverage Machine Learning to improve customer retention, leave us a message!