Amazon’s Formula For Asymmetric Competition

Steve WunkerAugust 25, 2021116023 min

Amazon remains one of the most predictably revolutionary leaders in business. Accelerating growth through innovative ways and leveraging revenue streams competitors lack. Asymmetric competition has become Amazon’s trademark. How does the company do it?

First, consider its legacy. Amazon launched as an online bookstore slightly ahead of the dot-com frenzy, and it used a distinct business model to up-end a staid industry. Through collecting payment from buyers well before it paid suppliers, and by initially declining to carry any inventory itself, it could slash prices on popular titles and still make money through the “float” interest it earned on the money paid by users for purchases. Bricks-and-mortar chains couldn’t respond. Then, once Amazon had built up its own distribution centers, it could become a hub for users’ e-commerce needs through selling and distributing products from rival merchants.

Users became increasingly loyal to Amazon even in the hyper-competitive world of Internet retailing, and competitors couldn’t match the scope of Amazon’s offerings because they lacked the scale economies of those centers. More recently, the firm leveraged its market leadership in selling physical books online to become the dominant vendor of e-readers, leaving potential rivals unable to gain much traction. It also started to compete against traditional book publishers, offering leading authors a far-better payout on sales if they self-publish under an Amazon imprint. With a business model predicated on providing these authors with services that many don’t really need, old-line publishers cannot come close to beating Amazon’s terms. Of course there is much more to Amazon’s business but this is enough to make my point.

Amazon’s formula for asymmetric competition comprises of these four elements:

1. Know Your Core: While Amazon’s business keeps changing, the core advantages of the company are remarkably consistent. Its key asset is a loyal group of customers who rely on the company for understanding their needs, offering an intuitive experience, and providing good value. This is an asset much like Apple’s (albeit with Apple having different brand values), yet Amazon makes money off this asset in ways that Apple does not. For all of the praise justly lauded on Steve Jobs, he was more a product innovator than a business model innovator.

2. Find a New Financial Formula: Amazon has a retailer’s appreciation for how price resonates with customers. It consistently finds ways to keep the headline price for a new offering low while it makes money in less noticeable ways.

3. Own the Customer: Amazon partners promiscuously with suppliers of all kinds, but it is crystal clear about owning its customer relationships. Because it has a direct line to the customer, it can introduce new offerings quickly, winning attention for unorthodox concepts (like the original Kindle) that customers may have ignored without a sharp nudge from Amazon. The direct relationship also gives Amazon flexibility to adjust offerings rapidly, rather than having to rely on a tangle of business partners such as cellular network operators.

4. Keep Competitors Off-Balance: Amazon rarely sits on its laurels. Partly because it operates at the intersection of Internet retailing and consumer electronics, the company faces a huge range of rivals that are always gunning for its business. It wins through continually changing the game.

Contributed to Branding Strategy Insider by Steve Wunker, Author of JOBS TO BE DONE: A Roadmap for Customer-Centered Innovation

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