Why Amazon is probably the best managed company in the world

From https://www.reddit.com/r/business/comments/544bmu/amazon_closes_at_alltime_high_above_800_for_the/

Jeff Bezos keeps his eye on long-term growth and cares nothing for short-term stock value. So many companies fall apart because their CEOs’ number 1 goal is to raise the value of the stock quarter after quarter. Bezos, on the other hand, does all sorts of things that make good sense but would sound insane to CEOs with this attitude, most famously avoiding profits (in favor of using all of the money to grow bigger). That’s one of the reasons why the stock has a ridiculous P/E ratio, sometimes in the thousands, and yet is a lot better than that would normally indicate.

He also is willing to take plenty of measured risks. Sure, the Fire Phone was a flaming pile of garbage, but the Kindle sure as hell worked out. There’s constantly a non-zero chance that Amazon is going to stumble into some new thing that makes them an unpredicted pile of money.

Also, Bezos is afraid of markets that are too good to be true. He gives the appearance of straight up hating high margins, rightfully fearing that if he’s successful in a high margin business, somebody will undercut him. So he starts with margins low enough to discourage competition.

And everything eventually gets funneled into making deliveries cheaper and faster, trying to make sure that it’s impossible to compete with Amazon on fulfillment.

It reminds me of the same ethic and vision behind Japanese companies (focus on long term growth instead of near term profit, the customer is God etc.). Nintendo is one great example of that, being founded in the late 1800 and went through different business cycles, diversifying to a crazy extent (from playing cards to brothels).

Richard Stallman Uses The Internet His Own Way

I am careful in how I use the Internet.

I generally do not connect to web sites from my own machine, aside from a few sites I have some special relationship with. I fetch web pages from other sites by sending mail to a program (seegit://git.gnu.org/womb/hacks.git[1] ) that fetches them, much like wget, and then mails them back to me. Then I look at them using a web browser, unless it is easy to see the text in the HTML page directly. I usually try lynx first, then a graphical browser if the page needs it (but I make sure I have no net connection, so that it won’t fetch anything else).

I also browse from other people’s computers, with their permission. Since I don’t identify myself to the sites I visit, this browsing can’t be connected with me.

One consequence of this method is that most of the survellance methods used on the Internet can’t see me.

Another consequence is that I never pay for anything on the Web. Anything on the net that requires payment, I don’t do. (I made an exception for the fees for the stallman.org domain, since that is connected with me anyway.)

I would not mind paying for a copy of an e-book or music recording on the Internet if I could do so anonymously, and it were ethical in other ways (no DRM or EULA). But that option almost never exists. I keep looking for ways to make it happen.

His experience is just so different the average user’s. I deeply respect and appreciate his relentless work on privacy, I just wonder how close he is to the average user  and how he can understand the infinite nuances of the media if he is eventually exposed to a very limited and filtered amount of information.

The Giant Kitten Machine

As Evan Williams, cofounder of Blogger and Twitter said, the Internet is “a giant machine designed to give people what they want.” . Williams continued, “We often think the Internet enables you to do new things . . . But people just want to do the same things they’ve always done.”

Eyal, Nir (2014-11-04). Hooked: How to Build Habit-Forming Products (p. 38).

CRO and Pricing Optimization

This post previously appeared on semwired.com and is also available on the EIM Blog.

In the world of ecommerce and online marketing, conversion rate optimization (CRO) is used to ensure companies maximize their revenue by providing the best experiences to consumers. It’s a blend of user experience design, data analysis, and strict experimental methodology to test what kind of online experience and product pricing consumers respond most favorably to in order to then convert. In this article, envisionit’s CRO expert, Fabio Fanni, explains some of the methodology we use for our clients to ensure they’re getting the most out of their spending to reach their goals of a larger user base, higher profits, or whatever their target may be.

A/B and Multivariate Testing

A/B testing, or split testing, is a process where we run a simultaneous experiment between two pages to see which performs better. With A/B testing we validate or reject changes and modifications depending on their performance and how they affect our KPIs.

We usually hear about A/B and multivariate testing in UX design, user engagement and conversion optimization. These are some of the most common contexts of use for these tools.

However, for those cases in which there is no customer relationship management (CRM) backing up the pricing strategy, we can actually use these tools to find out the right price range for products yielding the highest revenue per click and profit margin, thus helping us to maximize ROI and advertisement spending.

With this method we are able to find out if a lower price drives more traffic or a higher price reduces conversions but delivers a higher profit for sale. This can be extremely helpful for those products whose pricing can be hard to define (online/digital SaaS) or industries in which the acquisition costs significantly affect net profits (travel, ecommerce retail etc.).

pricing optimization with a/b testing

This chart shows the revenue per visitor on the y-axis and the actual product price on the x-axis. In this example, we tested different prices on a $2 increase scale and tracked revenue per visitor. Considering that a lower price generates a higher conversion rate, revenue per visitor increased up to $3.1 with a $11 price.

Despite the fact that the lowest prices increased the conversion rate and brought in more clients, the improvement was actually offset by the lower price and eventually affected the profit per user. With this method, it is fairly easy to find the sweet spot that generates the highest profit, and most importantly, provides valuable insights about price elasticity.

This process can also be applied with a different objective in mind. Let´s say that we want to grow our user base within the break-even limit, regardless of profit: we would choose the intersection of price with the highest number of conversions in which a profit per user = $0.

Base price and upselling optimization

Regardless of how far we can go optimizing our landing page price, this can turn pretty tricky if we consider a base price and upselling price.

In fact, the right price range for your base product might not be the same for the total upselling price. This case is pretty common in those industries that strongly rely on ancillary revenues (travel and accommodation) and generic upselling (banks, insurance). Upsells tend to create bias and skew value perception, eventually affecting price elasticity.

pricing optimization with a/b and multivariate testing

As for this chart, the optimal price range for the base product is not the same as for the total up selling product. In this case, we would need a multivariate test rather than a standard A/B. We would run multiple combinations of base and total price.

Things to Consider

Now this looks like a reliable way to make some very important pricing decisions. Even though this methodology is solid, before taking on an extensive pricing optimization effort it’s important to always take into consideration the following:

1. Achieving statistical significance could take too long or require too much traffic.

The difference in performance between the different pricing levels could be minimal, which means that the amount of traffic required to achieve significance would be too high. Always make sure you are comfortable with the level of significance you want to achieve and the amount of traffic you need. You might want to find out how much traffic and time you might need in order to achieve those results beforehand using this tool from Optimizely.

2. Continuously testing different prices could confuse users and eventually backfire.

This could be especially true for digital SaaS products whose purchase journey can have multiple touch points and prospective clients might be visiting the pricing page with some frequency. Narrow down the testing to certain geographical areas or in order to avoid this type of problems.

It’s important to keep hard data in mind and use strict methodology when evaluating pricing and optimizing conversions, but intuition and creativity play key roles as well – something Fabio and the rest of the envisionit teams excel at in order to reach our clients’ target customers. Get in touch with us today to learn how we can bring the latest in marketing and creative work to your brand.