Bezos’s 2002 Shareholder Letter: Lower Prices, Higher Efficiency

#Bezos’s 2002 Shareholder Letter To our shareholders: In many ways, Amazon.com is no ordinary store. We offer a vast selection unconstrained by shelf space; we turn over our inventory 19 times a year; we personalize the homepage for each customer; we improve our technology every year, making it better and cheaper; we clearly display customer reviews of products; you can buy something in seconds with a single click; we put links to used items alongside new ones to give you more choice; and we offer our partner merchants our most important “real estate”—product pages—if they can provide better value. One of our most exciting characteristics is often misunderstood. People think our ambition to offer both a world-leading customer experience and the lowest prices is thoroughly quixotic. Traditional stores have shown over time that achieving both is impossible. How, then, can Amazon.com do it? The answer is that we turn many services supporting the customer experience into fixed costs, including expandable product information, personalized recommendations, and other software features. Once these costs are fixed, the cost of expansion is very low. Continually correcting errors reduces those costs further. Fixing bugs lets us control costs while providing a better experience. We believe we can have the best of both worlds, and doing so is vital to us. Our results over the past year demonstrate this. First, we continue to improve the customer experience. This holiday shopping season, for example, we set new records for both order volume and service quality. Our fulfillment centers’ order-processing cycle was 17% shorter than last year’s, while our exacting internal customer satisfaction survey improved by 13%. Within existing categories, we worked to expand our selection. In electronics alone, we added 40% more products in the US last year; we now offer more than ten times the selection of an electronics superstore. Even in US books, a market we have served for eight years, we added 15% more titles, especially harder-to-find and nearly out-of-print books. We also added a new category—apparel—with more than 500 major clothing brands within just 60 days of launch. Our customers bought 153,000 T-shirts, 106,000 pairs of pants, and 31,000 pieces of underwear. In this year’s American Customer Satisfaction Index, we broke our own record with a score of 88, unprecedented across industries. Second, alongside our focus on customer experience, we made substantial price reductions across categories. We also introduced free shipping on orders over US$25. We are taking similar steps in other countries. Our aim is not to run limited-time promotions on a carefully chosen handful of products. No: #we want everyday low prices across the entire range! To demonstrate this, we compared our prices with those of a well-known bookstore chain. We did not carefully select books that were cheaper at Amazon; we simply used its list of the top 100 bestsellers for 2002. I believe these represent the books most readers buy regularly: 45 hardcovers and 55 paperbacks, spanning literature, fiction, fantasy, thrillers, nonfiction, children’s books, inspirational books, and more. We visited its book superstores in Seattle and New York, recording prices for all 100 books. It took six hours and four stores to find every title! Once we compiled the results, we found: * The 100 bestsellers cost US$1,561 at its stores and US$1,195 at Amazon. Choosing Amazon saved US$366, meaning you paid about 77% of the other stores’ total price. * Of the 100 books, 72 were cheaper at Amazon, 25 cost the same, and three were actually cheaper at the other stores. We immediately lowered our prices on those three without hesitation. * Only 15 of the 100 titles were discounted in the physical stores; the rest sold at full price. At Amazon, 76 were discounted and only 24 sold at full price. Granted, there are still reasons to buy books in a physical store—for example, if you want the book immediately. But you will pay substantially more. If you want to save both time and money, come to Amazon.com! Third, our determination to deliver both low prices and a good customer experience is reflected in the financial results. Net sales rose 26% this year to US$3.9 billion, while unit sales grew even faster, at 34%. Free cash flow, the measure we value most, reached US$135 million, an improvement of US$305 million over last year. In short, what is good for customers is good for shareholders. Once again, I have attached our first shareholder letter, from 1997, and encourage current and prospective shareholders to read it. Despite our rapid growth and the internet industry’s expansion, you will see that our guiding principles have not changed. Finally, let me repeat: on behalf of Amazon.com, thank you to our customers for their trust, our employees for their hard work, and our shareholders for their encouragement and support. Jeffrey P. Bezos (Translated by Vinchent) —Verification notes— Source: Amazon’s 2002 shareholder letter, an official publicly available document. The Chinese translation was reposted from Dedao App user Vinchent, as credited in the original post. Verification: Compared with the official original (Amazon’s official shareholder-letter collection, cross-checked against SEC filings and official PDFs). Spot checks of major figures and facts matched; the entire text was not compared word for word. Correction (one discrepancy between the translation and the original): • “The internal customer satisfaction survey improved by 13%” should refer to a 13% improvement in customer service contacts per order.