Sifting Through the Ashes
- by Peter S. Fader
In the wake of Amazon’s disappointing fourth-quarter results, the Kindle Fire has ignited a firestorm of debate.
Lackluster reviews and suspicions that the tablet device is being sold below cost have led analysts to anxiously eye the company’s dwindling cash reserves. But amidst the heated debates about functionality and pricing, one concern has received relatively little attention: Should Amazon be competing in the tablet market in the first place?
The Kindle Fire represents a dispiriting move away from Amazon’s historical focus on customer centricity. In my book Wharton Executive Education Customer Centricity Essentials: What It Is, What It Isn’t, and Why It Matters, I argue that a customer-centric strategy aligns a company’s development and delivery of its products and services with the needs of a select set of customers in order to maximize long-term financial value.
Emphasis on a “select set” of customers is crucial. Customer-centric firms never talk about “the customer” because there is no average customer. They recognize that there is a diverse ecosystem of consumers with different lifetime values to the firm. These firms celebrate this heterogeneity and focus their efforts on subsets that are likely to provide the greatest long-term bang for the buck.
For the original Kindle, this “select set” of focal customers was clearly defined. In 2010, Jeff Bezos said that the Kindle was for “serious readers,” noting that “90 percent of households are not serious reading households.” Thus, the Kindle carved out a valuable market niche. Its strategy focused on delighting a particularly profitable customer segment.
Yet, we are watching Amazon dismantle this wonderful exemplar. It’s understandable that Amazon wanted to leverage the success of its Kindle to gain a toehold with the broader market; understandable—but deeply misguided. By trying to make hay from the current tablet frenzy, Amazon has strayed toward a more product-centric mindset: What can we make—and whom can we sell it to?
The problem isn’t a lack of demand; an estimated 6 million Kindle Fires sold in the fourth quarter alone. So what’s wrong with this strategy?
First, it consumes scarce resources and valuable management attention. Amazon executives are busy fixing glitches in the Kindle Fire when they could focus on how to acquire profitable new “serious readers,” retain the ones they already have and extract maximum value from the Kindle platform.
Second, by branding the Fire under the Kindle umbrella, Amazon risks confusing and alienating its focal customers. The premier product in the Kindle line no longer focuses on reading, muddying the franchise’s value and proposition. Amazon should have used a distinctly different name for the Fire so that serious readers would know that they were still held in special regard by the firm.
So what can Amazon do to right this mess? It seems that sooner or later the Kindle Fire will prove to be a drag on Amazon’s earnings and resources. At that point, Amazon should scrap the Fire and hold on to the glowing embers: that focal core of deeply profitable customers who represent the firm’s ongoing source of competitive advantage.
Customer centricity is a winning strategy. Introducing a “me too” product into an already crowded marketplace is not.