Online Extra: Jeff Bezos on Word-of-Mouth Power

Says Amazon's CEO: If you build a great experience, customers tell each other. That, he believes, is better than any TV advertising boasted one of the best-known brand names on the Internet almost from the time it opened its virtual doors nine years ago. But slowing growth and mounting losses as the dot-com wave crested in 2000 tarnished its reputation as a business. Chief Executive Jeffrey P. Bezos, however, never stopped pushing his obsession to please customers. Now, that persistence has paid off -- not only in recent profitable quarters and recharged growth but also in the value of Amazon's (AMZN ) brand.

According to the latest BusinessWeek/Interbrand survey, Amazon's brand ranking rose 22% last year. Bezos spoke recently with Robert D. Hof, BusinessWeek's Silicon Valley bureau chief, about what explains Amazon's brand resurgence. Following are edited excerpts from their conversation:

Q: How did you build Amazon's brand at the start?


We firmly believe that for us, the right way to build a brand is by delivering a great service. Customers learn about who we are as a result of interacting with us. A brand for a company is like a reputation for a person. You earn reputation by trying to do hard things well. People notice that over time. I don't think there are any shortcuts.

Q: How important is advertising to building the brand?


We don't do any television advertising, and we take all of the money that we would put into television advertising, and instead put it into things like free SuperSaver shipping [free shipping on most orders over $25], lower product prices, category expansion, and invention of new features.

We take those funds that might otherwise be used to shout about our service, and put those funds instead into improving the service. That's the philosophy we've taken from the beginning. If you do build a great experience, customers tell each other about that. Word of mouth is very powerful.

Q: Even with all the publicity you got at the start, do you think word of mouth was the most important thing that built the brand early on?


Absolutely. The thing that we did early on is that we made it very easy for people to find very obscure products. That was something people remarked on. If you're not doing something that people will remark on, then it's going to be hard to generate word of mouth.

Q: How do you do that?


The only way to do this consistently over time is through invention. We work hard at being very customer-obsessed and expressing that through innovation. If you look at the kinds of things we do on our Web site and in our fulfillment -- things like free SuperSaver shipping -- basically throughout our entire organization, we're working on trying to make things better.

We see our customers as invited guests to a party, and we are the hosts. It's our job every day to make every important aspect of the customer experience a little bit better. We have a big team of people who from the very beginning have thrived on that. They're attracted to the idea of inventing on behalf of customers.

Q: How important was and is a sense of community to building the brand?


The word "community" can be used very broadly, so you have to pin down what you mean by it. We mean neighbors helping neighbors make purchase decisions. So we allow negative customer reviews. That's part of our brand.

When we first started doing it, it was very surprising to people that we allowed them. Now, people are accustomed to them, so they don't see them as remarkable, but when we first did it, we got letters from publishers saying, "Maybe you don't understand your business. You make money when you sell things."

Our point of view is, no, we make money when we help customers make purchase decisions. Negative reviews are helpful in making purchase decisions. So it's a very customer-centric point of view. Negative reviews will be helpful for customers, and that will ultimately sell more products than if you tried to cherry-pick the reviews.

Q: How would you articulate the Amazon brand to someone who hadn't heard of it?


It's about starting with the customer and working backward. And it's about invention. Our two very strong cultural attributes at the company are innovation and customer obsession. We don't want to start with an idea and work toward the customer. We want to start with a customer problem and then invent to a solution. That's how we approach everything we do.

Brands always limit what you can do. For us, it would start to tarnish our brand if we did things in a me-too kind of way or where there wasn't any invention to solve a customer problem.

I'll give you a concrete example. I get asked all the time, "Why don't you leverage your brand name by opening physical stores?" The problem is, we don't know how we would do that better. It's a well-served space. The people who operate physical stores today do an excellent job, and if we were to do that, we would not be improving anything. So that would hurt our brand reputation.

Q: Do you have in mind a particular type of customer whose needs you try to meet?


Yes, we do. We take the point of view that our customers are smart. If you do things well, and you do what customers actually want, they will figure it out. I don't know if that sounds obvious, but I think it's actually a fairly rare approach. People make assumptions all the time: "That might be a good way to do it, but people won't recognize the value in that."

Q: Is traditional branding, which attempts to create an image that is not necessarily related to performance, appropriate in a relatively transparent medium like the Web?


What you absolutely cannot do -- but you do see businesses try this -- is they pretend to be something they're not. Even when people do advertise, the ones who advertise effectively are those who figure out what real value they genuinely bring, and then they shout about that.

Every once in a while, you see a company with an advertising campaign and you think, "Well, that's actually not true." That's an example where people believe they can fool customers. Those companies are always underestimating their customers.

Q: It's getting more difficult to reach mass markets effectively. How does Amazon reach its 30 million-plus customers?


Let's say your customer base is a very narrow market. Then you use a sales team and you go market individually to those customers. Likewise, if to make your business successful, you need 100 million customers, then you buy a lot of national TV coverage, and that could work.

The problem is usually reaching that hard middle. If you have a service that needs 15,000 customers, it's too big to effectively use a sales force, and it's way too small to use television advertising.

I think those middle-sized audiences are what we serve. That's exactly the kind of product that a book publisher has. A typical mid-list book will sell 15,000 copies. What we're very good at doing is finding 15,000 readers for a mid-list book. All the discovery tools that we've built are dedicated to that kind of purpose. So for me, that's the big change.

Q: What do you think accounts for the rather steep increase in the value of your brand? Is there any particular thing that you've done lately?


I think that it's continued focus on all the fundamentals -- selection, lower product prices, better availability, better discovery tools, better information about products. One of the things that's starting to happen is that people are recognizing that we sell things like electronics, kitchen, and home products. So there may be a tipping-point phenomenon happening, where a larger group of people are starting to recognize that.

But that's something we've been working on for four years. It's not anything new.

Q: It's fascinating that the increase in the value of your brand has happened at the same time when you're not advertising in mass media at all. Do you anticipate ever needing to use broad-scale advertising again?


No. Never say never, but I don't anticipate that. I like the strategy we're on.

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