In 2001, Jeff Bezos came up with an important realization about the value cycle of e-retailing. He had no choice but to write it on a napkin so he wouldn’t forget. Years later, this realization became the core strategy that built the e-commerce behemoth we see today – Amazon.
Bezos called his idea “Virtuous Circle” a business model based on the idea of Jim Collins’ Flywheel concept. It has been used as the key marketing strategy and business model for the whole organization. If the Virtuous Circle has brought Amazon to the limelight, you can also use this discipline to propel your e-commerce business to success.
Collins once wrote: “Once you fully grasp how to create flywheel momentum…and apply that understanding with creative intensity and relentless discipline, you get the power of strategic compounding.”
If you want to create a successful e-commerce business in the long term, knowing the virtuous cycle that works for your business is crucial.
Understanding the Virtuous Circle and Flywheel effect
While Jeff Bezos popularized the term Virtuous Circle, the concept did not originate from him. The concept has been existing for centuries and it’s not clear who first came up with the idea or coined the term. It has been used in various fields such as economics, business, and even biology to describe a process of self-reinforcement that leads to sustained growth and progress.
In a nutshell, the Virtuous Circle is a recurring cycle of events, the result of each one being to increase the beneficial effect of the next. It describes situations where success breeds further success. From a business perspective, a virtuous cycle can only be achieved when best practices are consistently applied to achieve results. This, in turn, creates a succession of positive effects that feed off each other to generate increasingly better performance.
The concept of the Virtuous Circle has been further popularized by authors such as Jim Collins. In his book titled “Good to Great”, he introduced the idea of the flywheel effect and how companies can achieve long-term success by focusing on building momentum in one area. This is similar to the idea of a virtuous cycle.
Collins’ flywheel effect describes how small, consistent efforts in improving a specific area can eventually lead to a significant increase in momentum and progress. The idea is that, like a flywheel, the more energy and effort you put into something, the more momentum it will build, making it easier to make further progress. The small wins eventually gain so much momentum that growth almost seems to happen on its own.
The flywheel effect and the virtuous cycle are similar in the way they both describe a process of building momentum and creating positive feedback loops that can lead to sustained growth and success.
The Case of Amazon
Amazon is a prime example of a company that has been able to create and maintain a virtuous cycle, leading to its position as one of the world’s largest and most successful retailers.
As we have mentioned, Amazon’s Virtuous starts with an exceptional customer experience. For them, by continuously providing a good customer experience, people come back for more and eventually gain more traffic. Those pleased customers promote the website gaining more traffic on the website.
Getting more customers attracts more third-party sellers, and more third-party sellers drive greater product selection. Many have seen this as a strange move as by opening their doors to other sellers, they also allowed their competitors to sell through their own platform. For Amazon, however, it’s a way to offer a range of products that can improve customer experience further. More product choice lowers the cost of goods and innovation. The low prices of goods then led to more customer visits, completing the virtuous cycle.
All of these steps produce an increasing spiral of benevolence that raises all it touches. For Amazon, feeding any section of the circle would instantaneously speed the rest of the loop.
6 ways to build your own Virtuous cycle for your eCommerce business
Whether you are a startup entrepreneur looking for an answer on how to start an eCommerce site or an established e-retailing business in search of a more efficient model, understanding and creating your own Virtuous Circle can put your business in a good position. By creating a virtuous circle of value, eCommerce sites can build strong, lasting relationships with their customers and drive long-term success for their businesses.
1. Careful and strategic product selection
One key element of this virtuous circle is the product or service being offered. This is especially important for online stores with specific markets. E-commerce businesses must carefully curate their product selection to ensure that it meets the needs and desires of their target audience. This may involve sourcing products from trusted suppliers, negotiating favorable terms, and using data to make informed decisions about which products to stock.
2. Focus on customer satisfaction
Like Amazon, every effort you do should prioritize the customer experience. Ensure that you maintain healthy account standings by providing excellent customer service, quality products, and a smooth online shopping experience. E-commerce sites must make it easy for customers to find and purchase the products they want, and provide fast, reliable shipping and returns.
Happy customers are more likely to return to your site. You can also use them to drive referrals and repeat sales. Wide customer satisfaction will keep your business spinning in the long run.
3. Create a business website
By using data to understand customer behavior, improve the design and layout of your website. Choose the right platform. Shopify is perfect for an e-commerce website but Wix and WordPress can also get the job done. You can increase the likelihood that visitors will complete a purchase when you give a smooth buying process.
4. Encourage customer reviews
Since customers don’t have the privilege to see the physical product in e-commerce reviews plays a critical part to inspire your audience to purchase your product. Surveys show that 95% of consumers read online reviews before making a buying decision, and 58% say they would pay more for a brand’s products with positive reviews.
Encourage customers to leave reviews on your website and third-party sites like Google and social media. Positive reviews can help attract new customers, while negative reviews can help you identify areas for improvement. Either way, you can put all types of reviews to your advantage.
5. Offer loyalty program
An increase in customer retention isn’t easy to achieve. However, a study shows that 67% of customers spend more when they’re part of a customer loyalty program.
Consider implementing a loyalty program that rewards customers for repeat purchases. This can help encourage repeat business and create a sense of brand loyalty. Your loyalty program may include offering rewards programs, discounts, and other incentives. In fact, you can also buy complementary products at the time of checkout or post-purchase. Doing this can increase the average order value and improve customer satisfaction.
6. Measure, Analyze, and Optimize
How do you measure the efficacy of your business and marketing efforts? By setting up effective metrics and continuously tracking your progress. Analyze your website traffic, sales reviews, and social media engagement. Identify areas that need improvement and make data-driven decisions to optimize performance. This is the surefire way to ensure you are delivering on the business outcomes you are aiming to achieve.
How to do eCommerce the right way? Build your Virtuous Circle
Any eCommerce business should strive to create a virtuous circle of value, where each element in the circle supports and enhances the others. Once this virtuous circle is established and followed in a company, it will create a positive feedback loop that drives customer satisfaction, loyalty, and ultimately, success for the business.
Don’t know where to start? Be Global E-commerce Corporation is here for you. We have been working very hard to level up the eCommerce definition for our clients. With our complete range of services, we can help you realize and create a virtuous circle for your business.
We work closely with our clients to understand our client’s business and needs while keeping the overall customer experience in mind. Companies do not become exceptional as a result of a single intervention. Let’s begin the value cycle of e-retailing with a consultation. Let’s build a successful company in the long term by creating a virtuous cycle.
