Back in 2001, Amazon was in serious trouble. The dot-com bubble had burst and Amazon’s stock had tanked by 90%.
Many thought it wouldn’t survive. But Jeff Bezos found inspiration in an unexpected place: a coffee meeting with Jim Sinegal, the founder of Costco. According to Brad Stone’s 2013 book The Everything Store, they met at a Starbucks inside a Barnes & Noble near Amazon’s Bellevue headquarters.
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Sinegal wasn’t there to offer a magic fix – he simply explained Costco’s secret sauce. The key? Value. Costco kept prices incredibly low by cutting unnecessary costs, sticking to a strict 15% markup and treating suppliers fairly to secure great deals.
Sinegal told Bezos, “The membership fee is a one-time pain, but it’s reinforced every time customers walk in and see forty-seven-inch televisions that are two hundred dollars less than anyplace else.” That trust kept customers returning, knowing they’d always find great deals.
Bezos took this advice seriously. Days after the meeting, he called a team meeting at Amazon to discuss the company’s pricing strategy – or lack thereof.
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The goal? Make Amazon synonymous with lower prices. According to The New York Times, Bezos famously said, “There are two kinds of companies: those that raise prices and those that work to lower them. We are going to be the second, full-stop.”
Soon after, Amazon slashed prices on books, music and videos – its flagship products – by as much as 30%. It worked. By the end of 2001, Amazon posted its first profitable quarter. “We had a great Q4,” Bezos told Fox News in January 2002. “What really drove it was lower prices for customers.”
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The Costco connection didn’t stop there. Inspired by Costco’s membership model, Amazon launched Prime in 2005. It wasn’t just about free shipping but creating compelling value that customers couldn’t resist.
