In 2001, Amazon was in serious trouble. The dot-com bubble had burst and Amazon’s stock was down 90%.
Many thought it would not 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 headquarters in Bellevue.
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Sinegal wasn’t there to offer a magic solution; he simply explained Costco’s secret sauce. The key? Value. Costco kept prices incredibly low by cutting unnecessary costs, adhering 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 increases every time customers come in and see forty-seven-inch televisions that cost two hundred dollars less than anywhere else.” That trust kept customers coming back because they knew they would 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 become the second, full stop.”
Shortly afterwards, Amazon cut prices on books, music and videos – its flagship products – by as much as 30%. It worked. In late 2001, Amazon posted its first profitable quarter. “We had a great fourth quarter,” Bezos told Fox News in January 2002. “What really drove this was the 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 about creating compelling value that customers couldn’t resist.
Bezos described Prime in a 2016 shareholder letter: “We want Prime to be such a good value, it would be irresponsible not to be a member.” Today, Prime has more than 200 million members worldwide, generating more than $35 billion annually.
Costco’s influence is visible not only in its prices, but also in Amazon’s overall ethos. Take Costco’s $1.50 hot dog combo, for example; it has remained the same price for decades. According to former Costco CEO Craig Jelinek, Sinegal once joked, “If you have the [hot dog] price, I will kill you. Similarly, Amazon is reinvesting heavily in its logistics and technology to keep costs down and deliver on its customer-centric promise.
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This article Jeff Bezos Says a Coffee Meeting with Costco Founder Saved Amazon from Near Collapse – Now It’s a $2 Trillion Giant originally appeared on Benzinga.com
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