Amazon's Business Strategy & Leadership In Online Retailing
Jeff Bezos is the founder of Amazon since its establishment in 1994. 33 This article will discuss various ways Amazon has been successful and responded to challenges in their leadership in the online retailing sector. Please note that Profitworks does not necessarily endorse the way Amazon has achieved leadership, but we are merely reviewing how Amazon has become successful and their strategies to achieve such results. If you would like to replicate this strategy for your business, download our free business strategy canvas template.
What will be covered in this article:
1. Amazon's Strategy to Success - Listen to this podcast on How Amazon Built Tremendous Momentum
- Amazon Focuses On The Long Term Not The Short Term
- Amazon Builds Its Strategy On Things That Don't Change
- Amazon Sees Opportunities and Not Failures
- Amazon's Has Strong Values & Culture
- Amazon Stresses the Importance of Customer Satisfaction Instead Of The Competitor
- Amazon Achieves Excellent Customer Satisfaction By Offering An Ever-Expanding And Large Selection of Products And A Personalized Experience
- Amazon Achieves Excellent Customer Satisfaction through Speedy Service
- Amazon Achieves Excellent Customer Satisfaction through Competitive Prices
- Amazon Trains Employees To Understand The Customer Experience To Get All Employees To Understand The Customer
- Amazon's Marketing Strategy Is Providing Great Service That Creates Positive Word Of Mouth and Focusing On SEO & PPC
2. What Has Amazon Been Successful in?
3. Statistics on Amazon's Leadership - Listen to this podcast on Why I Like Amazon & How You Can Apply It To Your Business
4. How Does Amazon Respond to Competition?
5. How Does Amazon Position their Brand?
6. How Does Amazon Maintain Leadership? - Listen to this podcast on Amazon's SEO Strategy
- Amazon Maintains Leadership with Their Product Selection
- Amazon Maintains Leadership by Offering Various Features and Services
- Amazon Continually Improves the Customer Experience
7. How Does Amazon Respond to Failures and Setbacks?
8. Examples of Amazon's Marketing - Listen to this podcast on Amazon's Marketing Strategy
9. Other Interesting Amazon Facts - Listen to this podcast on Why Amazon' Website Works So Well To Generate Sales
10. References
We challenge you to take one thing you learn from this article and implement it today in your business to see if it does not improve the results of your business. All companies no matter how small they are can find at least one principle from this article to implement in their business. If you own a family owned and operated business contact us today to discuss ideas for how you can implement some of these tactics into your business plan.
Amazon's Strategy to Success
Amazon Focuses On The Long Term Not The Short Term
“We are comfortable planting seeds and waiting for them to grow into trees,” says Bezos. “We don’t focus on the optics of the next quarter; we focus on what is going to be good for customers. I think this aspect of our culture is rare.” 4
A perfect example of the long-term focus is Amazon Web Services (AWS) and how it started with startups and developers and has now expanded to million of customers. Companies of all sizes use AWS such as Pinterest, Airbnb, GE, Capital One, Johnson & Johnson, McDonald's and Time Inc. 39
Learn more about How Amazon Built Tremendous Momentum
Amazon Builds Its Strategies On Things That Don't Change
"Base your strategy on things that won’t change....Whereas if you base your strategy first and foremost on more transitory things—who your competitors are, what kind of technologies are available, and so on—those things are going to change so rapidly that you’re going to have to change your strategy very rapidly, too." 5
Bezos notes customers want "selection, low prices, and fast delivery". He shares how these three desires of the consumer are likely not going to change. 5
Learn more about Amazon's Marketing Strategy
Amazon Sees Opportunities and Not Failures
Instead of focusing on setbacks, Jeff Bezos the founder of Amazon sees opportunities and solutions. This is evident in how Bezos talks about failure and planting seeds. "If you invent frequently and are willing to fail, then you never get to that point where you really need to bet the whole company. [Amazon Web Services] also started about six or seven years ago. We are planting more seeds right now, and it is too early to talk about them, but we are going to continue to plant seeds. And I can guarantee you that everything we do will not work. And, I am never concerned about that. We are stubborn on vision. We are flexible on details." 1 Bezos made risky moves early on in the establishment of Amazon that helped in the long-run. It is noted that Bezos invested in warehouses, which caused the stock prices to drop significantly at first, but this contributed to their journey to become the leader in online retailing. 2 & 3
Amazon Has Strong Values & Company Culture
The values of Amazon has impacted their leadership and success in Online Retailing. The website lists Amazon's principles and values for working at the company and they are listed below: 10
- Customer Obsession (Starting with the customer)
- Ownership (Looking at the long-term results and what is the best for the company)
- Invent and Simplify (Expect innovation from the team)
- Are Right, A Lot (Have good instinct, strong business judgment)
- Hire and Develop the Best (Leaders develop leaders, hiring exceptional talent)
- Insist on the Highest Standards (Raising the bar, ensuring high quality)
- Think Big (bold direction, thinking differently)
- Bias for Action (Speed, and calculated risk-taking)
- Frugality ("There are no extra points for growing headcount, budget size, or fixed expense")
- Learn and Be Curious (Always exploring and improving)
- Earn Trust ("Leaders listen attentively, speak candidly, and treat others respectfully")
- Dive Deep (Look at details, audit regularly, work at all levels)
- Have Backbone; Disagree and Commit (Respectfully challenge others, don't compromise for social cohesion)
- Deliver Results (Timely fashion, deliver quality)
Amazon Stresses The Importance Of Customer Satisfaction Instead Of The Competitor
"If you're competitor-focused, you have to wait until there is a competitor doing something. Being customer-focused allows you to be more pioneering." 11
"Each year the University of Michigan calculates a customer-satisfaction index for 225 of Americas largest companies. Amazon has led the online retailing category for years and has repeatedly placed in the top 10 among all companies." 4
Bezos adopted an approach to help never lose the importance of customer satisfaction and Amazon narrows in on eliminating the risk of unsatisfied customers. As you can see from the quotes above, Amazon walks the talk in being successful in maintaining customer satisfaction (See Michigan Study for further details). Amazon strives for excellence in customer satisfaction, perhaps one could say a strive for perfection. Bezos states that “We’re not satisfied until it’s 100%.” 9 It is noted that Bezos would have an empty chair to remind staff in the meeting to imagine a customer present and to consider what they would want. He called the customers "the most important person in the room. 4Bezos describes the importance of knowing your customer and things that will not change. He notes customers want "selection, low prices, and fast delivery." He shares how these three consumer desires are likely not going to change. 5
Amazon Achieves Excellent Customer Satisfaction By Offering An Ever Expanding And Large Selection of Products And A Personalized Experience
Amazon focuses on customer service and waits to see where opportunities present to sell them personalized products. "We’ve had three big ideas at Amazon that we’ve stuck with for 18 years, and they’re the reason we’re successful: Put the customer first. Invent. And be patient." 1 Amazon observes the actual purchase behaviour of the customer. They take an individual approach to each customer. They are noted to target middle and upper-class customers that are comfortable with basic technology and look to save time by purchasing online. 6 Amazon implements customer reviews and showcases items that would be personalized for the customer based on their previous purchase behaviour.
Click Above to Watch Jeff Bezos about the Importance of Evolving
Amazon Achieves Excellent Customer Satisfaction Through Speedy Service
It is noted that Amazon is very focused on preventing any delays (in products, delivery, web page loading). "Amazon has metrics showing that a 0.1 second delay in page rendering can translate into a 1% drop in customer activity." 4 Amazon stresses the importance of fast delivery for the consumer. In addition to fast delivery, they also value efficiency within the operations of the company and affordability for the consumer.
Amazon Achieves Excellent Customer Satisfaction Through Competitive Prices
Bezos tries to keep all costs low within the business to allow for him to provide the low prices. Frugality is one of eight official company values as stated earlier - This will align for how Bezos operates the company and ensures unnecessary expenses are not occurring which would result in the consumer having to pay more. For example, he is known for keeping old black-and-white printers and other office equipment at low cost, no one in the company flies first class, and keeping the size of the teams small. He also has a "two pizza rule" which essentially is that if you require more than two pizzas to feed a team, it is too big. 4 & 7 Bezos restricts his salary to $81,840 as well as his management team's salary to help keep costs low. It appears that employees get some ownership in the company (stock options) to counter the lower salaries. 8
Amazon Trains Employees To Understand The Customer Experience To Get All Employees To Understand The Customer
Jeff Bezos ensures managers and all staff understand the experience of the customer. He arranges for them to take a two-day training at a call center to allow them to understand what the customer goes through and to ensure humility. 4 & 9 Bezos not only encourages his managers to be sensitive to the customer experience, but he also has role modeled this in his interactions with the consumers. This can be seen when Bezos showed humility to his consumers when Amazon made a mistake of deleting e-books of their customers and he sent out a personable apology. The apology is noted to make customers remain loyal and quickly forget about the issue. 9
Amazon's Marketing Strategy Is Providing Great Service That Creates Positive Word Of Mouth and Focusing On SEO & PPC
“If you make customers unhappy in the physical world, they might each tell six friends. If you make customers unhappy on the Internet, they can each tell 6,000.” 11
Amazon focuses on making the customers happy. Their budget for advertising is small for its size of the company, but they focus on word-of-mouth being an essential part of their success. "If you do build a great experience, customers tell each other about that. Word of mouth is very powerful." 4 & 11 Amazon spent 2.8 billion dollars on digital marketing. To learn what Amazon's SEO strategy is, listen to our podcast Amazon's SEO Strategy. If you look at their sales from 2014-2015, it was $71.84 billion in sales. 12 & 13
In 2015, Over 90% of Amazon's marketing budget was focused on both SEO and PPC. It is noted that Etsy is the only other large brand that spent more of their budget on search marketing. Following Amazon, the budget for Apple was 85%, and Target, Best Buy, Home Depot and Kohls were less than 20% for their search marketing budget. 12Below we discuss a chart that displays the statistics for Amazon's search engine. It shows that Amazon has been successful in the response of how consumers use Amazon as a search engine to look for the desired product.
Learn Exactly What Amazon Does For The Search Engine Optimization Of Their Website
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"Our overall sales to new customers has improved as a result of detailed analysis, proposed solutions, and successful execution.”
Tom - Business Owner & Customer
What has Amazon been successful in?
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Amazon grew within two decades of growing from a leader in book sales, to competing in every other industry (electronics, music, clothes, toys, etc). 14
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"The company has also grown at a tremendous rate with revenue rising from about $150 million in 1997 to $75 billion in 2013." 15
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“AWS, Marketplace and Prime are all examples of bold bets at Amazon that worked, and we’re fortunate to have those three big pillars. They have helped us grow into a large company, and there are certain things that only large companies can do,” said Bezos. 16
Statistics on Amazon's Leadership - Learn More About How Amazon Became The e-commerce Leader
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Amazon is noted to have over 130 million visitors each month. 17
- According to Reasonate, 86% of online shoppers make purchases on Amazon (based on surveying 200,000 consumers annually). 18
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“Amazon became the fastest company ever to reach $100 billion in annual sales,” said Jeff Bezos, chief executive and chairman of Amazon. “Also this year, AWS (Amazon Web Services) is reaching $10 billion in annual sales — doing so at a pace even faster than Amazon achieved that milestone.” 16
- Below you can see a chart of Amazon's net sales. 19 It is noted that in 2015 Amazon reached $100 billion in annual sales.
- When looking at Amazon's sales, there are other companies that are higher (ex. Walmart), but it is noted how fast Amazon has achieved the 100 billion mark in such a short time (22 years). 19
- 55% of online consumers start searching their product of interest on Amazon. 20
- Bloom Reach 20 did a study on Amazon that suggests:
- When consumers are looking for a product, 90% will check Amazon even if they are going to purchase elsewhere. This could be related to the customer reviews. It is noted that 78% people will do this either often or always.
- 50% of mobile shoppers try Amazon first, compared to search engines on 34% and other retailers on 16%.
- It is noted that consumers get inspiration from Amazon even when they are not necessarily going to Amazon to purchase a gift (49% start on Amazon to search for an idea, compared to 28% on a search engine, and 26% for retailer)
- In addition to inspiration, when the shoppers are aware of the item they want to purchase, 59% start on Amazon (compared to 24% on a search engine and 16% retailer)
- Below you can observe BloomReach's finding in 2015 when exploring Amazon and Online Purchases. 21
How Does Amazon Respond to Competition?
“What’s really happening out there is that Amazon is shredding the competition, and the competition just doesn’t know what to do about it.” 22
Amazon expanded their services quickly and have caught competitors by surprise by some of the industries they have invested in (such as making movies). By expanding quickly and taking minimal profit, it is hard for competition to keep up with Amazon. 23
An example of how Amazon responded to competition (Netflix) in the area of movies is how they introduced offline streaming a year well before Netflix offered this feature. 37 Amazon did this to lessen the cost for the customer (offline streaming, no data), and increase ease of use anywhere (no limitations with connectivity). 36 This is a perfect example of how Amazon is pushing the bar for innovation and is ahead of their competitors. Originally, Netflix stated they wouldn't offer offline streaming, but after a year of Amazon offering this, Netflix introduced it to their consumers as an option. As discussed earlier, Jeff Bezos does not focus his energy on competition, but rather on the consumer and how he can appeal to their loyalty and satisfaction. As a result, this overflows into advancement and development of ways that consumers are more satisfied (such as offline streaming).
Amazon is also hopeful to capture as many Americans to subscribe to the Amazon Prime membership. Statistics show that members of Amazon Prime spend on average almost $900 more than non-members a year. 28 Analysts suggest that in 2015 there were between 40-50 million members worldwide. 25 Amazon expanded quickly and aggressively when they introduced Amazon Prime. It is noted that over the last 10 years they expanded their items from 1 million to 20 million. They also expanded internationally aggressively for Amazon Prime to maintain their leadership and as a result, they are pushing out any competition in their market worldwide. 25 Amazon focuses on building customer loyalty - by offering free trials or bonus features such as free e-books, music streaming, and video/tv series when purchasing Amazon Prime. 25 By having the loyalty of the consumer, they will be more apt to continue to make purchases long-term and not turn to other competitors for their purchases.
How does Amazon position their Brand?
Amazon logo 35
In 2015, Amazon's brand was worth $176 billion USD. 6 Amazon has developed their brand story through how Jeff Bezos started the business. An entrepreneurial story about how he started selling books from his garage to an extensive successful online store that sells a vast amount of selection. 34 The brand of Amazon is also strongly associated with putting the customer at the center. Jeff Bezos has focused on getting his brand to be associated with having a vast variety of products, low prices, and customer satisfaction.
How Does Amazon Maintain Leadership?
Amazon Maintains Leadership with Their Product Selection
Amazon maintain's their leadership by creating a diverse product selection. They have moved from the arts (literature, music, movies) to online groceries, cloud computing, and film/TV production. Amazon is known as the "everything store". There are some odd selections of products as well that can be found on Amazon, such as a model of fat replica or inflatable unicorn horns for cats. 22 & 37
Amazon Maintains Leadership by Offering Various Features and Services
A list of Amazon business segments are as follows: 24 & 42
- Amazon Prime - a free two-day shipping for eligible purchases and extra benefits (unlimited streaming of movies and TV with Prime Video, and Kindle Owner Lending Library)
- Amazon Video - to purchase, rent, and watch digital movies and tv shows
- Amazon Cloud Drive & Cloud Player - 5 GB for storage for photos, files, videos etc.
- Amazon Web Services -a secure cloud services platform
- Amazon Fresh & Amazon Prime Pantry - to purchase household products and groceries
- Amazon Dash - a wifi connected device that will reorder your favourite products by pressing a button
- Amazon Kindle - a device and database where consumers can browse, purchase, download and read a variety of literature
- Amazon Echo - a hands-free speaker that is controlled by your voice
- Fire TV - connects your HDTV and allows you to stream TV shows and movies
List of Amazon's Subsidiaries: 24
- Audible - Sells digital audio books, audio magazines, audio newspapers, radio and TV programs 40
- Create Space - A service that allows you sell your books, music, and videos through internet retail, your website, or other bookstores/retail outlets, etc. 43
- A9.com - Manages and develops search engine and advertising technologies 44
- Twitch.tv - A live streaming video platform 45
- Goodreads - A free website that allows you to keep track of the books you've read and plan to read, and for people to see other people's book lists and their reviews 46
- Woot - Internet retailer that offers various daily deals and sales 47
- IMDb - Stands for Internet Movie Database - a source for movie, TV, and celebrity content 48
- Zappos - Online clothing and shoe shop 49
- Alexa.com - Provides web traffic data and analytics 50
- DPReview - Known as Digital Photography Review - a website about digital cameras and photography 51
- Box Office Mojo - An online box-office reporting service that tracks revenue 52
- AbeBooks - An online marketplace for books (new, used, rare, collectibles) 53
- Double Helix Games - An American video game developer 54
- Brilliance Audio - Produces audio books 55
- Shelfari - A social cataloging website that merged with Goodreads in 2016 56
- Beijing Century Joyo Courier Services - A small freight service company in China 57
Amazon strategies by expanding their business and service aggressively, to the point that they will embrace minor profit margins or experience losses for the "rapid growth." 25Amazon focuses on keeping the customer happy and customizing products that would appeal to the customer. One study suggests that consumers value personalized shopping as an important factor (85%) compared to what retailers weighed personalized experiences (2% of retailers weighed personal experience, and put more weight on brand recognition). 26 Another study states that almost 9/10 consumers said they are more likely to purchase from a virtual store that caters to their shopping preferences as well as 7.5/10 feel Amazon is superior at offering the accurate recommendations for purchase. 27
Amazon Continually Improves the Customer Experience
Amazon is constantly looking to improve their customer service. Amazon has implemented using drones to deliver packages faster. This started in England in December 2016.
Click Above to watch how the Drone delivers packages
Another Video on Amazon's Drones
Amazon looks for new ways to satisfy customers. Jeff Bezos stated, "Our job is to invent new options that nobody’s ever thought of before and see if customers like them.” 23 An example of this creativity is Amazon Go (Grocery shopping without any waiting in line) and Alexa in Ford Cars.
Click Above to Learn More about Amazon Go
Click Above to Learn More about Alexa and Ford
How Does Amazon Respond to Failures and Setbacks?
Amazon has been known for having a high turnover rate with staff, which is an expense for the company. Constant demand on resources for hiring new employees and training would be inefficient and costly. Amazon has attempted to alleviate the employee loyalty concern by offering employee stocks options as compensation (which increases the amount the longer you are with the company). They also try to entice workers to stay longer by requiring the employee to pay back a portion of their signing bonus if they leave early. Some describe the workplace as "Darwinism." 29
One writer discusses how Jeff Bezos "brags" about his failures (Auctions and zShops). The major difference between Amazon is that the company embraces their failures and tries learns from them. 30
Examples of Amazon's Marketing
- Below you can see how Amazon utilizes Online and Offline Marketing. 31
Amazon maximizes e-mail marketing to dominate the online retailing. Amazon takes a personalized approach instead of promotional. They use the information about the consumer such as their online behaviour, previous purchases, demographics (age, gender, location, amount spent). One writer breaks down the email marketing steps after signing up an account and making some purchases: 1
- Welcome e-mail
- Receipt e-mail of purchase
- Shipping e-mail confirmation
- A thank-you email for purchase which includes Amazon plugging their services and other Amazon features that the consumer may not be aware of, and invitation to make further purchases that are targeted to consumer demographic
- Upsell e-mail that is relevant to your purchasing/browsing traits
- Promotional emails of sales occurring such as black-Friday
- A review e-mail that encourages purchaser to provide feedback on the product
- and lastly, a browsing e-mail (which shows what you have looked at and not purchased)
Above is an example of how Amazon is using email marketing and personalization8
In 2015, Over 90% of Amazon's marketing budget was focused on both SEO and PPC. It is noted that Etsy is the only other large brand that spent more of their marketing budget on search marketing. Following Amazon, the companies that spend the highest percentage of their marketing budget on SEO and PPC was Apple at 85%, and then Target, Best Buy, Home Depot and Kohls, which were less than 20%. 12 Above we discuss a chart that displays the statistics for Amazon establishing itself as a search engine for online shopping. It shows that Amazon has been so successful with its SEO and PPC marketing that now 44% of people just go directly to Amazon when they start to look for the desired product and 90% of people will check Amazon when making a purchase.
Here is an example of how Amazon is utilizing SEO:
Here is an example of how Amazon is utilizing PPC:
Other Interesting Facts
Click Above to Watch an Overview of Amazon's Story
- The name Amazon was chosen because Amazon River is one of the largest in the world. 31
- Young Women purchase more frequent at Amazon and thus are a targeted consumer (women are known to be more impulsive, Prime Amazon targets mothers who will re-purchase many items such as diapers, wipes, etc). 32
- Amazon has a spot that showcases funny reviews. You can read more here Click to Read Amazon Reviews
1. https://www.getvero.com/resources/guides/the-amazon-experience/
2. http://fortune.com/2015/09/17/amazon-founder-ceo-jeff-bezos-skills/
3. http://seoperson.net/9-reasons-amazon-com-successful
5. https://davidjaxon.wordpress.com/2015/02/20/the-question-that-amazon-answers-to-set-its-strategy/
6. http://www.marketing91.com/marketing-strategy-of-amazon/
7. http://www.businessinsider.com/jeff-bezos-two-pizza-rule-for-productive-meetings-2013-10
8. http://www1.salary.com/Jeffrey-P-Bezos-Salary-Bonus-Stock-Options-for-Amazon-Com-Inc.html
9. https://www.salesforce.com/blog/2013/06/jeff-bezos-lessons.html
10. https://www.amazon.com/p/feature/p34qgjcv93n37yd
11. https://econsultancy.com/blog/63184-10-customer-experience-soundbites-from-jeff-bezos/
12. https://www.spinutech.com/blog/digital-marketing/how-much-does-amazon-spend-on-digital-marketing
13. http://fortune.com/2015/11/06/amazon-retailers-ecommerce/
14. http://whartonmagazine.com/blogs/learn-from-amazons-leadership-principles/
15. http://www.theleadermaker.com/core-values-amazon-com/
16. http://readwrite.com/2016/04/11/amazon-web-services-10-billion-sales-dt4/
17. https://www.thebalance.com/amazon-mission-statement-4068548
18. http://www.resonate.com/amazon-knows-why-people-buy/
19. https://qz.com/605380/amazon-just-joined-the-100-billion-club/
20. https://www.clickz.com/55-of-online-product-searches-begin-on-amazon-stats/106326/
22. https://www.cips.org/supply-management/analysis/2016/february/the-secrets-behind-amazons-success/
23. https://www.fastcompany.com/3067455/why-amazon-is-the-worlds-most-innovative-company-of-2017
24. https://www.zacks.com/stock/news/215339/the-complete-guide-to-everything-owned-by-amazon
25. http://fortune.com/2015/02/03/inside-amazon-prime/
26. https://www.research-live.com/article/news/amazon-best-for-personalisation/id/4012321
27. https://sg.news.yahoo.com/amazon-number-one-shopping-search-engine-report-144248368.html
31. https://www.slideshare.net/nik123hil/brand-management-study-of-amazon
32. http://www.foxbusiness.com/features/2012/01/04/if-want-to-sell-online-target-women.html
33. https://en.wikipedia.org/wiki/Jeff_Bezos
34. http://www.personadesign.ie/branding-amazon-3-lessons-to-learn-for-your-brand-success/
36. https://medium.com/@iamziad/how-amazon-outflanked-netflix-whether-to-respond-to-competition-9ab0157fd55b
37. http://variety.com/2016/digital/news/netflix-downloads-offline-viewing-tv-movies-1201930059/
38. https://www.youtube.com/watch?v=BBpFm9HMVL0
41. https://www.amazon.ca/gp/prime/pipeline/landing?ie=UTF8&%2AVersion%2A=1&%2Aentries%2A=0
42. https://www.amazon.com/gp/site-directory/ref=nav_shopall_btn
43. https://www.createspace.com/AboutUs.jsp
46. https://www.goodreads.com/about/how_it_works
48. http://www.imdb.com/help/show_leaf?about
49. http://www.zappos.com/c/about-zappos
50. http://www.alexa.com/about
52. http://www.boxofficemojo.com/about/?ref=ft
53. https://www.abebooks.com/books/CompanyInformation/index.shtml
54. https://en.wikipedia.org/wiki/Double_Helix_Games
55. https://www.brillianceaudio.com/company_overview
56. https://en.wikipedia.org/wiki/Shelfari
57. http://www.worldcargonews.com/htm/n20160727.453838.htm
58. https://www.getvero.com/resources/6-lessons-you-can-learn-from-amazons-killer-email-marketing
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