Amazon’s large investment in B2B Ecommerce is a loud call to manufacturers & brands to take advantage of this fast growing channel, or get left behind by those that do
One of the top takeaways from Jim Collins’ seminal business book, ‘Good to Great’, is the observation that ‘Great’ companies – or those that well exceed their peers over time in terms of enterprise value – ‘confront the brutal reality’ of their markets and situations. Management of these companies gather the facts, understand trends, and do something about them. They aren’t afraid to test new approaches in the face of changing market conditions, and will risk failure rather than suffer mediocrity or death by inaction. They confront what is happening, and take action. As Jeff Bezos, Amazon’s CEO, puts it in his latest letter to shareholders, great companies work hard to stay ‘Day 1’ companies – constantly iterating and testing to improve. Process is secondary and always subservient to customers’ needs.
“When you start with an honest and diligent effort to determine the truth of your situation, the right decisions often become self-evident” – Jim Collins
In today’s digital centric world, the brutal reality is that one company is successfully disrupting the way products are sold in industry after industry. That company is called Amazon – Mr. Bezos’ baby that has grown to a giant by staying a ‘Day 1’ company.
At its core, Amazon is a disruptive juggernaut that is dis-intermediating traditional sales and distribution channels. As an example from the retail sector, just take a look at Circuit City and Borders Books—both of which have been forced to shutter their doors, due, in significant part, to Amazon. Further, with Amazon emerging as the largest apparel retailer in the United States, there is a growing list of apparel retailers that are closing their multiple retail locations in 2018, including J.Crew, Macy’s, Gap and Banana Republic, Michael Kors and numerous others. Sporting goods retailers, consumer electronics giants, department stores, and many more categories are being impacted.
What does this mean for brands, manufacturers, and distributors operating in traditional B2B selling markets? In my opinion, it is only a matter of time before Amazon disrupts the B2B marketplace in similar fashion. The brutal reality is that Amazon has the expertise, deep pockets, data, and incredible execution capabilities that will change how and where business buyers are transacting. Make no mistake – this is already happening.
The writing is on the wall
Amazon is investing heavily in enabling business buyers to purchase using the same tools and user experiences these same buyers have become accustomed to as consumers in shopping for their personal purchases on Amazon.com. The company calls this Amazon Business, and they are executing right now to digitally support traditional B2B workflows and customers’ purchasing expectations.
Amazon’s efforts include:
- Adding People – Amazon is a metric-driven execution machine that hires very smart people. Amazon added more than 110,000 total employees during 2016 alone and surpassed that mark in 2017 pushing its headcount past 500,000 with their new HQ and Whole Foods acquisition
- Acquiring Business Buyers in Key Sectors – For example, in 2017 Amazon secured a major public sector contract, which enables buyers at public agencies and nonprofit organizations to procure the items they need through Amazon. The contract could be worth as much as $5.5 billion. They have a growing sales team that is out in the field adding both business buyers and sellers (like you and your competitors) to build out its marketplace ecosystem for B2B. Putting sales people in the field is new for Amazon, and a sign that the company now understands what it will take to build out Amazon Business (vs. their earlier efforts in B2B).
- Integrating with Procurement Systems – Amazon is integrating with a number of the most common procurement software platforms utilized by corporate and institutional buyers (more than 40 to date). This enables business buyers to use their ERP systems to buy things through Amazon. In other words, procurement folks can now buy things through Amazon the same way they buy something from another vendor through their ERP today.
- Creating B2B Workflows and Functionalities – Amazon has added key functionalities that are required by business buyers and sellers, such as support for tiered pricing and purchase approval processes. They are even extending business credit terms to buyers.
Combine these investments with the fact that Amazon is probably ten years ahead of most other companies in terms of how they use data to personalize digital experiences, and clear evidence that many business buyers are already buying on Amazon, and you have a brutal reality to confront. Dis-intermediation has started.
This is good news for brands and manufacturers
…if you confront the brutal reality!
I recently made the case that companies that make products that stand on their own merits and benefits are in a great position to take advantage of this major shift. Traditional channels are going to change, and Amazon will likely impact a large number of distributors.
We already see this occurring. The B2B Ecommerce ground-breaker and distribution behemoth Grainger recently announced that its sales growth is slowing. Grainger missed its Q1 2017 earnings projections, which the company attributed to price reductions and online sales pressures. Its earnings per share came in at a 9% decline compared to Q1 2016. Industry pundits expect increasing margin pressure on the company and other distribution leaders such as Fastenal, specifically coming from Amazon Business. This is writing on the wall.
Amazon Business’ impact to traditional distributors is an opportunity for manufacturers and brands. If you are a manufacturer or a brand, by launching on Amazon Business you have immediate opportunity to:
- Drive incremental revenue and capture new customers
- Stay relevant to existing customers, many of whom are die-hard Amazon loyalists, and already buying on Amazon for their businesses
- Position yourself ahead of your competitors – there is an opportunity right now (and it will not last) to capitalize on Amazon’s efforts to build out their assortment through marketplace partnerships – you have some leverage at this moment in time that you are unlikely to have later. And you can get there before your competitors do.
- Take control of how your brand is positioned on this rapidly growing channel. (As a fun and disturbing exercise, try searching for one of your products right now on Amazon. I do this with CEOs all the time – it immediately and invariably causes instant anxiety when the CEO sees how their brand shows up on the #1 place people are looking for their products. Most of the time, it ain’t pretty.) By leveraging a Seller Central account, you can also control the pricing of your product on Amazon.
Consider the fact that >50% of all product searches in the U.S. are now originating on Amazon. We can expect that number to keep increasing. Ignore Amazon’s B2B efforts now, and you will be playing catch up later. If yours is a truly differentiated product—one that can’t easily be replaced by a substitute — I strongly believe you should see this shift as an evolution of distribution channels, not a threat to your company.
Some final thoughts
Amazon Business brings real time-to-market benefits for your own Ecommerce presence, particularly if you are new to online commerce. A typical manufacturer or brand can be up and running on the Amazon platform in 1 to 2 months, normally at a nominal cost. Amazon’s programs such as Fulfilled by Amazon also make it easier for you to ship quickly to business customers, and meet Amazon’s fulfillment and service requirements. Compare this to development and deployment of an in-house e-commerce web site, which can consume 9 to 18 months with associated capital costs ranging from $250,000 to multiple millions or more.
That said, I do believe strongly that, besides presence on Amazon, brands and manufacturers should definitely have an Ecommerce site supported by a robust supply chain solution when they become larger companies that experience fast growth and deal with larger number of SKUs and sales seasonality.
Confront the reality. The early bird catches the worm. You don’t want to be caught sleeping in with so much at stake.
Brian Beck, www.guidance.com
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