Now that some time has passed since Amazon made an aggressive play for the industrial B2B space with AmazonSupply, are industrial distributors any more clear on how they should be positioned to compete?
The day Amazon announced its foray into the industrial market with AmazonSupply was, for some, enough to drive panic through their organizations.
As we approach the two year anniversary, it seems that many businesses in industrial distribution are still not entirely sure what their response should be. In a recent ID webinar – “Competing with the Big Dogs: Standing up to Google and Amazon” – speaker Jim Tompkins of Tompkins International was peppered with dozens of audience questions, many attempting to clarify what distributors need to do to compete: How important is going online, and when is it too late? What are the biggest opportunities for B2B, going forward? What is the size of AmazonSupply, and are they serious about this business?
Regardless of whether some of Amazon’s more grandiose marketing strategies fuel some of this light speculation – such as aerial drones said to be in development, and Nissans being delivered in giant cardboard Amazon Prime boxes – it’s clear that Amazon is willing to invest its way into market share if it wants it. Notably, Amazon has continued to focus aggressively on fulfillment. This past fall, supply chain consultants MWPVL International projected that if Amazon can place fulfillment centers nearer to the top 20 U.S. metropolitan areas, the company could reach 50 percent of the U.S. population with same-day delivery — and it would only require opening another 12 warehouses beyond those already built or announced. Dovetailing this is Amazon’s existing multi-billion dollar investments in distribution, and an almost unsettling ability to exist on a profit margin that feels untenable — sometimes selling products for a loss in order to accomplish long term goals of capturing market share and gaining customer loyalty. Perhaps this unpredictable strategy is what makes it so daunting a competitor.
Either way, it’s clear that, two years into the effort, we still have no choice but to take Amazon seriously.
Purchasing: Where are the Real Threats?
Online marketing strategist and founder of SVM E-Marketing Solutions Bob DeStefano sees a competitive advantage in Amazon’s keen understanding that online customer experience is everything, with a website that’s designed “to be easy to find, easy to explore, and easy to take action. Virtually everyone that spends time online has purchased a product on Amazon and they do so because Amazon makes the process of browsing, comparing, and buying products very easy.” With this core competency behind them, it’s no wonder industrial distributors are worried as AmazonSupply attempts to duplicate the company’s consumer success by offering a user-friendly experience for industrial purchasing.
In July of 2013, the Brand eCommerce and digital marketing company Acquity Group announced the loyalty findings of its 2013 State of B2B Procurement Study, which surveyed corporate buyers with annual budgets in excess of $100,000 on their purchasing habits and preferences.
The study found that 45 percent of respondents have used AmazonSupply to make a purchase in the last year, and 25 percent of respondents who have used AmazonSupply purchase from there frequently. While the impact of this data may seem intense, Robert E. Barr, senior vice president at Acquity Group, an Accenture Interactive company, stresses that taking this at face value might create some misinterpretation. “Using AmazonSupply and purchasing through AmazonSupply are two different things,” Barr explains.
According to Barr, it’s Acquity Group’s belief that AmazonSupply is often being used to price compare. Secondly, the potential is there for B2B purchasers to use this website for commodity items, therefore “industrial distributors need to make sure that their pricing online for commodity items is competitive relative to what a buyer may find on AmazonSupply.”
The study also indicated that corporate buyers have limited loyalty to suppliers: “If another website or supplier sells the same product at a lower price, 85 percent of respondents stated they will buy the lower cost option instead, despite loyalty to their current supplier,” Acquity said in a press release. For Barr, this doesn’t necessarily indicate that loyalty is dead, rather speaks to the complexity of today’s marketplace. “(It’s) simply being redefined,” he explains. “Loyalty needs to be built on value added services and not simply an aggregate catalog of commodity items.”
Learning From Amazon
Through their recent study, Acquity Group gained some insights into how industrial distributors can best compete — especially when it comes to balancing pricing of commodity items against services. Says Barr, “Use commodity item revenue and roughly break-even margin to subsidize infrastructure while retaining margins on the brands or more expensive products. Introduce services that add value to the proposition offered by the industrial distributor.”
DeStefano echoes the service mantra, suggesting that value-added will compliment your product offering in a significant way. In addition, content marketing (think online articles, videos, and guides) and technical expertise will go a long way in DeStefano’s opinion. “Sure, AmazonSupply has over 1,250,000 products for sale, but what if a customer has a question or needs advice on product selection? At AmazonSupply, the customer is out of luck.”
Still, relying on service and product knowledge is only part of the overall equation. Ultimately, outfits like AmazonSupply raise the bar for B2B, making an investment in IT resources – and especially eCommerce – simply a cost of doing business. But not all websites are created equal: “Just because you offer a B2B storefront doesn’t mean it’s alright for it to be clunky,” says DeStefano. “The more you invest in improving the customer experience, the more sales you will generate online.”
Look for Industrial Distribution’s upcoming free educational webinar, “AmazonSupply: Two Years Later,” in April.