The rise of Amazon Business has distributors rattled. To compete, distributors should focus on the things Amazon can’t provide—using the Deal Economy as fuel.
Amazon Business has posed a growing threat to wholesale distributors since its launch in 2012. Gross merchandise volume at the ‘Everything Store’s’ B2B division has increased 10x in two years, from $1bn in 2016 to $10bn in 2018. Bank of America estimates it will further triple by 2023, to $33.7bn.
With the rise of Amazon Business, distributors have been feeling the squeeze in terms of lost business and downward pressure on prices. When MDM asked 167 distributors about their current concerns for its 2019 Outlook for Wholesale Distribution, ‘Amazon’ featured prominently among their responses. Others included price pressures and margin deterioration; both symptomatic of a market where Amazon’s low-price ecommerce offering is eating into distributors’ revenues and profits.
A case of ‘if you can’t beat them, join them’—or is there a better way?
It’s clear distributors need to do something—but what? Strategies that have been floated include ‘beating’ Amazon by setting up rival industry marketplaces, and ‘joining’ them by using Amazon Business as a channel to market for commodity products.
These strategies assume that Amazon’s model is the right one, and that to compete, distributors should also move further into low-price e-commerce. But Amazon’s model is only the right one for customers who know what they want to buy, and who want to pay as low a price as possible for it.
That’s OK for undifferentiated, commodity products. But as soon as the customer needs expert advice, or help selecting a specialist product, or contract support, or any of the other value-added services that distributors excel at providing, Amazon can’t help.
That’s why distributors keen to beat Amazon should double down on the facets of their business that Amazon can’t provide, and which its model explicitly precludes. Those fall into two broad categories: the customer proposition and the supplier proposition.
The customer proposition: expert knowledge and tailored services
Distributors have built many solid customer relationships in which they are seen as expert and trusted partners. Those customers rely on their distributor partner for three things that Amazon can’t (and, more importantly, doesn’t want to) provide:
- Expert knowledge: Distributors have invested in knowledgeable sales teams who can advise customers on the most suitable products for their project, and help with everything from recommending complementary products to advising on maintenance and repair.
- Flexibility: Distributors can flex to meet customers’ specific needs: for example, working with them to draw up bids and project plans; holding inventory; delivering to schedule; and offering tailored financing programs.
- Value-added services: Distributors offer—or could offer—a range of services that remove pressure and risk from the customer and help them to deliver an exceptional project. Depending on the sector, those services might include design and integration, part-assembly, installation, bid support, contract support, tailored logistics, inventory management, and warehousing.
By focusing more deeply on these areas of their business, distributors can develop an attractive, customer-centric value proposition that Amazon can’t match.
The supplier proposition: market insight and margin opportunities
Many distributors are nervous about suppliers jumping ship and selling everything through Amazon. But in truth, distributors have a huge amount of value to offer to suppliers that the ecommerce giant can’t. These include:
- Customer intimacy: Distributors have a finger on the pulse of the market, and are well placed to help suppliers find new customers. Their skilled sales and marketing teams can expertly position and sell new products. In a strong distributor-supplier relationship, distributors will be willing to share customer insights and data, and provide valuable input into future product direction.
- Margin opportunity: While commodity sales through Amazon are a race to the bottom in terms of pricing, sales through distributors offer more attractive margins, due to the value-add services that distributors offer.
- Brand differentiation: While on Amazon, every supplier looks alike, distributors can reinforce a supplier’s brand and differentiate it from competitors. That can be through offering expert knowledge and advice about the supplier’s products, for example, or through visual references like high-quality branded sales, marketing, livery and packaging materials.
The Deal Economy: the fuel that drives Amazon-beating business
Combining the customer proposition and supplier proposition will allow distributors to offer the right products, in the right way, with expert value-added services, to help the customer deliver an exceptional project for their own customers. That’s not something that Amazon Business can or will ever be able to offer.
There’s just one thing missing to turn this Amazon-beating proposition into a win-win-win proposition for suppliers, distributors and customers. It takes the form of intelligent trading agreements that deliver financial benefits to all parties:
- For suppliers, trading agreements are a way to secure increased sales volumes at attractive margins through a knowledgeable national or international distribution network.
- For distributors, trading agreements provide an opportunity to significantly boost revenues and margins by earning rebate on every sale.
- For customers, trading agreements can provide favorable pricing for bids and contract support, enabling them to win more contracts.
We call this universe of B2B trading agreements the Deal Economy, and while it certainly exists today—in the form of special pricing allowances and other forms of rebate—it’s not used to anything like its full potential.
Today, the complexity of negotiating, managing and claiming on hundreds of individual trading agreements mean the best deals aren’t struck, or suppliers end up in disputes with distributors, or distributors fail to claim the full amounts due to them. It creates friction and loss between the parties, rather than smoothing the path to success.
But it doesn’t have to be that way. At Enable we’re on a mission to help distributors, suppliers and customers make the most of the Deal Economy. Our cloud-based B2B deal management platform, DealTrack, is specifically designed to help all parties maximize the value of their trading agreements—and in doing so, develop a sustainable flow of profitable business for decades to come.
Find out more about DealTrack
To learn more about how DealTrack can help you compete with Amazon by maximizing the value of your supplier trading agreements, please do visit our product page, take a free trial, or schedule a demo.