Click here to read Part I in this “Race to the Bottom” on Price series.
Guess what? You’re not running a race to the bottom on the price war, but your customers are running it for you. Here’s what NAED members are doing about it.
Working in an industry where price and availability reign as the top shopping criteria for most customers, electrical distributors could soon be feeling a similar price pinch, if it’s not happening already. For even in the business-to-business (B2B) arena—which is projected to reach $8 trillion by 2020—Amazon business is aiming to be the “top dog” by the time the industry hits that milestone.
Here’s how two NAED members and one preferred supplier are managing in this environment, and their advice on how the industry as a whole can fend off their online competitors and come out ahead.
More Partnerships Please
Chris Buelow doesn’t know exactly how many times he’s heard the word “Amazon” thrown around in the electrical industry over the last year, but the number is pretty high. Since its founding in 1927, the company he serves as VP of sales and marketing for has weathered 14 recessions, five wars, the most recent housing market collapse, and “significant and profound technological advances that bear direct impact on its product lines and the electrical industry at large.”
Now, Milbank Manufacturing and its distributors are facing yet another foe: Amazon Business. “At this point, everyone is trying to figure it out,” says Buelow. “From the manufacturer’s point of view, we know that some of our distributors are probably going to pursue the Amazon strategy. We’d like to know how that’s going to work and how we fit into that.”
Ideally, Buelow envisions manufacturers and distributors working together to address the issue and develop win-win strategies. (Past NAED surveys show that this may not be as easy as it sounds.) “We really need to partner on it, because if we’re both going in different directions, it’s going to be difficult to be successful,” he points out. “I’ve yet to have a strategic conversation with a business partner on how we can tackle Amazon together.”
Acknowledging the fact that Amazon isn’t going away anytime soon, Buelow says combatting it will require a unified front that includes both distributor and supplier. “I think this issue is going to continue to ramp up and eventually get to the point where companies have more and more urgency to do something about it,” says Buelow. “I really hope the partnership aspect of it improves [across] manufacturer, distributor, and manufacturer’s reps.”
Mastering the Art of Distribution
When Lee Hite ponders the Amazon Business Effect in the electrical distribution world, his first thoughts go to the “commoditization of product.” In other words, Amazon has found a chink in the armor at the distribution level, where price and delivery are top-of-mind for many customers. However, this president of The Hite Company points out that many products handled by electrical distributors are sophisticated, engineered, and/or not easily commoditized.
“Before Amazon was even involved, it was the big boxes that got into selling commodities. And even before that, it was Sears and the hardware stores,” Hite recalls. “Basically, smaller contractors and do-it-yourselfers (DIYs) have always been able to find some electrical items from these types of commodity-oriented competitors.”
Larger contractors, on the other hand, have bigger and more sophisticated requirements that can’t always be accommodated with one or two mouse clicks or screen taps. “These larger entities are looking for different relationships than the DIYs and smaller contractors,” says Hite, who points out that in most cases, Amazon Business is working with distributors that can fulfill the B2B orders that the e-tailer is generating online.
“I know this because we’ve been contacted about supplying product that way,” says Hite. “This is a temporary situation because once Amazon gathers all of the sales information, it will probably go right to the manufacturers which, in turn, will sell direct.” Knowing this, Hite says his team continues to monitor the situation and see how manufacturers respond to it. One manufacturer of engineered products is already selling 50 or so of its more commodity-type products and “testing the waters” on Amazon, he notes.
These trends should push electrical distributors like The Hite Co., to reestablish, shore up, and reconfirm their existing customer relationships. “The large contractors have more locality and more of a relationship-based bent,” says Hite. Distributors also need to keep the focus on selling value versus just dropping prices or getting orders out the door within 60 minutes or less.
Finally, Hite says distributors can capitalize on value-added offerings like complete project management—something the e-tailer has yet to tackle or master. “If Amazon really wants to get into the electrical business and compete with distribution it’s going to have to do a lot of things differently,” says Hite. “We have 14 people onboard who handle the entire project management piece—from shipping to delivery to change orders. Customers see the value in that.”
Cultivating Extreme Value
Tim Young remembers a time when the electrical distribution industry’s biggest concern was how big boxes like Home Depot and Lowe’s were invading its turf. And while these companies did steal some market share from companies whose prime customers were smaller contractors and DIYs, for the most part distribution emerged unscathed from that onslaught. “At one point, everyone was scared of Home Depot,” says Young, corporate strategy facilitator at Interstate Electric Supply, whose parent company is Crescent Electric Supply. The tables have since turned, he adds, and it’s the big boxes that should be shaking in their shoes at the thought of Amazon taking over their turfs.
“Honestly, if I were Home Depot, I’d be more nervous than any NAED member because that’s really the customer play that is more at risk for Amazon to pick up at this point,” Young says. But that doesn’t mean small to midsized electrical distributors can afford to stand by and “see what happens next,” he adds. “Distributors have to work on innovating, creating value, and becoming the ‘go-to source’ for customers who are making the important buying decisions.”
To distributors that need help bridging that gap, Young says the best approach is to get as close as you can to your customers, get to know them inside and out, and make your company a core part of those business operations. “If you’re tied-in to a point where the customer puts extreme value in your company, and creating solutions that make them feel like they can’t buy from anywhere else,” says Young, “then other outside factors like Amazon Business will be less of an issue.”Tagged with Amazon, e-commerce