Even if Amazon Business is overstating its growth trajectory, this is no time for electrical distributors to sit back and let the e-tailer take their customers and market share.
Amazon Business dropped a bombshell last month when it announced that sales for 2018 would surpass $10 billion—up from $1 billion in 2015. “That’s faster than the growth of its consumer retail or cloud business units,” CNBC reports, noting that some industry analysts think the B2B e-tailer could become bigger than the consumer marketplace.
Started in 2012, Amazon Supply was selling 500,000 products that year, according to Forbes, including hose clamps, roller chain sprockets, drill bits, sheet aluminum, brass, and other items. The site grew out of Small Parts, a supplier of equipment for science labs that Amazon bought in 2005.
Launched in 2015, Amazon Business replaced Amazon Supply. Within a year, Amazon disclosed that the B2B business marketplace passed $1 billion in sales, CNBC points out, and the company’s future growth trajectory appears to be just as healthy. For example, Robert W. Baird & Co. Inc., expects Amazon Business’ annual sales volume to exceed $25 billion by 2021.
You’re Now Entering the Spin Zone
When Amazon Business announced that it was on track to pass $10 billion in annualized sales in 2018, Denise Keating decided to dig a little deeper into the numbers. In fact, this CEO of DeKalb, Ill.-based DATAgility, says the e-tailer is probably spinning its numbers. “The marketing message is that Amazon Business launched in 2015 and had $1 billion in sales by the following year,” says Keating.
That message doesn’t tell the whole story. After all, Amazon Supply was in existence since 2012 before its parent company changed its name and launched a big push in the B2B market—all with the same platform, Keating points out. “In my opinion, it didn’t take them one year to hit $1 billion; it took them four years.”
That being said, Keating says Amazon Business’ $10 billion sales announcement for 2018 should make electrical distributors sit up and take notice. “It’s still a scary number,” says Keating. It’s particularly frightening for companies that don’t think Amazon Business is coming after their customers, because it is.
“A lot of distributors view Amazon Business as serving really small companies that have very small needs,” says Keating, “like a builder who needs a single product or maybe a handful of them for the job site.” Electrical distributors, on the other hand, tend to focus on large commercial buildings and other sizable projects.
“They feel like they’re serving a different customer than Amazon Business is,” she adds.
Unfortunately, that assumption is flawed. In fact, Amazon has made it clear that it’s going after medium- and large-sized customers, and not just the ones that are occasionally placing single-product orders on its site.
“The electrical distribution industry needs to understand this,” says Keating, who points to a recent Motley Fool report as proof of Amazon Business’ intentions (and current prowess in the B2B marketplace). Currently, 80% of the largest enrollment organizations are using Amazon Business to buy products, and 55% of the Fortune 100 companies are using the site. More than half of the 100 biggest hospital systems are using Amazon Business, and over 40% of the 100 largest community local governments are using the site to buy goods.
“When you look at those stats, they really demonstrate that Amazon Business isn’t just for small organizations,” says Keating. “It’s going after large organizations and targeting very specific verticals within certain industries (and typically with low-cost, high-moving items).” Then, once the e-tailer gains a better understanding of a particular industry vertical—and that vertical’s B2B buyers—it moves outward from there, adding new verticals under the larger industry umbrella.
“Once it gains traction, Amazon starts to introduce more complex products and higher-ticket items,” says Keating. “distributors are not necessarily thinking about that process, and instead view Amazon Business as a place for small organizations to buy low-cost, fast-moving products.”
Who Will Win the Race?
In the end, the winners in this race are going to be those companies that blend the physical world with the digital world, Keating says, and those that figure out how the two intersect (and then maximize that convergence in a way that addresses customers’ wants and needs). She sees omni-channel—or, creating a cohesive, connected experience across all selling channels—as a “do it now” imperative.
For B2B sellers, omni-channel also incorporates “cross-channel inventory visibility,” or the ability to get 24/7 visibility of local inventory. These and other capabilities may challenge distributors that are still in the early stages of developing their e-commerce platforms.
“There are still a lot of electrical distribution sites that still aren’t personalized or tailored to the buyer,” as says Keating, who sees this as a good starting point for a company that wants to get on the right track with e-commerce. For example, site visitors should be able to log in, see their current orders, review their past orders, and see customer-specific pricing.
Other good strategies include bundling products and services at the product page level and adding sophisticated capabilities that surpass what Amazon is doing on the B2B front.
“Compare and contrast Amazon Business to a local distributor, and the latter has tons of value-added services that it provides to customers on a daily basis,” says Keating. “Those customers usually learn about those services from sales reps who come to visit, but as soon as a customer starts to look for a product online, all of those services completely disappear.”
What Distributors Can Do Now
As Amazon Business continues to expand its net in the B2B space, Keating says electrical distributors should focus on the strengths that they bring to the customer relationship. Think less about the online buying experience itself, she suggests, and more about how to leverage your current brick-and-mortar assets with your digital environment in order to create competitive advantage.
“Distributors have brick-and-mortar stores in place, local inventory, and personal relationships with their customers. Amazon Business doesn’t have any of those things,” Keating points out. Electrical distributors also have more touchpoints to offer than a company like Amazon does.
In other words, customers working with Amazon Business have one touchpoint: a website where people can buy stuff. By contrast, distributors have physical locations, phone calls, texts, emails, sales calls, direct mail, and myriad other ways to “touch” their customers on a regular basis.
“Think carefully about how you can maximize those many different touchpoints, knowing that the only information Amazon Business gets from its customer (at least for now),” says Keating, “is the buying and behavioral data that’s generated through its website.”
Tagged with Amazon, Amazon Business, e-commerce