By Susan Bloom
Following the release of Amazon’s favorable Q1 results, industry expert hones in on the online retail giant’s new e-commerce directions and the ‘message of hope’ distributors should take away.
On April 27, Amazon reported both revenues and earnings for Q1 2017 that beat analysts’ estimates, marking the eighth consecutive quarter in which Amazon posted a profit. But it was the company’s new e-commerce progress and direction, not necessarily its impressive financial performance, that piqued the interest of industry expert Justin King, Senior Partner at Washington, D.C.-based B2X Partners (www.B2XPartners.com) and founder of eCommerceandB2B.com.
Following, tED magazine sat down with King for a deeper dive into Amazon’s Q1 results, the latest IT/e-commerce pursuits and investments that continue to keep Amazon ahead of the curve, and the significance of these directions to electrical distributors.
tED magazine: What did you find particularly interesting about Amazon’s Q1 results?
King: It was a good quarter for Amazon, but in their press release and during the call they hosted to discuss their Q1 results with financial analysts, Amazon spokespeople kept referring to two new directions the company is pursuing—voice shopping and image shopping—both of which involve shopping-related technology that has nothing to do with the browser. Voice shopping involves the use of a personal assistant like Alexa to order things and operate software robots and is a relatively new capability that gives consumers the ability to order something without being in front of a screen. Image shopping, involving a tool like Echo Look, allows a consumer to share an image and get feedback on its style or look without having to type in a search. Using this technology in the electrical products industry, for example, a buyer could simply share a picture of a broken part and be matched up with the exact replacement part they need to buy. This type of image recognition, which relies on a combination of artificial intelligence and machine learning, is a next-generation capability.
tED magazine: What do you feel is the significance of new capabilities like this to the marketplace?
King: What they do is set brand new expectations for customers. For example, Amazon’s same-day service is now offered in 30 cities, while ‘Amazon Prime Now,’ which features free two-hour delivery and one-hour paid delivery, is currently available in 45 cities and eight countries. Though these services were once hard to imagine having, they’ve become so much more standard and expected today that if you’re told by another website that you have to wait 24 hours for something, that can seem too long. Studies show that a customer experience is only what we remember, which is often the last thing said or done. So when a different website or provider falls short of the new expectations that Amazon has set, you feel like you’ve had a bit of a degraded experience because you know that someone else is doing something different for their customers through that last mile.
Amazon also continues to talk about “removing friction between the customer and ownership of the product” from ordering to delivery and now has 18 of their own planes in their air fleet (as opposed to using UPS’ or Fedex’s), so they’re looking at delivery and logistics from a national standpoint, not just a local one.
tED magazine: In light of these developments, how might electrical distributors compete with Amazon or learn from them?
King: I feel that the new benchmarks Amazon continues to set should offer a message of hope to electrical distributors, not a message of fear. I often hear businesses say that “we can’t compete with Amazon,” but the reality is that the internet is the great equalizer that allows small companies to compete with big ones. If distributors can think about ways to ‘remove friction between the customer and ownership of the product’ for their own customer base, they can seize on more opportunities. The fact is, there’s a strong ‘people’ aspect to business-to-business interactions and distributors know their customers much better than Amazon does because they’re much closer to them; Amazon isn’t visiting its customers or building relationships with contractors or end users. Many businesses see the internet as a big scary monster, but distributors should look at the digital element as an extension of their customer relationship, not a replacement for it.
tED magazine: Do you feel that distributors should consider using Amazon as a sales channel?
King: Yes, every distributor should consider Amazon and eBay as a possible channel to their customers, if not as a physical conduit than at least to understand how Amazon’s mechanism works, because today, e-commerce represents about 17 percent of all retail commerce and Amazon is the largest player within that segment. Price-sensitive customers will buy from the lowest-priced providers, but savvy distributors can help stop the leak by exploring these online giants, especially for private-label business. While they may not necessarily share the information publicly, quite a few distributors sell a tremendous amount of product on Amazon; successful selling on Amazon involves a little research and strategy into the algorithm that helps you ‘optimize the buy box’—the process by which you can get your product favorably placed in the all-important ‘buy box’ when a customer searches for a product. An approach like this toward Amazon is part of an overall concept known as ‘coopetition,’ which seizes on both the opportunity to compete and cooperate.
tED magazine: You also feel that Amazon’s reported new e-procurement activities hold opportunities for distributors. How so?
King: Amazon Business has recently been promoting its pursuit of ‘over 30 e-procurement innovations’—these are integrations that Amazon has built with main e-procurement systems out in the market that will automatically communicate with Amazon Business and streamline the electronic transaction of purchase orders and payments. It encourages businesses to buy from Amazon because that electronic integration already exists and it represents yet another way in which Amazon is removing friction between itself and its customers. Distributor transactions also require this level of compatibility and distributors must physically integrate their systems with their customers’ systems, which is a time-consuming and expensive process often done through their ERP software. However, distributors can also do this through specialized third party companies called ‘punchout providers’ that can build this capability inexpensively if it’s done strategically and efficiently. We advise distributors to explore this opportunity.
Bloom is a 25-year veteran of the lighting and electrical products industry. Reach her at email@example.com.
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