As electrical distributors work to get their e-commerce platforms up to speed in 2019, DATAgility’s Denise Keating explains why selling on Amazon Business doesn’t necessarily have to be an “all or nothing” proposition.
Some may call it going over to the “dark side” or sleeping with the enemy, but selling electrical equipment and supplies via Amazon Business is a strategy that more than one B2B distributor is using to expand its online footprint. Open the site’s full business directory and look under “Business, Industrial, & Scientific Supplies,” for example, and you’ll find an “Industrial Electrical” category where vendors sell circuit protection, fiber optic, lighting, sensor, thermal management, and other products made by Square D by Schneider Electric, Connecticut Electric, Siemens, GE, and Eaton, among others.
Clearly, there are both positives and negatives to aligning your company with a B2B e-tailer like Amazon Business. As someone who works closely with the industrial segment, helping it get up to speed on all things related to data, e-commerce, and this new digital selling world, Denise Keating, CEO of DeKalb, Ill.-based DATAgility, says electrical distributors don’t necessarily have to choose between their own e-commerce approaches and Amazon Business. In fact, some are leveraging both while building out their own solid data and e-commerce strategies. She explains in this exclusive tED Q&A:
Q: What do you say to the electric distributor that’s trying to decide whether or not to sell through Amazon Business?
A: I tell organizations that, when you look at Amazon, you have to weigh the risks and the benefits of doing business with the e-tailer. You need to do it with your eyes wide open and not through rose-colored glasses. For example, you need to evaluate both the short-term benefits and long-term benefits.
Q: What goes into that evaluation process?
A: The decision to sell on Amazon is one that needs careful evaluation. Reaching the right decision to sell or not to sell on Amazon will depend on your product offering, customer base, business model and value proposition, and an understanding of the benefits and risks for your business. The ability to leverage the Amazon infrastructure to gain an immediate online presence, gain more product exposure and visibility, extend your reach to more customers to drive sales while extending your go-to market strategy for product selling, and whereby customers get access to your quality products and great customer service all sounds very appealing. However, there are also some risks that factor into participating in the largest online marketplace. Costs, customer ownership, and lack of control are some of the considerations to be evaluated.
Certainly, several companies who are selling on Amazon have gained significant traffic, but volume doesn’t always equate to higher margins. Companies should analyze the profit margins on those sales and the company needs to assess whether it simply “shifted” its existing customer base to a different selling channel, or if it truly increased its market share by aligning with Amazon.
Q: What does it cost to sell on Amazon Business?
A: When you sell through Amazon, you need to be really clear about the e-tailer’s fee structure. There are multiple costs associated with listing the products and selling online. Some of the fees include: monthly participation, transactional, storage, long term storage, inventory removal, and return processing fees. Most companies are aware of the transactional fees. And, if the distributor uses Fulfillment by Amazon (a service that allows sellers to ship their merchandise to an Amazon fulfillment center, where items are stored in warehouses until they are sold), it also adds additional costs. And, if that product doesn’t sell during the agreed-upon period of time—there are also inventory disposal fees to consider. Distributors really have to know and understand the total cost structure of doing business with Amazon before jumping in. These fees must be factored in to measure the overall profitability of moving a large volume of products where often times the product is offered with lower prices.
Q: How does it impact the customer relationships that distributors work hard to establish and cultivate?
A: It is estimated that half of all product searches start on Amazon. It is becoming the most common search engine for products as opposed to Google. People go to Amazon with the intent to buy whereas people go to Google with the intent to search. To succeed digitally, you need to have your products listed where your customers are searching. Amazon is a high-traffic channel that can you leverage to extend the market place you serve today, to reach customers you would not reach using your traditional sales and marketing efforts. Unfortunately, distributors have to be willing to give up control of the customer because Amazon owns the customer. As a seller, you’re not allowed to develop a meaningful relationship with that customer. You’re not allowed to put marketing material in the boxes that you send to them to further promote your brand or company. Most companies who are buying on Amazon identify the business relationship with Amazon, not the company who sold them the product, and as a result, your brand may get ‘lost’ or diminished because Amazon is the ‘face’ to the customer.
Q: What else do distributors need to be thinking about before they make this decision?
A: You have to be willing to play by Amazon’s rules and abide by all of the policies and procedures that it has put in place. That includes return policies and the fact that your pricing has to be the lowest online published price. If you’re a distributor and part of Amazon, it will give you the dashboard analytics to use. For example, Amazon has a revenue calculator that allows you to evaluate net profit and margin by plugging in costs (fees, product, shipping, and fulfillment costs). That means you can start selling online and see what products are selling more quickly, which have the greatest turnover, and so forth. Because Amazon also has all of that data, Amazon may not be loyal to that distributor. They may find other ways to supply that product which could displace the distributor.
Q: Why are distributors important to Amazon Business?
A: Amazon appears to be very focused on the B2B segment and is actively pursuing distributors in order to get that brick-and-mortar footprint it needs to be able to serve customers on a local basis. Store locations are not something that Amazon Business offers today in the B2B markets. Amazon may have great shipping policies, but the cost of those delivery services to Amazon is pretty astronomical. As the e-tailer seeks out more cost efficiencies, one way to get those efficiencies is to have brick-and-mortar footprints that the distributors can bring to the table for them.
Q: What else would you tell the electrical distributor that’s trying to decide whether or not to put its products on Amazon Business?
A: There are both positives and negatives to working with Amazon. Distributors have to weigh them all out and decide whether it’s right for their businesses. The good news is that this doesn’t have to be an all-or-nothing proposition. Some distributors are selling their entire product catalogs through Amazon Business, while others are using the e-tailer as an outlet for unloading their obsolete or overstock inventory. The key is to look at the opportunity from all angles and viewpoints, and decide what’s best for your individual situation. I’d never advise an organization that they’d absolutely have to sell on Amazon in order to survive, nor would I tell them to avoid the opportunity altogether. Amazon Business has been extremely successful in attracting current and future business buyers and it’s important that you don’t ignore Amazon, but rather, make an informed decision on whether you want to be a seller in that arena.Tagged with Amazon, Amazon Business, DATAgility, e-commerce