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Turning Fear into Power in an Amazon World, Part II

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Turning Fear into Power in an Amazon World, Part II

In Part I of this article series, we talked about thinking out of the box and create an entity that’s 100% focused on the online customer—without the constraints of your traditional, legacy business.

 

To compete effectively today and in the future, distributors need to think beyond the threat of Amazon Business and come up with a plan of attack for dealing with other industry disruptors.

 

Amazon Business may have B2B distributors shaking in their boots right now, but that doesn’t mean those companies have to roll over and play dead or join forces with the e-tailing giant. In fact, Justin King, co-founder of the DigitalBranch, and senior partner at B2X Partners sees significant opportunity for electrical distributors that want to break the mold and do something different.

King also sees other potential disruptors lurking in the wings, slowly building up their arsenals and taking aim at the industrial distribution segment. “There are some disruptors that no one is really paying attention to,” says King, “but they’re there.” He points to the private equity sector as a place that all distributors should be paying attention to, what with its extreme interest in the electrical industry.

“There’s a lot of private capital looking to be invested to disrupt the electrical space,” says King. “I get four or five phone calls a week from private equity firms, asking ‘how do we disrupt this business?’ So, there are some impending threats from companies that have both the capital and the technology chops to be investors.”

In most cases, those investors are looking to create a national or global distribution network, versus branch-oriented models. For example, they might use four or five distribution centers strategically located in the U.S. to reach most of the country with next-day air—and all without having to pay hefty shipping costs. “These private equity firms are looking at that [concept],” says King, “and they believe they can do that.”

Digging down even deeper, those new “distributors” would likely come up with their own tech-enabled, customer-first strategies—much like Amazon as a whole has done with its own business model. “These companies will be able to meet the needs of their customers in interesting and unique ways,” says King, “and without being encumbered by all the legacy processes, systems, and people that the typical distributor is working with.”

Short-Term Gain or Long-Term Play?

As you read in Part I of this article series, the Amazon Business threat goes beyond just losing customers to the e-tailer; the site is also attracting more manufacturers that want to sell direct to buyers. A recent Unilog survey found that 43% of manufacturers are now selling direct on Amazon Business, often bypassing their traditional distribution channels. “Manufacturers see Amazon as a way to go direct without really going direct,” King points out. “That’s because Amazon is just a distributor. So, by selling products through the e-tailer, manufacturers are basically just selling through another channel—or through distribution.”

What manufacturers don’t get by working with Amazon is a direct relationship with end customers. “Amazon owns that relationship—not the manufacturer,” says King, who sees aligning with the e-tailer as a “dangerous move” for any company. “On the retail side, for example, Amazon is creating its own private-label brands and promoting them ahead of the manufacturers’ brands that it’s been selling.”

Despite these potential pitfalls, manufacturers continue to sign on the dotted line. “Every manufacturer that we talk to has an Amazon strategy of some sort—whether they’re building that strategy out now or already using it today,” says King. “There’s some potential for short-term gain there, but I don’t think it’s a [good] long-term play.”

Change is Hard

Change is difficult for anyone, and it’s especially hard for a company that for decades has been surviving and thriving by doing things the way that it always has. The good news is that some of those age-old strategies still work. The not-so-good news is that they probably need to be overhauled, refreshed, and brought up to speed in order to better serve today’s B2B customers. That requires innovation, says King, and innovation takes time, mindshare, investment, and cultural shifts.

“We’re seeing this happen in other industrial spaces, but not in electrical just yet,” says King, who points to online plumbing supply store SupplyHouse.com as an example of how one company has successfully spun out a new customer-centric online business. To distributors that are struggling with the issue of how to compete effectively in an Amazon world, King says the first step is to come up with a plan of attack. An obvious first step, for example, is to figure out how to nurture and grow long-term customer relationships in a digital world—something that companies across all B2B and B2C sectors are trying to figure out right now.

“Electrical distributors know their customers better than any e-tailer does, and companies like Amazon are never going to build the same relationships that distributors have with their customers,” King explains. He also urges companies to think about the overall threat in this way:  It’s not about replacing the traditional distributor relationship; it’s about extending it online.

“It’s about giving your customers another option when they want to do their own research and make a purchase online,” King says. To accommodate those needs, electrical distributors have to think well beyond “cute little web store syndrome,” and get serious about how they interact with and sell to customers in the online world. “If you’re really worried about Amazon, then you have to at least have the basics in place,” says King. “Know how you’re going to keep your product content up to date, how you’re going to deliver better search results to your customers, and how you’re going to get your internal people behind this effort.”

That “people” component is particularly critical, says King, who sees everything from culture to sales goals to executive compensation (among other things) as important parts of any customer-first e-commerce strategy. “I can walk into a distributorship, look at its compensation structures, and tell you whether digital is truly a strategic initiative or not,” King says. “Compensation is either all aligned with digital, or it’s not—right up to the president of the company.”

Finally, King tells distributors to get out there and talk to the customers that they’ve developed long-term, trusting relationships with. Ask them what they’re buying online, what they’re buying from Amazon (and why), what’s easy/hard about doing business with your company online, and what you can be doing better. “Have you actually asked your customers how you can compete with Amazon for their spend?” King asks. “Find out what you can give them that will keep them buying from you versus Amazon (i.e., price, availability, shipping times, etc.), and then use that feedback to come up with a good plan of attack.”

 

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Bridget McCrea  is a Florida-based writer who covers business, industrial, and educational topics for a variety of magazines and journals. You can reach her at bridgetmc@earthlink.net or visit her website at www.expertghostwriter.net.

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