“Not the strongest species that survive, but the ones most responsive to change.” Charles Darwin
Many CEOs of B2B companies around the world are shrugging over Amazon. They don’t see Amazon as a threat because:
- “Amazon can never bring together the specialized range that we offer.”
- “At least not the quality that the professional needs.”
- “Certainly not combined with the services we offer the professional.”
Once known as an online bookstore for consumers, Amazon is now one of the biggest competitors in the industrial distribution field. It’s remarkable how Amazon is on the cusp of taking over other business-to-business (B2B) distributors as the leader after launching its own B2B service a mere four years ago. This move is having a profound impact on manufacturers, distributors and wholesalers alike.
Image 1: Amazon Business Ecosystem (source Amazon)
We can now conclude that:
- Amazon estimates the potential of B2B at least as large as that of B2C;
- Amazon has a company like Grainger (technical wholesaler) as an explicit target to compete with;
- Amazon already offers a multitude of professional products than traditional top players (up to 3000%) and is expanding its range much faster;
- Amazon offers many of the same quality products (85%) that the traditional players consider as exclusive;
- many suppliers go directly through Amazon
- Amazon isn’t really aiming at your entire business, but they can hurt the traditional B2B a lot with part of that most profitable business.
The challenge has been laid out here for wholesalers: innovation is necessary to compete with Amazon Business and to adapt to consumers’ evolving expectations. So the big question is how can B2B industrial distribution companies survive and thrive in this transformed landscape?
Competitive advantage wholesalers
Wholesalers have many advantages working in their favor. They have direct access to user acquisition through their close relationships with their existing consumers and across the supply chain. This will help them to overcome the “chicken and the egg problem” that most platforms have when launching in a multi-sided market. They have deep industry knowledge and have established brands that new entrants typically lack. They also have access to excellent logistics, infrastructure and tools that they can provide to their suppliers to attract them to the platform.
Wholesalers should leverage all this and focus in greater depth on offering a whole solution, which includes value-added, real-time services on top of assets to ultimately make their customers’ lives easier and strengthen their relationship with them.
“Organizations that leverage customer behavior data to generate behavioral insights outperform peers by 85 percent in sales growth and more than 25 percent in gross margin.” McKinsey & Company
Know Your Customer
In addition to exploiting their advantages wholesalers must also learn from Amazon’s approach to customer attraction and retention. The people at Amazon are taught to constantly ask themselves: what does the data tell us about what customers might want next? They have data scientists embedded in every business unit to answer that question. By doing that Amazon is becoming such a smart and powerful company; they learn everyday way faster from their customers than their competitors.
According to research cited by McKinsey, organizations that leverage customer behavior data to generate behavioral insights outperform peers by 85 percent in sales growth and more than 25 percent in gross margin.
Here’s the good news; you don’t need to be an internet giant in order to leverage the power of behavioral customer data and analytics to take your business to the next level. With the right knowledge and tools, any organization can do it. B2B or B2C, regardless of industry or size. Below some examples:
1. Increase margin by optimize your prices
Algorithmic pricing creates flexible prices depending on many different variables. A wholesaler might change the price of an item based on consumer demand, price fluctuations at a competitor, or even the time of day and price elasticity per product. By implementing this technology you get powerful insights when a customer buys the product and how to increase the basket size and profit margin.
With a list of top best-selling items, Amazon tries to give a message to every customer that “many people choose to use these items, and you, why not?”. Additionally, by showing the most chosen products, Amazon help consumers update what is the most popular and trendy items at the present. Therefore, help them to make decisions easier with more fashionable products. In this way, Amazon also has more opportunities to upsell and cross-sell their products. This algorithm works so well that 55% of sales are driven by these machine learning algorithms.
3. Supercharge fulfillment with demand forecasting
Amazon is a true leader in predicting what you want. They create forecasting models that uses data from your prior Amazon activity, including time on site, duration of views, links clicked and hovered over, shopping cart activity and wish lists. They use this information about the popularity of certain products to localize product inventory and provide efficient cross-border fulfillment. This leads to a reduction in shipping costs and times by offering local customers the fastest fulfillment options for their regions.
The bottom line here is that companies fail when they are not adapting to change in today’s economy. They can no longer operate using an outdated business model that originated in the industrial era. They need the right strategy and technologies to survive in the digital transformation.
And if evolution has taught us anything, it’s that it’s “not the strongest species that survive, but the ones most responsive to change.”
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Author: Arian Oosthoek
2017, “Capturing value from your customer data”, McKinsey & Company
2019, “How B2B Distributors can compete with Amazon”, Forbes
2018, “How your B2B business can compete against Amazon Business”, Digital Commerce 360