Amazon Business: The Market Reality and Opportunity for Brands & Manufacturers
November 14, 2017
Amazon’s large investment in B2B eCommerce is a loud call to manufacturers & brands to take advantage of this fast-growing channel or get left behind by those that do.
One of the top takeaways from Jim Collin’s seminal business book, ‘Good to Great’, is the observation that ‘Great’ companies—or those that well exceed their peers over time in terms of enterprise value—‘confront the brutal reality’ of their markets and situations. Management of these companies gather the facts, understand trends, and do something about them. They aren’t afraid to test new approaches in the face of changing market conditions and will risk failure rather than suffer mediocrity or death by inaction. They confront what is happening, and take action. As Jeff Bezos, Amazon’s CEO, puts it in his latest letter to shareholders, great companies work hard to stay ‘Day 1’ companies—constantly iterating and testing to improve. Process is secondary and always subservient to customers’ needs.
“When you start with an honest and diligent effort to determine the truth of your situation, the right decisions often become self-evident” – Jim Collins
In today’s digital-centric world, the brutal reality is that one company is successfully disrupting the way products are sold in industry after industry. That company is called Amazon—Mr. Bezos’ baby that has grown to a giant by staying a ‘Day 1’ company.
At its core, Amazon is a disruptive juggernaut that is dis-intermediating traditional sales and distribution channels. As an example from the retail sector, just take a look at Circuit City and Borders Books—both of which have been forced to shutter their doors, due, in significant part, to Amazon. Further, with Amazon emerging as the largest apparel retailer in the United States, there is a growing list of apparel retailers that are falling off the map, including The Limited, American Apparel, Wet Seal, and numerous others. Sports equipment retailers, consumer electronics giants, department stores, and many more categories are being impacted.
What does this mean for brands, manufacturers, and distributors operating in traditional B2B selling markets? In my opinion, it is only a matter of time before Amazon disrupts the B2B marketplace in a similar fashion. The brutal reality is that Amazon has the expertise, deep pockets, data, and incredible execution capabilities that will change how and where business buyers are transacting. Make no mistake. This is already happening.
The Writing is on the Wall
Amazon is investing heavily in enabling business buyers to purchase using the same tools and user experiences these same buyers have become accustomed to as consumers in shopping for their personal purchases on Amazon.com. The company calls this Amazon Business, and they are executing right now to digitally support traditional B2B workflows and customers’ purchasing expectations.
Amazon’s efforts include:
Adding People – Amazon is a metric-driven execution machine that hires very smart people. Over the last few years, Amazon has tripled in size in terms of the number of employees it has hired—as hard as that may be to believe.
Acquiring Business Buyers in Key Sectors – For example, Amazon recently secured a major public-sector contract, which enables buyers at public agencies and nonprofit organizations to procure the items they need through Amazon. The contract could be worth as much as $5.5 billion. They have a growing sales team that is out in the field adding both business buyers and sellers (like you and your competitors) to build out its marketplace ecosystem for B2B. Putting salespeople in the field is new for Amazon and a sign that the company now understands what it will take to build out Amazon Business (vs. their earlier efforts in B2B).
Integrating with Procurement Systems – Amazon is integrating with a number of the most common procurement software platforms utilized by corporate and institutional buyers (more than 40 to date). This enables business buyers to use their ERP systems to buy things through Amazon. In other words, procurement folks can now buy things through Amazon the same way they buy something from another vendor through their ERP today.
Creating B2B Workflows and Functionalities – Amazon has added key functionalities that are required by business buyers and sellers, such as support for tiered pricing and purchase approval processes. They are even extending business credit terms to buyers.
Combine these investments with the fact that Amazon is probably ten years ahead of most other companies in terms of how they use data to personalize digital experiences, and clear evidence that many business buyers are already buying on Amazon, and you have a brutal reality to confront. Dis-intermediation has started.
This is Good News for Brands and Manufacturers
I recently made the case that companies that make products that stand on their own merits and benefits are in a great position to take advantage of this major shift. Traditional channels are going to change, and Amazon will likely impact a large number of distributors.
We already see this occurring. The B2B eCommerce ground-breaker and distribution behemoth Grainger recently announced that its sales growth is slowing. Grainger missed its Q1 2017 earnings projections, which the company attributed to price reductions and online sales pressures. Its earnings per share came in at a 9 percent decline compared to Q1 2016. Industry pundits expect increasing margin pressure on the company and other distribution leaders such as Fastenal, specifically coming from Amazon Business. This is writing on the wall.
Amazon Business’ impact to traditional distributors is an opportunity for manufacturers and brands. If you are one of these two types of businesses, by launching on Amazon Business you have an immediate opportunity to:
Drive incremental revenue and capture new customers
Stay relevant to existing customers, many of whom are die-hard Amazon loyalists, and already buying on Amazon for their businesses
Position yourself ahead of your competitors. There is an opportunity right now (and it will not last) to capitalize on Amazon’s efforts to build out their assortment through marketplace partnerships. You have some leverage at this moment in time that you are unlikely to have later. And you can get there before your competitors do.
Take control of how your brand is positioned on this rapidly growing channel. As a fun and disturbing exercise, try searching for one of your products right now on Amazon. I do this with CEOs all the time and it immediately and invariably causes instant anxiety when the CEO sees how their brand shows up on the #1 place people are looking for their products (most of the time, it ain’t pretty). By leveraging a Seller Central account, you can also control the pricing of your product on Amazon.
Consider the fact that 55 percent of all product searches are now originating on Amazon. We can expect that number to keep increasing. Ignore Amazon’s B2B efforts now, and you will be playing catch up later. If yours is a truly differentiated product—one that can’t easily be replaced by a substitute—I strongly believe you should see this shift as an evolution of distribution channels, not a threat to your company.
More Purchase Journeys are Starting and Ending on Amazon
Amazon’s efforts in the B2B sector are accelerating. As mentioned above, the number of business buyers beginning their product searches on Amazon is growing, and is quickly overtaking traditional distributors. Forrester Research recently reported that the number of business-product related searches starting on Amazon has now grown to equal the number of searches that begin on distributors’ sites. Amazon is also slowly taking search origination share from Google and Bing, according to the same report.
An increasing number of business buyers are finishing their shopping journeys on Amazon as well. More from our friends at Forrester: as of Q1 2017, almost 40 percent of B2B buyers are finishing their purchases on Amazon. In 2015, the percentage of B2B buyers that said they finished their purchases on distributor sites was 30 percent. In 2017, just two years later, that number has plummeted to 16 percent. Buyers are flocking to sites that are easy to use, fast, with broad selection, limited login requirements, and built-in trust. Amazon does these things better than anyone and they're taking share from traditional channels in the process.
By 2020, it’s expected that B2B buyers will make over half of their purchases online—a trend that is only beginning, but accelerating quickly. What is important to note are the drivers for this shift: convenience, speed, and price. And we all know Amazon does well in all three buckets.
Amazon is quickly becoming a major distribution channel that manufacturers and brands can leverage to drive sales. Your customers are driving this. It is where your customers are searching for products—and it is where they are buying them, too.
If you have a product or brand that you manufacturer or own—and it is unique, stands on its own, and is in-demand—it is time to strongly consider getting yourself on Amazon.
Sure, you may say that Amazon may leverage what they learn about your industry category by selling your products and then enter your business by sourcing directly. Perhaps there are some categories where this is truly a threat (e.g. Amazon Basics). However, I’m convinced that the highly complex nature of the products in many B2B industry categories, combined with the continued importance of product and application knowledge (often delivered by human beings, not computers), makes this a much lower threat for most industries. Also, if you are truly an innovator in your field with a fantastic product, and your product is your core competency—do you really have much to worry about?
Note that Amazon Business also brings real time-to-market benefits for your own eCommerce presence, particularly if you are new to online commerce. A typical manufacturer or brand can be up and running on the Amazon platform in 1 to 2 months, normally at a nominal cost. Compare this to development and deployment of an in-house e-commerce website, which can consume 9 to 18 months with associated capital costs ranging from $250,000 to multiple millions or more (that said, I do believe strongly that brands and manufacturers should have both an eCommerce site as well as a presence on Amazon). Amazon’s programs such as Fulfilled by Amazon also make it easier for you to ship quickly to business customers, and meet Amazon’s fulfillment and service requirements.
Amazon is currently aggressively recruiting sellers for Amazon Business. Confront the reality. Business buyers are rapidly shifting to Amazon. If you are not there, you are going to lose to someone else. It’s that simple.
About Brian Beck and Guidance
Brian Beck has 20+ years of experience, including more than a decade as a C-level eCommerce executive. As the SVP of Strategy at Guidance, he advises industry leaders on driving rapid growth through Digital Transformation. Previously, Brian served as Interim VP of eCommerce at PacSun, a 600+ store apparel retailer. Brian also was VP eCommerce for Harbor Freight, a 700+ store retailer of tools, and held executive roles at OvernightPrints, Costume Supercenter, and Broadspan Commerce. Recent clients include Charming Charlie, Five Below, Boy Scouts of America, illumina, Big Ass Fans, Vitamin Shoppe, Brasseler, Augusta Sportswear, NDS, Sole Society, and numerous others. Find him on Twitter @briansalaubeck. Guidance is Magento's 2016 Digital Commerce Partner of the Year and was most recently recognized as a Top Web Developer in Los Angeles by Clutch in 2017.