Part 1 of this Amazon business (AMZ) series touched on Grainger’s current profit woes. So, why have legacy channel players underrated AMZ for 20 years? In this second installment in the series, we take a look at the new lenses we need to better assess the threat of Amazon’s future business effects.
My favorite example of a channel player underestimating Amazon is Barnes and Noble (B&N). B&N unveiled a web site in 1999 that was going to crush what they referred to as “Amazon dot bomb,” according to Barron’s. But by April 27, 2017, the company had announced their fourth CEO in four years, and 645 stores were down 9% for 2016. Meanwhile, on May 8, 2017, Barron’s targeted AMZ shares to hit $1100 (+20%) in a year.
Eliminate Narrow-frame Expert Forecasting
So-called experts generally extrapolate forward in a linear, incremental fashion. For example, they will narrowly praise the details of Grainger’s 90-year-old, highly-evolved moats that AMZ can’t imitate. But, AMZ isn’t imitating the traditional channels. They are inventing an entirely new, customer-centric channel that starts with ordering online. Then, they invent whatever is needed backwards to their factory sources in China. AMZ even bought cargo jets and semi-trailers, for example, to have better, cheaper delivery at peak times, not to compete with FedEx and UPS.
Get Customer-centric with Metrics
AMZ’s 500 customer-centric metrics guide their non-stop innovation to create value for digital buyers. They are looking ahead to what’s new. It is inevitable that in a short two years:
- Your 5G bandwidth phone will have merged with the evolving Alexa/Echo to instantly retrieve all your product information needs, including price and delivery speed comparisons
- AMZ achieves breakthroughs for 30-minute delivery and cost, which could easily look like driverless vehicles to ZIP + 6 zones and drones for last-block delivery
What’s in Your Customer-centric, Value-innovation Pipeline?
By 2019, over 50% of all purchasing will be by millennials who see reps as time wasters. Are you reinventing your reps’ cost/benefit per call proposition? Keep in mind that AMZ just wants your zero-attention-needing, digital customers and orders. You can keep the unprofitable, high-service-cost, small-order customers.
What About Selling Direct?
Factories are selling AMZ direct. Manufacturers and distributors-to-retailers resisted selling AMZ direct for fear of channel retaliation. Now that all items are available through the AMZ Marketplace, direct selling of the most popular SKUs to AMZ is snowballing.
What to Do
Your best, most profitable customers want you to match Amazon’s web shopping and ordering experience with a range of delivery options and prices. How will you keep the 5% of your most net-profitable customers and get even more of their total spend? We’ll answer those questions in the next installment of this series.
Meanwhile, here are some things to think about and discuss in your organization.
- If AMZ is inventing an all-digital, customer-centric shopping channel (factory to doorstep), wouldn’t it make sense that they can’t or won’t take away most existing channels’ business? The question then is what cream will they skim? How big a profit loss will that be?
- Can you think of any factories that sell your distribution firm that have started to sell AMZ direct? What’s the implication?