Category Archives: AmazonBusiness

98. “Your Margin is My Opportunity” (Jeff Bezos)

Why Are Your Margins Too High v AMZ’s?

Your margins must cover your channel cost structure which was built for bygone days. Most channel costs evolved (from WW2 on) to push true-new products to first-time buyers. Cold calls (requiring product-education) required both factory and distributor reps to create demand. Both sets of reps got paid roughly 5% of their respective sales. Today (70 years later), most channels still have two sets of reps costing about the same. What other elements of your push-channel costs will AMZ threaten?

2018 Legacy-Channel Challenges:                    

  1. The US consumer-society lifecycle is mature with too much global supply. Power has shifted to customers. And, AMZ owns the increasing numbers of Prime customers. Brands must go to where the eyeballs are and sell them the way they want to buy.
  2. 80%+ of distributor product sales are for equally-excellent commodities (no demos needed)
  3. 90% of sales are rebuys from experienced customers (fewer cold calls)
  4. The internet makes all product – information, availability and pricing – 24/7 available. As digital information grows, product knowledge help from local reps drop.
  5. Mark-ups for full-lines of SKUs create profit/loss cross-subsidies. Average-pick size and turns are ignored. Buy: a popular $500 piece of equipment at 20% margin and some fittings for $1 to $3 each at a 40% margin. The equipment’s $100 of gross profit covers: its activity costs; the losses on fittings; and residual company profit.
  6. Mark-ups covering bundled services are not customer-centric. Customers get an assigned rep whether they want them or not. If reps were unbundled for fees and customers got 5% rebates for buying on their own, what would happen? Without unbundling, Millennials will web-room you on the big-price, popular and most profitable items on AMZ for less. They will: check the $500 equipment price at AMZ. Sees savings of $X. Spot buy it. Then, order the little-dollar picks (net-profit losers) from the distributor.
  7. And, the Perfect Clones of most profitable items are increasing at AMZ. Clones – with great information content, reviews and prices – will steal share from top brands not there. Clones can skip channel development costs and go right to AMZ’s unlimited cyber-shelf space using Fulfillment by Amazon.
  8. Loyalty to – brands, distributors and reps – will continue to erode.

Unless What?

Factories and distributors share SKU profitability analytics to solve cross-subsidies and rethink their respective service bundles. And, factories get on AMZ to win the content management war against the clones. For more: contact me for a free, virtual, SKU analytics session.     bruce@merrifield.com

94. Amazon’s $7 Per Line-Item, Wake-Up Call

AMAZON’S SMALL-DOLLAR-ITEMS: Math and Solutions

Amazon knows warehouse activity costs to the penny. Their 9th generation warehouses may have the lowest, cost-per-pick on the planet. Some stats:

  1. The “click to ship” elapsed time is 15 minutes and dropping.
  2. The average human time input for each order is one minute which includes 15 seconds to pack.
  3. The cost per pick – in the narrowest sense – is 44 cents for a human and 20 cents for a robot.

Continue reading 94. Amazon’s $7 Per Line-Item, Wake-Up Call

93. Amazon (AMZ) Backcasting Strategies

Does your company plan to sell – physical or digital – goods to AMZ Prime members in 2020 and beyond? Then, backcast about the ideal customer shopping journey that AMZ will be dictating. And, start changing now.

WHAT’S BACKCASTING?

It’s visionary planning:

  1. Start with an ideal vision of what customers might want in 2020+.
  2. With that end in mind move backwards from the vision to the present.
  3. Then ask: “What do we do today – step by step – to move towards the vision”.
  4. “Back” contrasts with “fore”- casting which takes our past and extends it into the future. Backcasting will move you towards the future you will need.
  5. Talk in the future perfect tense. “By 2020, AMZ will have achieved this next-level shopping experience. And, we will have accomplished…” (What: to stay vital?)
  6. For backcasting slides search the term at Google Images.

Continue reading 93. Amazon (AMZ) Backcasting Strategies

88. Amazon Promotes Long-Tail Spending Cost Reduction: You Can Beat Them

According to an Amazon Business (AMZ-BIZ) funded study, reported in the December 2017 issue of Spend Matters magazine, procurement pros increasingly want to reduce long-tail spending costs.

The big-spend items have been automated and integrated, but the pesky bottom 35% of items eat 1% of the spend dollars, take over 50% of purchasing’s time, and are a pain for everyone to easily buy. Corporate citizens want Amazon’s B2C shopping experience in their B2B world, but purchasing wants controls. So, AMZ-BIZ continues to invent cloud tools for purchasing control and analytics and continues to win sales.   Continue reading 88. Amazon Promotes Long-Tail Spending Cost Reduction: You Can Beat Them

84. Kickstart Your Innovation: Knock Off Amazon’s Pitch Process

Distributors sell products and react to supplier and customer needs. Innovation is not their long suit. But digital channel disruption is here, and if a company doesn’t change as fast or faster than its environment, its future is grim.

To boost your company’s innovation game, why not borrow and simplify a key technique from Amazon.

2004: Jeff Bezos kills PowerPoint presentations       

Over a decade ago, Bezos concluded that PowerPoint presentations should be banned. He felt that presenters were speaking extemporaneously from their bullet points, their communication lacked clarity, breadth and depth, and attendees were confused. The big-boss, data-free opinions always won, unswayed by a PowerPoint, and time was wasted.

The new meeting format began with everyone reading a document (6 pages max.) thoroughly prepared by whomever wanted to champion something new. These narratives were not assigned in advanced to be read unevenly and forgetfully. At the meeting, each participant was expected to take the time (5 to 30 minutes) to thoroughly read and digest the information at their own speed and in their own way.

Next, the presenter(s) answered attendees’ questions, as if they were defending a dissertation. The subsequent page-by-page review evoked questions and discussions that were informed and focused and contention was substantive, not political bickering.  After the reading, all attendees had a fresh, shared, in-depth understanding of the topic.

The presenter took notes, and sometimes asked for a re-do, usually to get more data. If the presenter pressed for a decision, the only responses allowed were: “Yes”, “No”, or “I disagree and commit”.

So, why is this better?

The innovation presenter, or team, is forced to do deep research and present clear thinking. The document should stand on its own and include:

  • An imaginary future PR statement describing a successful outcome for all stakeholders
  • Sufficient research facts
  • A proposed roadmap with assumptions, experiments, milestones and required resources
  • All anticipated questions from all potential stakeholders with well thought-through answers

This process levels the playing field between introverted champions of innovation and glib, popular politicians. The process simply delivers better collaborative plans and decisions with less total time invested.

Conclusions

Writing these narratives is tough. Most distributors don’t have MBAs adept at writing or reading such documents. So, simplify the process to fit your firm. You can perform an experiment. Go to  http://merrifieldact2.com/exhibits/. Skim the “scripts” (Exhibits 60 – 63) and pick one to read with your team. Then, discuss, improve and possibly pursue with funding from a champion.

81. Find (and Fill) Your Cross-Subsidy Fault Lines

Want to expose the ways you in which you can beat Amazon (AMZ)? Start with a line item cost-to-serve model for your distribution company or for several of your most innovative distributors. Then, create profit and loss rankings for every SKU and vendor, as well as for customers, territories and niches. Get ready for some shocking revelations. The biggest: big profit/loss cross-subsidies fault lines likely exist between your most profitable and unprofitable customers and SKUs.

The most profitable warehouse items:

  • Are popular (highly picked) commodities
  • Have high-dollar sales per pick averages
  • Have margin percentages that seem low but gross profit dollars (GP$s) per pick that exceed the cost to serve dollars (CTS$s), yielding the highest profit dollars (P$s)

Another way to think of this is using the Profit Equation: GP$s (-) CTS$s = P$s.     Continue reading 81. Find (and Fill) Your Cross-Subsidy Fault Lines