Category Archives: Distribution Industry Sales

105. Connecting Customer Profitability and (Amazon) Cloud Commerce Effects

Willful blindness and selective denial

Willful blindness is legalese for “ignorance of the law is no excuse”. Other selective denial expressions include, ignoring the elephant in the room, sparing sacred cows, believing in the emperor’s new clothes, shooting the bearers of bad news and groupthink.

Humans tend to deny new facts when they are too shocking, painful and/or scary to confront. But, companies that acknowledge, debate and act on truths beat competitors who remain in denial. And, they will be better able to compete with Amazon in the ecommerce cloud of 2021. Continue reading 105. Connecting Customer Profitability and (Amazon) Cloud Commerce Effects

104. Innovation Two-Step: Core Renewal and a Cloud-Based Value-Channel

The Present Facts

Amazon (AMZ) is building out the first value channel from end-users back to factories. And of course, this channel is a cloud-based digital channel. The customer-centric channel is comprised of 10+ intersecting, reinforcing, winner-take-all platforms starting with the 60MM Prime members in the U.S. (100MM+ worldwide). This monopoly capability will allow AMZ to sell into, and/or collect fees from, all verticals that sell anything to Prime members.

This cloud-based value channel has breakthrough advantages over legacy, product-push channel players. Hence, there is insane loyalty from Prime members and astronomical sales growth. Continue reading 104. Innovation Two-Step: Core Renewal and a Cloud-Based Value-Channel

102. High-Margin Counter Sales Aren’t Profitable!

This is one of the first insights that distributors who subscribe to Line-Item Profit Analytics are shocked to find out. Analytics reveal that:

  • Naturally high-margin percent SKUs and customers are mostly net-profit dollar losers
  • Gross profit dollars on small-dollar lines and orders are less than their cost-to-serve dollars

You can’t ignore small transaction size, or the variable service-people costs for customers with bill-me-later, paper-based trade credit. Continue reading 102. High-Margin Counter Sales Aren’t Profitable!

100. Distributors: Upgrade “Strategic Pricing”

The first step to ensuring your strategic pricing initiatives are successful is to understand what you’re doing. Here are a few questions to ask of yourself, as a business owner, and of your top management.

  • What is “strategic pricing”?
  • What is our Pricing Analyst’s job? (scope, objectives and success metrics)
  • What assumptions underlie these answers and is there data to back them up?
  • What additional analytics would improve pricing effectiveness?

If you find wildly varying answers, or confusion, from your management team it’s time to upgrade your approach to strategic pricing. Continue reading 100. Distributors: Upgrade “Strategic Pricing”

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