(CEO speaking): We subscribe to a customer/SKU, net-profit analytics service. We were initially shocked by the net-profit winners and losers. But, if we were going to reinvent service-value in a Frugal (P#10) way, we should start obsessing about our most net-profitable customers and customer niches. Continue reading 176. Distributor Puts Amazon’s 14 Principles to Work→
When decisions are made at Amazon, “the best data and innovation metrics” win. No hearsay, golden-gut, follow the herd, or political self-interest beliefs. The HiPPO (Highest Paid Person Opinion) in the room doesn’t win with suck-ups bobbling in agreement. Continue reading 174. Doctors Prescribe: “Evidenced-Based Management”→
The global economy is slowing down. Will you freeze investments, do cost trimming and wait for the next upturn? With what future hopes? To get back to mediocre profits with hopes that:
Amazon will stop innovating and imposing digital-commerce imperatives upon you?
The wave of incoming millennial, digital, B2B buyers will change and embrace regular calls from old-school reps?
In June 2019, Amazon introduced a new B2B brand: AmazonCommercial. The first items in the line? T&T! (For more search AmazonCommercial at AMZ).
What’s Amazon thinking? Amazon Business has gotten traction
with a “long-tail”, MRO/SKU strategy specifically aimed at huge entities. AMZ
has attracted an army of resellers to curate millions of B2B SKUs. And, in parallel,
AMZ has created two cloud solutions: integrations for 60+ internal procurement
systems, and free, central-spend-management tools. This evolving proposition now
wins up to 20% of a typical big-buyer’s MRO spend.
AMZ’s next B2B moves? Target some bulky, big-volume,
consumable, SKU? All employers do buy T&T… but how price-competitive can
AMZ be? Or, conversely, how net-profitable are T&T for distributors?
A Distributor’s T&T, Net-Profit Math
Checking with a “Jan-San” distributor who subscribes to
Waypoint Analytics’ “Net-Profit Analytics” cloud-service, here’s what we found:
The distributor breaks even overall on warehouse
business. Direct sales account for all operating profits.
The 7000+ warehouse SKUs were sorted into 100+
product categories.
Ranking the product categories by net-profits:
the top 25 totaled big profits, enough to pay for 100% of all losing product
groups.
The biggest losing category was equipment parts.
The category has an excellent margin percentage. But, the many small-dollar
picks have less margin-dollar content than the fulfillment-dollar costs to
yield losses. The size of both picks/orders and fulfillment costs matter.
Two of the top 5 most net-profitable categories
were T&T! The categories’ low margin percentages were more than offset by
large, average-dollars/pick.
No big customers have yet to negotiate with AMZ
T&T prices.
Questions to Live Into:
What will Amazon invent for in-the-cloud buying
tools, bulk-distribution capabilities, and/or business-model partnerships, to win
more B2B spend? And, more B2B searches and clickstream data to monetize via
advertising?
Why are legacy channel players blind to the
net-profit/loss cross-subsidies that exist amongst both SKUs and customers?
Won’t both AMZ and big-boxes introduce more
private-label clone SKUs to eat into channels’ most net-profitable SKUs?
Will channel players beat AMZ to inventing an
in-the-cloud, channel-model for skid-quantity consumables? (I can envision such
a game-changing model.)
What analytics do factories and distributors
need to minimize AMZ’s takes while maximizing gains from slow-moving,
traditional competitors?
For more, be in touch: bruce@merrifield.com. Waypoint clients can also attend my Nov 7th workshop. Link below:
Amazon is teaching everyone to want an increasingly better “e-buying-journey”. Because AMZ is corralling next-gen, B2B buyers’ searches, manufacturers are scrambling to create Omnichannel solutions for B2B e-buyers. How will distributors change to accommodate both the new needs of customers and suppliers?
Distributors’ standard service-bundle (including outside and inside sales overhead) will be pressured into un-bundling and then re-bundling in multiple ways. To do this, distributors will need to know their service-activity costs on an a la carte basis and have a data-driven culture of innovation.
What? Why?
With a cost-to-serve model distributors can do a two-step transformation:
Identify the big net-profit and net-loss cross-subsidies that hide within aggregated financial numbers.
Then, feed the winners and fix the losers to boost both their profits, and the courage needed to invent new business models.
By knowing the a la carte costs for each service activity, distributors will have 3PL-type flexibility. For key accounts, distributors can co-design customized replenishment systems and then e-integrate them. How customer-centric!
Getting best net-profit analytics is the easy part. (Contact me for a virtual session on this). The tough part is acting on new insights to first get super-profitable, to enable digital business-model innovations.
“MY VETERANS WON’T CHANGE”
If culture is: “the way we do things around here”, (as well as the get-along, go-along standards that we have accepted for too long). Then, most distributors have too many “set in their ways” associates who will resist any real change. What to do?
New Department Takes Non-Invasive, Small, But High-Impact Steps
Net-profit analytics (at the line-item level) allows you to zero-in on one, best, focused experiment at a time. To execute: set up a stand-alone “Innovation Department” with a “champion of change” to secure targeted wins. Trumpet wins to induce the next-most ambitious employees to bid for “Innovation-Department” help. Change the culture one person/department/territory/branch at a time. Hardcore resistors will feel increasing peer pressure to embrace growth and change or leave. Why should a few entitled associates be allowed to sit in the company boat and watch everyone else row them to greater prosperity?
For the big burrito, going into much greater detail, request my Core Renewal Roadmap by email: bruce@merrifield.com
And, follow my curated posts (with commentary) on LinkedIn to track the on-rushing B2B, cloud ecommerce opportunities. Click HERE or search for: D. Bruce Merrifield, Jr.
Invest in better digital-selling tools for all customers to (hopefully) use.
Visit your most net-profitable customers to identify pain-points that can be reduced by applying off-the-shelf, digital tools. These may be one-off, custom solutions. Or, the solution may work with modifications for other same niche-need big customers.
Consider these two contrasting case studies. Which path is a focused, profitable-growth strategy?
Case One: An APP for All
Consumers are besieged with APP offers. So, a contractor-supply distributor creates an APP that does two things: placing orders via your mobile phone, and getting fast delivery (options) from an Uber-type delivery partner. Results were weak. Why? The CEO wasn’t sure (yet).
My Questions to the CEO:
#1. For upfront customer research. What criteria were used to identify and visit 3-5 accounts most apt to use the APP? Then, did you brainstorm with them about:
How valuable this APP might be and why specifically?
For what percent of job scenarios would the delivery option be most beneficial?
What extra fee would the contractor pay for different delivery response times?
If the prospects were excited, how could the APP be further improved?
*Remember to be open to serendipitous insights*
#2. Post-mortem questions about APP 1.0 to a broader group of visited accounts:
How did you hear, (if you did), about the APP and its intended benefits?
Why did you not use it?
Is there any value within this ideaspace that can be re-developed?
If an APP 2.0 has more promise, what additional marketing/education will be needed for wider adoption?
The team had done negligible pre and post-APP launch market research. (Will APP 2.0 happen? Stay tuned to future blogs.)
CASE TWO: An App For One, Mongo Customer
The CEO of another contractor-supply distributor called on a huge account to explore buying-process “friction” possibilities. The customer had a niche doing a few standard jobs in big-contract quantities. Each job needed a fixed kit of SKUs with occasional tweaks. The two honchos oversaw the co-creation of a custom APP with order buttons for the standard kits. The contractor CEO insisted that everyone use the APP. Sales to the customer doubled and both parties realized other economic benefits.
Bottom Line: Find and co-create digital solutions with best customers first.