Amazon Business Has a Bullseye on Your Back: Watch Out, B2B Manufacturers and Distributors

Amazon Business, launched in 2015, is the B2B marketplace arm of Amazon, providing business customers with the pricing, selection, and convenience of Amazon with additional features and benefits designed for businesses of all sizes.

In its first full year of operation, Amazon Business generated an eye-popping $1 billion in sales. Today, just a few short years later, it’s surpassed $10 billion and continues growing rapidly, with its eyes set squarely on the $1.2 trillion B2B e-commerce opportunity projected by 2021.

We’re only in the early innings of what promises to be a nail-biter, but we’ve already seen over 1 million businesses using Amazon Business—and not all are small businesses, either. In fact, 55 of the Fortune 100 companies, 50% of the biggest U.S. hospital systems, and 40% of the 100 most populous local governments use Amazon Business. It has proven to be of value to businesses big and small in just a few short years.

Currently, over 150,000 businesses sell products on Amazon Business. This rapid growth in sellers is empowering Amazon Business to both build catalog depth and drive prices lower, as Amazon has done successfully in its B2C business.

How Big a Threat Is Amazon Business?

Well, if the history of what Amazon accomplished in B2C is our guide, then “BIG and GETTING BIGGER” is the obvious answer.

A recent study by Applico on the electrical components segment illustrates the looming threat for B2B enterprises. The study found Amazon Business’ product catalog depth to be far beyond that of top competitors in the industry. In wiring connectors, Amazon Business had 77,764 listings compared to the four largest distributors’ 2,855. Amazon Business also had products listed from 106 of the 120 manufacturers offered by the four largest distributors, and 80% of distributors in the segment were already selling directly on Amazon Business.

Applico also found the largest distributors in the segment to be lagging Amazon Business on price competitiveness. In each instance, the exact same product offered by the four largest distributors was found on Amazon Business marketplace as well, but at a significantly lower price.

Whether you’re a manufacturer or a distributor, this new reality presents significant challenges as well as potential opportunities.

The Impact on Manufacturers and Distributors

For manufacturers, the marketplace for your products is rapidly becoming more transparent and efficient, with B2B buyers able to quickly compare product features, pricing, and customer reviews in a highly efficient and convenient manner. These benefits will be hard for buyers to resist, and in turn, will place pressure on industry margins just as they’ve done previously in the B2C business segment. For manufacturers with well-run, highly efficient businesses and strong product lines, Amazon Business presents a tremendous opportunity to grab market share from lesser competitors and better inform product road maps to drive strong future growth.

In addition, there’s a significant risk to manufacturer business models that have tended to rely on large distributor networks for global distribution of their products. Amazon has proven to be a significant disrupter of distributors, leaving manufacturers scrambling to reinvent their distribution models. In the toy industry, for instance, the recent bankruptcy of Toys R Us has left toy manufacturers struggling to maintain channel diversity as distribution continues to consolidate around fewer and fewer players.

For value-added distributors, is being a niche player with large contracts and value-added services a winning strategy in the face of the coming disruption? While custom pricing on large contracts may be a defensible strategy today, it likely won’t be an advantage for long. Amazon Business will ultimately put margin and pricing pressure on those large contracts, just as it’s doing with smaller orders today. In addition, losing smaller orders today will likely create significant margin pressure on the overall business, as smaller orders tend to have a higher margin.

As its footprint in B2B grows, there’s little question Amazon Business will continue to evolve and add value, as it has with its PRIME program and Fulfillment By Amazon service. It’s certainly not wise to underestimate Amazon’s drive toward progress. B2B businesses have the benefit of and can learn from hindsight. B2C businesses largely played defense in the past two decades and paid the ultimate price. Massive brands like Blockbuster, Circuit City, Sears, and Toys R Us have gone bankrupt, sending shock waves upstream to impacted manufacturers. Best Buy has lost 40% of its market capitalization. The lesson is clear: Repeating these same mistakes can have dire consequences on the viability of long-standing businesses.

Here’s a checklist of 3 action items that get you started in developing short and long term strategies to better position your organization for growth while mitigating risks from online competitors.

  1. Stop driving blindly. Assess the competitive landscape online thoroughly. We’re often too busy to take a step back to build a complete 360 view of the competitive landscape. Not just what Amazon is doing but what all major market participants are doing online. Bring in outside expertise to help if you’re time or knowledge constrained. Here at Leverage Marketing we’re extremely well versed at doing deep Digital Discovery and have done hundreds of them across dozens of verticals. If you’d like a redacted sample, send us a note from here and we’d be happy to send one out to you. Getting a view into competitor strategies, strengths and weaknesses are key inputs into your strategic planning without which you’re driving blind.
  2. Look Inwards. Assess your own strengths and weaknesses within the online marketplace. How do you compare within the landscape and against major market participants? Why do your customers pick you today? The more realistic your assessment the more effective your planning will be.
  3. Have a plan. Finally, with this understanding of the competitive landscape and how you are currently positioned, develop plans around mitigating the risks you’ve identified and taking advantage of opportunities for growth.  Take a holistic approach that looks at all assets you have across your organization and how they can be aligned to support your efforts online and offline. For instance, a recent study by Business Intelligence found that traditional B2C retailers continue to miss the opportunity to beat Amazon by taking full advantage of their brick and mortar presence by offering more in-store options like buy online pickup in-store (BOPIS) and convenient in-store returns. Ultimately, you should be able to convincingly assert why your customers will continue to do business with you in the future despite the emergence of online competitors.

This process of digital discovery and planning is difficult and requires time and expertise. Resist the urge to put it off in favor of more immediate challenges. The further you push such planning out, the greater the challenges to overcome. Wait long enough and they become insurmountable. Don’t become the next Blockbuster. Instead, done right and soon, the benefits are significant to your organization and will serve all your stakeholders well from your customers to your employees to your investors for a long time to come.

The Bottom Line

All B2B organizations need to carefully weigh the threats and opportunities Amazon Business presents and carefully develop short- and long-term strategies to position their businesses for long-term success.

Bedros Bedrosian

Managing Partner at Leverage Marketing
Bedros Bedrosian is a Managing Partner at Leverage Marketing in Austin, Texas - a trusted advisor to private equity professionals and their portfolio companies. You can find more information about Bedros on LinkedIn.
Bedros Bedrosian
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