Amazon & other online
marketplaces:
Opportunity or Threat?
(“Who is setting up to steal your
customers and how?”)
Terry Jukes – President
Nov 8th, 2012
t
Terry Jukes – President
Strategic Planning
Best Practice Reviews
M&A Due Diligence
100+ clients, visit 15-20 B2B distribution operations each
year.
Private & Confidential - Do not distribute.
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Marketplaces: A tsunami or a
surfing opportunity?
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11/8/12
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Online marketplaces: Where
are we now?
 Amazon.com major player, selling $48B/year, growing 30%,
B2B products 5%? ($2-3B)
 AmazonSupply.com (AS) launched April 2012, still in Beta,
goal $1B in first year sales, $5B in 2013?
 AS has 600K SKUs and growing.
 AS will open to merchants in 2013. AS will begin promotion
in 2013
 Ebay launches “ebay wholesale”, ponders “ebay B2B”
 Google Shopping/Ebid, Alibaba, FB, LI, and others studying
B2B opportunity.
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11/8/12
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Online marketplaces:
“Presence & Reach”
Monthly traffic - unique visitors
Amazon.com
99M
Grainger.com
3.2M
NorthernSafety.com 42K
Ebay.com
78M
Buy.com
3M
AmazonSupply.com 33K
BestBuy.com
20M
TigerDirect.com
2.7M
Overstock.com
12M
Uline.com
1.4M
Staples.com
9.1M
MSCDirect.com
548K
OfficeDepot.com
5M
4Imprint.com
232K
Your site
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?
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Amazon Sales Growth
 35% average Y/Y growth
Sales - B$
25.000
20.000
15.000
Sales - B$
10.000
5.000
0.000
Q4
07
Q1
08
Q2
08
Q3
08
Q4
08
Q1
09
Q2
09
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Q3
09
Q4
09
Q1
10
Q2
10
Q3
10
Q4
10
Q1
11
Q2
11
Q3
11
Q4
11
Q1
12
Q2
12
Q3
12
Q4
12
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Amazon Gross Profit Margin
Amazon-GP%
30.00%
25.00%
20.00%
15.00%
10.00%
5.00%
0.00%
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2
3
4
5
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Amazon’s Quarterly Sales
Growth
What is the Amazon
Opportunity?
 Amazon is the #1 online retailer, 2011 sales of $48B, growth
rate >30%.
 Amazon.com is the leading marketplace and shopping
search engine having surpassed Google.
 Amazon.com (not AS) is currently a major source of sales
and new customers for many B2B distributors.
 AS launched in April is the B2B focused spin-off from
Amazon. It has the potential to be one of the Top 5 B2B
distributor/sellers within two years with sales >$5B.
 Amazon represents a large (albeit non qualified) new
customer acquisition opportunity. “Get ‘em on Amazon,
bring them direct”
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“Industrial and Scientific”
currently buried on
Amazon.com…yet sales still $23B?
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What is the Amazon
Opportunity?
 Tremendous “presence and reach”, 50+ countries
 Not yet focused on B2B
 “You only need a small piece”
 Customer acquisition opportunity and/or incremental profit
opportunity.
 Targets B2C customer, not justifiable otherwise?
 Larger volume, lower quality of new customers
 Offer can be “tailored and adjusted.”
 Amazon Associate income/8%
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What is the Amazon Threat?
Amazon and Amazon Supply are competitors who operate a vendor marketplace and sell
directly.
 Price leadership
)
 Broad assortment (14 cats)
) “Triple threat” (McKinsey)
 Customer experience
)
+


B2B functionality
B2B “one stop shop”

Amazon’s reach, market presence and supply chain efficiency can not be duplicated.

Marketplaces allow “little guys” easier market entry.

Showrooming hurts catalogers and Amazon has mobile apps to facilitate showrooming.
(Walmart, Target, Best Buy now match price.)

More B2B marketplaces may follow from Ebay, Google, even Facebook. Marketplaces
and CSEs are here to stay.
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Amazon’s “Triple Threat”
(McKinsey Study)
http://www.slideshare.net/McK_CMSOForum/amazons-secret-sauce
1. Price leadership
 5-13% versus top five retailers
 5-20% in B2B…but its ”early days”! (B2B DMI)
 The only price comparison that counts is on your




 Top 100 products.
 Your “visibles”
Very competitive on “bread, eggs & milk” (the visibles) of the
“supermarket”.
Best in class supply chains lowers COGS 3-4%
Price algorithms continuously keep prices competitive as
sources of supply and markets change.
Not always the lowest…but algorithms not yet at “equilibrium”
on AS.
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Amazon’s “Triple Threat”
(McKinsey Study)
http://www.slideshare.net/McK_CMSOForum/amazons-secret-sauce
2. Assortment leadership
 Average number of B2C sku’s/category is 7X the top 5





retailers average
AmazonSupply advertises “600,000 items”
B2B SKU offering growing daily – How deep are they in
your product line?
Stock top 20% of SKUs in at least 4 regional warehouses
for 1-2 day delivery.
20+ warehouses in USA cover 95% of MSAs assuring
next day delivery.
Testing same day delivery in 15+ cities (…and Walmart,
Target responded).
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Advertised item
count….”more every day..”
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Amazon’s “Triple Threat”
(McKinsey Study)
http://www.slideshare.net/McK_CMSOForum/amazons-secret-sauce
3. Customer experience/satisfaction
 Amazon.com has 13% higher customer satisfaction scores







overall than top five retailers.
American Customer Service Index (ACSI) score of 96/100.
90% automated versus 44% for major retailers…more cost
effective.
Easy returns
Amazon Prime “one key” ordering.
Added B2B functionality
 Account management
 Order history by company/site/division/project
 Costing analysis/PO
Technical support available….”we’ll see”
Phone and Field sales forces announced….”we’ll see”
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What is the Amazon threat?
 Amazon.com is the B2C shopping search engine of choice. Will
B2B follow?
 Amazon supports keyword, barcode, image and voice search
 Amazon’s ratings and reviews drive 35% of sales (57% of buyers
trust other buyers)
 Improving image, audio and video presentation on AS
 Amazon Supply in the early stages of adding detailed searchable
product content.
 Amazon Supply has large “one stop shop” advantage in B2B with
14 product categories.
 Amazon Supply has done no real promotion to date – 2013?
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What is the Amazon threat?
 Amazon Prime subscribers are loyal, repeat
customers, many are small business owners.
 3-5M (maybe up to 15M) subscribers out of total of 125M




customers. Growing rapidly at 25%/year.
Pay $79/year for free S&H, free e-books/streaming
movies.
High (92%) annual retention rate
Prime members spend 2.5-4x more than average
customer and it’s growing.
Will there be an (enhanced?) Amazon Prime offer for
B2B?
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Amazon Prime
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What can the B2B cataloger
do?
 Accept that even the largest B2B cataloger will have
difficulty competing on distribution/delivery or net price
against Amazon.
 Accept that their website will continuously improve and
eventually capture, serve and keep loyal customers.
 Strategically choose your “competitive ground” and advance
(not retreat) towards that.
 Play to your 1-2 core strengths
 Exploit what they bring to you – large audiences/customer
acquisition, incremental sales
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What can the B2B cataloger
do?
 “Centralize, Focus & Specialize”
 Specialized product “depth and breadth” – xxx items, xxx pages, “XX
page reference catalog” “We’ll have it or will find it” “Go Deep” into
proprietary, unique and hard to find, specialty, niche products
 Servicing the offline customer with catalog/phone/branches/field sales.
 Servicing the online shopper with phone and application expertise.
 Continue to leverage “big data” proactively to further segment and target
profitable customers with more relevant offers.
 Subtly sell “no sales tax”.
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What advantage does the
B2B cataloger have?
 Amazon is an “online mass marketer” selling everything but,
hopefully, master of nothing. B2B catalogers are specialized and
masters of their product/service/application.
 Amazon doesn’t target (yet), they simply “open the doors” for both
profitable and unprofitable orders/customers. B2B catalogers
leverage “Big Data.”
 Amazon may hurt local supply sources more than B2B catalogers.
 When it comes to deep, niche product selection, application
knowledge, detailed content and specialized services, the B2B
cataloger will likely have the edge. (Customer don’t just want
products at the cheapest price, they want to accomplish their goals
– how can you help them do that?)
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What is your competitive
plan?
1.
“Got knowledge?”.

Competitive offer/pricing analysis based on UPC/EAN, vendor/model/keyword. (B2B DMI
MIS)
-depth and breadth?
-price? (Top 100, “Visibles”, key categories)
-stock levels?
-ratings
-trends?




Use/Test Amazon Supply
Search your vendors and competitors on Amazon.com and AS
Read quarterly reports,
Review their job postings
2.
Objectively assess your vulnerability
3.
Adjust pricing down as necessary, up when possible – model outcomes to achieve balance.
4.
Improve selling and acquisition on all marketplaces/CSEs. Consider using Channel Advisor or
Mercent. Segment new customers and invest based on potential/1st year value.
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What is your competitive
plan?
4.
Test advertising on Amazon as a compliment or alternative to selling on the
marketplace. Evaluate results based on initial response, products sold,
segmentation (keywords) and 1 year value.
5.
Develop a program to convert first time Amazon buyers to direct buyers if
customer potential warrants. Use phone, box inserts, second order offer, brand
sell, etc.
6.
Ask your common vendors how you are doing versus Amazon. Sell the
advertising value of your catalog and explain “show rooming”. Ask for additional
vendor support.
7.
Consider launching a loyalty or rebate program.
 Match Amazon Prime? Free S&H for $79/year?
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What is your competitive
plan?
8.
Build your personal telephone relationships. Merchandise your brand in the
mailings and over the phone.
9.
Know what your business model would look like if you sold on Amazon only.
(as new competitors will emerge doing just that)
10. Build your online real estate by buying product/application/customer specific
URLs using them to distribute your unique content and attract niche markets.
11. Consider a second discount brand to use on marketplaces and other
“competitive price fights”.
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Amazon Supply Competitive
Plan
12. Talk to other B2B catalogers and B2C retailers to see how they are handling this new
competition.

-Walmart, stopped selling Kindles (“Amazon order machines”), testing same day
delivery and matching Amazon’s prices

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
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-Target stopped selling Kindles and matches prices.
-Best Buy matches prices
-MSC Direct, Uline, WWG only advertises
-Some use Mercent, Channel Advisor
13. Watch how your largest competitors and vendors respond.
 -MSC withdrew from Amazon but still advertises
 -Grainger advertises
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Marketplaces: Here to stay
and a surfing opportunity!!
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Comments?
Questions?
Strategic Planning - Best Practice Reviews - M&A Due Diligence
Terry Jukes – (954) 383-5221)
(Email me for a copy)
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