We caught up with Carman Pirie, Co-founder of Kula Partners, to discuss why more manufacturers are selling their products on Amazon Business, and how wholesalers and distributors can respond and adapt to this growing trend. The leading marketing and sales consultant for manufacturers will be at Unilog’s EVOLVE 2019 eCommerce conference April 9-12 to speak about the changing manufacturer/distributor relationship and offer strategies to create a better partnership with shared accountability.
In our Annual B2B Digital Commerce Report, 43% of the manufacturers we surveyed said they sell their products directly on Amazon Business, at times bypassing their traditional distribution channel. What do you think of this trend?
It’s interesting that we consider selling on Amazon Business as selling direct to the customer because that’s not really a true statement. When manufacturers sell their products on Amazon, they’re effectively selling through another distributor. So I can see why distributors would be concerned with this trend because Amazon is seen as another competitor to them. But my advice to distributors would be not to panic. There are perfectly suitable reasons for a manufacturer to sell on Amazon Business in a way that doesn’t necessarily damage their relationship with distributors. Many use Amazon as a testing ground for new products before putting them out through the traditional distribution channel. Others use it as an outlet to sell off discontinued inventory they want to clear out.
In some ways, when manufacturers sell on Amazon they are essentially telling us they consider Amazon a better marketer – or at least a different marketer – than traditional distributors, and, of course, they are. CNBC recently reported that Amazon’s marketing costs were $13.8 billion last year, which is up 37% year over year. Their marketing spend as a percentage of revenue was 5.9% – the highest in 18 years. And for the first time ever, Amazon became one of the top five ad spenders in the United States in 2018. How many distributors can say that they are proportionally spending that same level of investment on marketing and sales? But, while Amazon may be the leader in marketing the products they sell, in the end it’s the person who delivers the best customer experience that will win the day.
What are some of the things distributors can do to support that better customer experience?
Wholesalers and distributors have entered a new arms race in terms of how to serve customers better. Right now, they have some advantages over Amazon: they know their customers better, and they’ve lived closer to them for longer than Amazon has, so they’ve built deeper relationships and trust with buyers.
However, Amazon has the digital experience, which is why distributors need to think more strongly about their investments in their digital platforms. They also must consider how they can connect their digital presence to their physical one in more intimate ways. I’ve seen lots of distributors rest on the laurels of their human relationships with their customers, thinking that is all they need. But in some cases, they’re failing to build that bridge to the digital customer experience that they need to deliver tomorrow in order to compete.
Will Amazon find additional ways to compete with distributors?
Yes I think it would be folly to try to plan your strategy as a distributor on an assumption that Amazon isn’t going to evolve. They have the economic ability to do a lot of things. Distributors may have the upper hand with that direct customer relationship and physical presence right now, but they only have about a three- to five-year window to figure how to expand that experience into a digital one. You hear a lot of talk about omnichannel commerce but, ultimately, this is what distributors need to achieve success.
So what can distributors do to compete against this goliath retailer?
Well, I don’t think the best strategies are born out of a defensive posture. I would hope that a really savvy distributor would put a dot on the map at some future point and say that this is where we’re going to be; this is the experience we’re going to be delivering to our customers. Don’t obsess so much about what Amazon is doing – you can deliver something better to your customers if the transformation is informed by your superior knowledge of your customers and not simply a desire to mimic Amazon.
Even though technology changes very fast and Amazon’s economic advantage isn’t going away anytime soon, the good news is humans don’t change that fast. Yes, buying behaviors may change to become more digital, but distributors will find buyer motivations really don’t change. That’s why they need to double down on the notion that marketing and sales is really important, how they serve their customers is really important, and they need to get busy taking their business to the next level. It’s one thing to be customer focused, but clearly new prospect acquisition has to be an important part of your strategy as well.
What do you think about distributors using Amazon as a sales channel?
I think it’s a move in the right direction because there’s no substitute for experience in the platform. When distributors better insert themselves into how buyers are shopping these days, they’re more likely to better understand their behavior, which makes them better poised to cross those experiences that will move their businesses forward. I’m not saying that all distributors should be there, but it’s a good indicator that they’re at least experimenting with some of the right things.
I’m excited when I hear people are not feeling defeated by this new marketplace phenomenon but, rather, are looking at Amazon and asking themselves what’s really at play here and how can we take advantage of it.
Tell us more about your presentation at the upcoming EVOLVE 2019 conference.
The focus of my presentation will be building better manufacturer-distributor relationships. I’ll offer ways to create stronger partnerships between distributors and manufacturers because, as the industry moves more digital, there are interesting, new opportunities to incorporate more accountability into those relationships and improve how manufacturers and distributors go to market together.