Amazon & other online marketplaces: Opportunity or Threat? (“Who is setting up to steal your...

Amazon & other online marketplaces:

Opportunity or Threat? (“Who is setting up

to steal your customers and how?”)

Terry Jukes – PresidentNov 8th, 2012

t

Private & Confidential - Do not distribute. 2

Terry Jukes – President

Strategic Planning

Best Practice Reviews

M&A Due Diligence

100+ clients, visit 15-20 B2B distribution operations each year.

11/8/12


Marketplaces: A tsunami or a surfing opportunity?

11/8/12


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.

11/8/12


Online marketplaces:“Presence & Reach”

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 1.4MYour site ?

Staples.com 9.1M MSCDirect.com 548K

OfficeDepot.com 5M 4Imprint.com 232K

Monthly traffic - unique visitors

11/8/12


Amazon Sales Growth35% average Y/Y growth

Q4 07

Q1 08

Q2 08

Q3 08

Q4 08

Q1 09

Q2 09

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

0.000

5.000

10.000

15.000

20.000

25.000

Sales - B$

Sales - B$

11/8/12


Amazon Gross Profit Margin

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 210.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

Amazon-GP%

11/8/12

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”

11/8/12


“Industrial and Scientific” currently buried on

Amazon.com…yet sales still $2-3B?

11/8/12


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%

11/8/12


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.

11/8/12


Amazon’s “Triple Threat”(McKinsey Study)http://www.slideshare.net/McK_CMSOForum/amazons-secret-sauce

1. Price leadership5-13% 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.

11/8/12



2. Assortment leadershipAverage number of B2C sku’s/category is 7X the top

5 retailers averageAmazonSupply 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).

11/8/12


Advertised item count….”more every

day..”

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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 managementOrder history by company/site/division/projectCosting analysis/PO

Technical support available….”we’ll see” Phone and Field sales forces announced….”we’ll see”

11/8/12


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?

11/8/12


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 ratePrime members spend 2.5-4x more than average

customer and it’s growing.Will there be an (enhanced?) Amazon Prime offer

for B2B?

11/8/12


Amazon Prime

11/8/12


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

11/8/12


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”.

11/8/12


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?)

11/8/12


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. 11/8/12



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?

11/8/12



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”.

11/8/12


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

-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

11/8/12


Marketplaces: Here to stay and a surfing opportunity!!

11/8/12


Comments?

Questions?

Strategic Planning - Best Practice Reviews - M&A Due Diligence

Terry Jukes – (954) 383-5221)

(Email me for a copy)

11/8/12

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