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The Amazon Effect 2014 NAW AEC Meeting

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1 The Amazon Effect 2014 NAW AEC Meeting
July 16, 2014 The Amazon Effect How e-commerce is transforming the distribution industry Thomas P. Gale President Gale Media © 2014 by Gale Media, Inc. All rights reserved. Material may not be reproduced in whole or in part in any form whatsoever without permission from the publisher. To request permission to copy, republish, or quote material, please or call

2 Market research in wholesale distribution

3 © 2014 Gale Media, Inc. All Rights Reserved.
Agenda © 2014 Gale Media, Inc. All Rights Reserved.

4 © 2014 Gale Media, Inc. All Rights Reserved.
Real agenda E-commerce channel transformation Threats, opportunities, strategies How members can adapt & thrive Ann Arnott Ralph Suppa The most obvious example that has gained a lot of press/attention (including on MDM) is AmazonSupply, so let’s talk a little about it. © 2014 Gale Media, Inc. All Rights Reserved.

5 E-commerce transformation
Google, Amazon are accelerating, not creating competitive trends Pricing visibility, alternate channels have been around for more than 100 years!

6 © 2014 Gale Media, Inc. All Rights Reserved.
E-commerce transformation More complex channel competition Global Cross-industry E-commerce Multi-channel Branch Catalog Relationships Digital platforms Integrated functions: Market, sell, service, order Convergence: Industrial > Retail > E-tail The most obvious example that has gained a lot of press/attention (including on MDM) is AmazonSupply, so let’s talk a little about it. © 2014 Gale Media, Inc. All Rights Reserved.

7 © 2014 Gale Media, Inc. All Rights Reserved.
E-commerce transformation Type of Site Common Functions Corporate website Public corporate information Online catalog Browse products - Attract new customers Online store B2C New customers – Purchase products Online store B2B Existing customers – Purchase products Customer portal Existing customers – Order, check status Sales rep portal Quote, order, check status, configure Customer Svc portal Order management, place order, check status Marketing portal Manage & distribute product content Punchout portal Enable customers to export orders to us Plans to explore in next 12 months Source: Insite Software © 2014 Gale Media, Inc. All Rights Reserved.

8 © 2014 Gale Media, Inc. All Rights Reserved.
E-commerce transformation Plans to explore in next 12 months Source: Forrester Research - May 2013 Global eBusiness And Channel Strategy Professional Online Survey © 2014 Gale Media, Inc. All Rights Reserved.

9 © 2014 Gale Media, Inc. All Rights Reserved.
Threats, opportunities, strategies Aggressive SKU/category growth September 2013 January 2014 June 2014 Partner, competitor, co-opetitor © 2014 Gale Media, Inc. All Rights Reserved.

10 © 2014 Gale Media, Inc. All Rights Reserved.
Threats, opportunities, strategies “Amazonization” of customer expectations Convenience, transparency, loyalty E-commerce functionality Ease of ordering Fulfillment infrastructure Speed of delivery The most obvious example that has gained a lot of press/attention (including on MDM) is AmazonSupply, so let’s talk a little about it. © 2014 Gale Media, Inc. All Rights Reserved.

11 Slow build-out: smallparts.com in 2005 Revenues = $150 million?
Threats, opportunities, strategies Slow build-out: smallparts.com in 2005 Revenues = $150 million? Not multi-channel service Targeted segment of spot buys Emerging product technical expertise Evolving supplier relationships Deep, deep pockets

12 More mobile – traffic more than doubled
Threats, opportunities, strategies Online sales = $3B (30%) Spanish site More mobile – traffic more than doubled 30% of mobile orders picked up at branch Closed 70 branches Print catalogs reduced 20% in 2014 300 IT/E-commerce hires

13 Relationships aren’t what they used to be
Takeaways today If you don't know where you're going, you might not get there. Yogi Berra Relationships aren’t what they used to be Disruptive technologies increasing Strengthen core differentiated value Embrace multichannel strategically Redesign service & business models

14 Takeaways today “Any distributor still in business stays in business by providing a lot of intellectual capital along with the tangible products.” Todd Youngblood CEO, The YPS Group Business models have to evolve with shifting channels & customer behavior Sell Stock Credit Expertise Service Product

15 Thank you Thomas P. Gale President
Gale Media/Industrial Market Information Publisher, Modern Distribution Management @mdmnews https://www.youtube.com/user/jenatmdm

16 Seeing Beyond the Threat to the Opportunity
In order for distributors to thrive in the new ecosystem, they need the support from the manufacturer community. Typically, the B2B market is much more profitable for a manufacturer than the retail market. The manufacturer needs to help level the playing field… Denise Keating in “AmazonSupply and the Great Data Divide” on TedMag.com

17 The Role of the Association
We can support our members by doing what we’ve always done Provide networking opportunities to foster partnerships and strengthen relationships with manufacturers

18 Seeing Beyond the Threat to the Opportunity
These companies [e.g., e-commerce giants] cannot replicate what we do for our customers. They can’t demonstrate how a product or system can reduce the total cost of operations. They aren’t recommending solutions to a process problem. We can provide the same product in the same way a company like Amazon does. It’s up to us to offer the right solution.” Distributor member panelist at 2014 PTDA Canadian Conference

19 The Role of the Association
We can support our members by doing what we’ve always done Provide networking opportunities to foster partnerships and strengthen relationships with manufacturers Offer research and information about their customers to help them be the expert in the customer’s business

20 Seeing Beyond the Threat to the Opportunity
Avoid competing where you just can’t compete…Use [your size] to your advantage. Being personable, forming strong relationships, focusing on above-par service and responding to requests quickly are all very good starting points. Bill Burnett in “Going up against the Web’s 800-Pound Gorilla” on TedMag.com

21 The Role of the Association
We can support our members by doing what we’ve always done Provide networking opportunities to foster partnerships and strengthen relationships with manufacturers Offer research and information about their customers to help them be the expert in the customer’s business Develop resources for members to use in demonstrating their nimbleness, deep product knowledge and ability to add to the customer’s bottom line

22 What should we anticipate in the future?
Strategic Implications What should we anticipate in the future? Changing the rules about membership Fostering co-opetition—partnering with your competitors. For our members, the reliance on ecommerce will only accelerate as the digital natives move into decision-making positions. So to will it change the way we as associations do business.

23 Seeing Beyond the Threat to the Opportunity
Distributors must continue to adapt, innovate and increase their relevancy and value to the customer whether Amazon is in the marketplace or not. Dirk Van Dongen as quoted in TedMag.com

24 NAW Association Executives Council (AEC) Summer Meeting
The Amazon Effect: A Perspective from Up North – Canadian Institute of Plumbing & Heating Presenter: Ralph Suppa, President & General Manager July 14-16, 2014, Omni La Costa Resort and Spa, Carlsbad, California NAW AEC Summer Meeting 24

25 Agenda 1. What is CIPH? 2. The Way we Were/Are
3. Current Realities & Challenges 4. Strengths/Opportunities 5. What does this mean? 6. Closing Remarks NAW AEC Summer Meeting 25

26 What is CIPH? NAW AEC Summer Meeting
CIPH is a not-for-profit trade association founded in Montreal in The Institute provides members with the tools for success in today's competitive environment. Over 260 companies are members. Members are the Manufacturers, Wholesaler Distributors, Master Distributors, Manufacturers' Agents and Allied Companies who manufacture and distribute plumbing, hydronic heating, industrial, waterworks and other mechanical products. CIPH wholesalers operate more than 700 warehouses and showrooms across Canada. Total industry sales exceed $6 billion annually.   NAW AEC Summer Meeting 26

27 The Way we Were/Are The problems which Wholesaler Distributors have to deal with are: a.) Lack of Volume b.) Cost of Distribution c.) Rebates d.) Cash Discounts e.) Returns f.) Credits g.) Classification of Contractors h.) Faulty Trade Practices. CIPH President’s Address, Annual General Meeting, October, 1934 NAW AEC Summer Meeting 27

28 The Way we Were/Are NAW AEC Summer Meeting
In dealing with these problems, Wholesaler Distributors should set up standards: 1.) To handle high-class products only and to discourage the manufacture of inferior materials. 2.) To carry sufficient stocks and not to pose as Wholesaler Distributors expecting the profit of a Wholesaler Distributor when they are in fact only agents in certain lines. 3.) To decide on a fair trade policy of selling as well as buying and outline this policy: a.) To have a fair selling price. b.) To protect in price the contractor, having due respect for the consumer and not restricting markets. NAW AEC Summer Meeting 28

29 CIPH President’s Address, Annual General Meeting, October, 1934
The Way we Were/Are c.) To decide that where protection is given, the installer must accept responsibility for the merchandise. d.) To sell direct to the industries having their own installing staff. e.) To not sell to other Wholesaler Distributor, except as an accommodation. f.) To do a fair amount of independent advertising to sell more and better products. g.) To discourage mail order and direct selling. 4.) To agree on a uniform, fair and complete credit policy. CIPH President’s Address, Annual General Meeting, October, 1934 NAW AEC Summer Meeting 29

30 Bricks & Mortar NAW AEC Summer Meeting 30

31 Challenges (Amazon.ca)
Current Realities Challenges (Amazon.ca) Amazon will not go away. Internet sales in plumbing is about 1.5% of Wholesaler Distributor volume. Impact on certain categories. Internet minimum advertised price. Geographical complications to distribution rights. Retail vs. Wholesaler Distributor impact. Online NAW AEC Summer Meeting 31

32 Strengths/Opportunities
Relationship of CIPH Wholesaler Distributors with professional contractors will continue to be key. Amazon has forced Wholesaler Distributors to be more technologically innovative and be more readily able to adapt. Manufacturers are now more involved in the Wholesaler Distributors’ plans. Wholesaler Distributors continue to use the internet as a sales and marketing tool. Wholesaler Distributors continue to embrace showroom sales. Data synchronization to help match Wholesaler Distributor and Manufacturer data to provide customers with the most robust sales data available. NAW AEC Summer Meeting 32

33 What does this mean? NAW AEC Summer Meeting
“To date I've never bought anything from them, and in truth wouldn't know how they could benefit my company. But if they sold the same materials, had great delivery service, could take back the overage materials ordered without a restocking charge on the normal day-to-day materials that our industry uses, they stood behind the products they sold, any warranties were the same or better, they were knowledgeable about the product used, and they didn't finance my competition, then maybe we would look to them as a possible supplier. I seriously doubt they could ever do all of that, but again I wouldn't rule out what they can and can't do. Its certainly a ever-changing society. In truth there was a time I wouldn't have ever believed you could send a document through a machine and have it replicated elsewhere, and then I bought a fax machine. Lol. And now they are not used nearly as much as they were a few short years ago, since the Internet and s became the norm. I can't wait to see what's next.” - Past Chairman, Mechanical Contractors Association of Canada NAW AEC Summer Meeting 33

34 Questions? NAW AEC Summer Meeting 34


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