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Amazon & other online marketplaces: Opportunity or Threat? (“Who is setting up to steal your customers and how?”) Terry Jukes – President Nov 8 th, 2012.

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Presentation on theme: "Amazon & other online marketplaces: Opportunity or Threat? (“Who is setting up to steal your customers and how?”) Terry Jukes – President Nov 8 th, 2012."— Presentation transcript:

1 Amazon & other online marketplaces: Opportunity or Threat? (“Who is setting up to steal your customers and how?”) Terry Jukes – President Nov 8 th, 2012 t

2 Terry Jukes – President Strategic Planning Best Practice Reviews M&A Due Diligence 100+ clients, visit B2B distribution operations each year. 3 Private & Confidential - Do not distribute.11/8/12

3 Marketplaces: A tsunami or a surfing opportunity? 4 Private & Confidential - Do not distribute.11/8/12

4 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 AS will begin promotion in 2013 Ebay launches “ebay wholesale”, ponders “ebay B2B” Google Shopping/Ebid, Alibaba, FB, LI, and others studying B2B opportunity. 5 Private & Confidential - Do not distribute.11/8/12

5 Online marketplaces: “Presence & Reach” Amazon.com99MGrainger.com3.2MNorthernSafety.com42K Ebay.com78MBuy.com3MAmazonSupply.com33K BestBuy.com20MTigerDirect.com2.7M Overstock.com12MUline.com1.4M Your site? Staples.com9.1MMSCDirect.com548K OfficeDepot.com5M4Imprint.com232K Monthly traffic - unique visitors 6 Private & Confidential - Do not distribute.11/8/12

6 Amazon Sales Growth 35% average Y/Y growth 7 Private & Confidential - Do not distribute.11/8/12

7 Amazon Gross Profit Margin 8 Private & Confidential - Do not distribute.11/8/12

8 Amazon’s Quarterly Sales Growth

9 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” 10 Private & Confidential - Do not distribute.11/8/12

10 “Industrial and Scientific” currently buried on Amazon.com…yet sales still $2- 3B? 11 Private & Confidential - Do not distribute.11/8/12

11 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% 12 Private & Confidential - Do not distribute.11/8/12

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. 13 Private & Confidential - Do not distribute.11/8/12

13 Amazon’s “Triple Threat” (McKinsey Study) 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. 14 Private & Confidential - Do not distribute.11/8/12

14 Amazon’s “Triple Threat” (McKinsey Study) 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). 15 Private & Confidential - Do not distribute.11/8/12

15 Advertised item count….”more every day..” 16 Private & Confidential - Do not distribute.11/8/12

16 Amazon’s “Triple Threat” (McKinsey Study) 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/ % 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” 17 Private & Confidential - Do not distribute.11/8/12

17 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? 18 Private & Confidential - Do not distribute.11/8/12

18 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? 19 Private & Confidential - Do not distribute.11/8/12

19 Amazon Prime 20 Private & Confidential - Do not distribute.11/8/12

20 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 21 Private & Confidential - Do not distribute.11/8/12

21 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”. 22 Private & Confidential - Do not distribute.11/8/12

22 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?) 23 Private & Confidential - Do not distribute.11/8/12

23 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  Objectively assess your vulnerability  Adjust pricing down as necessary, up when possible – model outcomes to achieve balance.  Improve selling and acquisition on all marketplaces/CSEs. Consider using Channel Advisor or Mercent. Segment new customers and invest based on potential/1 st year value. 24 Private & Confidential - Do not distribute.11/8/12

24 What is your competitive plan?  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.  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.  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.  Consider launching a loyalty or rebate program. Match Amazon Prime? Free S&H for $79/year? 25 Private & Confidential - Do not distribute.11/8/12

25 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”. 26 Private & Confidential - Do not distribute.11/8/12

26 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 27 Private & Confidential - Do not distribute.11/8/12

27 Marketplaces: Here to stay and a surfing opportunity!! 28 Private & Confidential - Do not distribute.11/8/12

28 Comments? Questions? Strategic Planning - Best Practice Reviews - M&A Due Diligence Terry Jukes – (954) ) ( me for a copy) 29 Private & Confidential - Do not distribute.11/8/12


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