PERSPECTIVE: Will Amazon.com Force You to Innovate?
12/1/2015 6:32:00 PM
HEADLINES
Online retail giant Amazon.com Inc. has been innovating for the past 20 years. And some analysts think that’s just the beginning for the largest e-commerce business in the U.S.
Among those analysts is Bruce Merrifield of Merrifield Consulting Group.
During the Specialty Tools & Fasteners Distributors Association’s 39th annual convention in Phoenix, Merrifield pointed out that Amazon sold its first book in 1995. Within four years it was using algorithms and reviews to predict each customer’s next purchase.
In 2015, Amazon surpassed Walmart as the most valuable retailer in the U.S. by market capitalization.
“I’m hard pressed to think of another company in history that’s been more innovative,” Merrifield stated.
That’s why Amazon is threatening every physical (and digital) product channel from Wal-Mart on down, he said.
“Their mission of ‘selling everything needed to rebuild civilization’ is no exaggeration.”
Amazon continues to increase items for sale in vertical distribution channels in pursuit of more B2B sales, a strategy that seems to be paying off. The company reported third quarter sales rose 78% year on year, with profits of $1.05 billion.
Merrifield said Amazon’s success is due to the vision of its founder and CEO Jeff Bezos, whom Merrifield called a “relentless innovator.”
“Don’t think this guy is going to run out of gas.”
Bezos created a business model that’s so successful it will steal sales of a company’s most net-profitable consumables bought by the lowest, cost-to-serve customers.
Merrifield said 90% of distributors are stuck in “commodity hell,” with single-digit margins (ROTA).
“Statistically, 65% of your inventory is unprofitable,” he noted.
Amazon knows profit/loss on every line item. “You should too!”
If you don’t know, it could mean your company might benefit from a core renewal, according to Merrifield.
“Every one of you has a profitable business beneath your statistical averages.”
So why are your best customers willing to defect to Amazon? They offer 24/7/365 “fastest, most-reliable way to buy plus one-hour delivery,” giving buyers a total customer-centric, service-design experience. And Amazon’s prices on the 200 most-net-profitable SKUs are lower.
Merrifield urged STAFDA members to grow better by being truly “customer centric” like Amazon.
“Supply chain is about teaching your customers how to buy.”
One way to improve is by prioritizing customers so the most profitable customers get your best service.
“If you have one service model for all customers, your best customers are subsidizing your worst ones,” Merrifield stated.
It’s better to focus on digital, ambitious, innovative, growing millennial customers instead of “self-employed, no-growth, no-change minnows.”
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• STAFDA
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