Purchasing Cooperatives

Thoughts and strategies for running a purchasing cooperative or buying group

Tag: Amazon

Six Ways your Members can Beat Amazon in Online B2B

By

On June 10, 2020

In Strategy

Amazon Business continues to disrupt distribution and is expected to reach $52 billion in sales by 2023. The Coronavirus pandemic has further shifted B2B traffic to Amazon and pointed out the shortcomings of many independent online distributors. Since selling their products directly on Amazon Business ultimately results in weak customer loyalty and fractionalized sales, independent distributors must form their own online marketplaces to succeed.

But how can independents compete against online B2B giants like Amazon Business, Alibaba, and eBay? Here are 6 ways your members can succeed in the B2B e-commerce marketplace: 

1.     Focus on a specific vertical.

Amazon Business is a multi-category marketplace, typically offering commodity products that are easy to store, pack, and ship. To compete, independents need to dominate a vertical-specific marketplace, rather than attempting to co-exist in a multi-category marketplace. Specializing in a specific vertical allows independents to offer a comprehensive selection of products, typically with lower prices and better price transparency.

However, if there can only be one or two dominant players in any given vertical, how can the majority of independents succeed? This is where buying groups can step in. Buying groups with the vision of becoming the dominant marketplace player within their vertical can create a platform where all of their members can flourish.

2.     Mine the data.

An e-commerce site’s data offers invaluable insights into customer activity that can be used to constantly improve traffic and sales. What paths do customers use to navigate your site? Traffic patterns may suggest new products or cross-promotional opportunities.

3.     Service your customers.

As a successful independent, you know your product and your customers better than any multi-category marketplace. Make it easy for customers to ask questions. Don’t just rely on FAQs or online manuals. Integrate online chat – with a trained service rep and not an automated chatbot. Call your customers to answer questions rather than relying on email. Offer technical support.

4.     Make it easy.

Make it super simple to do business with you. For online marketplaces, search is king – if your customers can’t find it, they can’t buy it. Pair every product with images and videos to reduce confusion and enhance product descriptions. Optimize site speed. Provide charge accounts and invoice options. Save past orders, and make re-ordering as easy as one or two clicks. Track when certain products were purchased, and pro-actively remind customers of maintenance parts.

5.     Reduce total costs.

Reducing costs for customers doesn’t always mean lowering prices. Localized product inventory and efficient cross-border fulfillment can save customers time and money. Look for other ways to reduce shipping costs. Offer rebate incentives to guide buyers to specific categories or to reward large customers without jeopardizing street prices.

6.     Don’t forget the underserved.

Amazon focuses on large customers who buy commodity products and who ask few questions. Independent marketplaces can serve smaller, irregular customers whose purchases add up.

The stakes are high for independents. The trick is to not emulate Amazon Business. Independents will succeed by combining the knowledge, service, and passion independents bring to traditional distribution with new online tools and strategies. Buying groups can play a role by educating members and by offering relevant shared services.

Members Can’t Beat Amazon; Groups Can (Part 3 of 3)

By

On March 27, 2020

In Selling Cooperatives, Strategy, Technology

This is part three of a three part series. Part one outlined Amazon Business’s platform model and how the traditional strategies of member-distributors will not be competitive. Part two proposed a buying group-based strategy to compete through the creation of a new marketplace owned jointly by the membership. In part three, below, I outline more specific features of a marketplace allowing you to compete against Amazon.

Recreating Amazon’s marketplace is a sure route to failure. Sure, there are elements worth adopting – powerful search, user reviews, simple check out procedures, etc. – but rather than emulating Amazon, focus on your member-distributor’s strengths and Amazon’s weaknesses.

Amazon thrives in two areas – product information and data collection. While Amazon knows their customers, they do not know their customer’s business. Amazon doesn’t have the same level of expertise as your members do. Amazon doesn’t have your reputation and relationships within the marketplace.

A group-driven marketplace should include the following features:

1.     B2C User Experience

Millennials will make up the majority of marketplace users, and they want their experience to be identical to their B2C shopping experience. An intuitive and user-friendly experience is a must. Personalization and predictive ordering are a must.

2.     Helpful Product Content

The best way to attract more web traffic is to add more content and more helpful guidance to every product on your site. Create a blog where you discuss business topics of real concern to the people who use your products.

3.     Offer Unique Products

Offer products that Amazon does not. This could be as simple as bundling a number of related products into a kit with a lower total price, or it could mean creating private label versions of existing high margin products.

4.     Strong Customer Service

Customer service in the B2B world means solving problems. Dedicate knowledgeable sales reps who know their buyers and products to your site. Provide human touch points. Provide multi-location logistics. Strong customer service should not be anything new for your members – figure out how you can apply what your members already do to the web. Amazon cannot compete with a human experience.

5.     Build a Hybrid Marketplace

B2B customers will always require an experience that includes both full service and online capabilities. Build a bridge between the online and offline worlds.

6.     Maximize Your Data

Route your eCommerce data into a good business intelligence tool that will help you understand what is working and what does not.

7.     Think About the Full Customer Experience

B2B eCommerce is not all about ordering products. How do your customers create claims? How do they deal with payment issues? Where do they discuss terms? Are they eligible for rebates? Where can they receive training? Are there product shows that they can attend? Make sure your marketplace makes the full customer experience a rich one.

The key to competing against Amazon is to bring the natural strengths of your member-distributors to the online world. A central group, owned by the members, can provide the leadership, guidance, and operational staff to creating a marketplace where members can compete on a level playing field.

Members Can’t Beat Amazon; Groups Can (Part 2 of 3)

By

On March 26, 2020

In Strategy, Technology

This is part two of a three part series. Part one outlined Amazon Business’s platform model and how the traditional strategies of member-distributors will not be competitive. In part two, below, I outline a buying group-based strategy to compete.

The B2B ecommerce stakes are high. Global B2B ecommerce sales are predicted to reach $3 trillion by 2024. Independent distributors, largely, have come late to the game, and their dual strategies of digital innovation and acquisitions are failing against the platform business model used by Amazon and others.

As described in part one of this article, the key to competing with Amazon is understanding their business model. Amazon’s platform allows Amazon to focus on selling a relatively small number of high volume items while leaving the rest to other suppliers on their platform. This model creates unprecedented depth to their catalogue of products while driving higher margins.

Individual distributors cannot compete with Amazon’s catalogue depth or create their own platform.

This is where purchasing co-operatives can step in.

Or, more specifically, sales co-operatives.

The idea of a sales co-operative is to take the notion of “one member, one vote” from the purchasing realm and apply it to selling online. Distributors in various industries could join together in a jointly funded initiative that can beat Amazon at the B2B game. Independents could leverage their strengths – services, customer relations, and product knowledge – in a way that Amazon could not.

Amazon is a generalist B2B marketplace. Given the size and fragmentation within B2B distribution industries, an opportunity exists for vertical-specific marketplaces. Groups – whether purchasing co-ops, buying groups, or sales co-ops – can take Amazon’s recipe for a marketplace and turn it to their members’ advantage.

It’s important to remember that a marketplace is not just a piece of technology. A marketplace is a business model. It creates value by bringing together distributors and consumers. Scale comes from growing an external network.

Adapting the purchasing co-operative model to build a niche marketplace would allow individual distributors to leverage their numbers and achieve an economy of scale necessary in the creation of a national marketplace. The sales co-operative could provide the technology and the staff to maintain the platform. It could gather the product information needed to populate the marketplace. It could drive the high standards necessary for such a marketplace to be competitive.

Most importantly, individual distributors could still compete against each other based on their own strengths, but on a level playing field.

Members Can’t Beat Amazon; Groups Can (Part 1 of 3)

By

On March 25, 2020

In Selling Cooperatives, Strategy

Independent member-distributors will not be able to beat Amazon in B2B e-commerce. There, I said it. Sure, they may be able to compete short term against Amazon, Wal-Mart, Wish, Houzz, or any of the other giant marketplaces vying to dominate the playing field, but they can’t win this battle alone in the long run.

It shouldn’t surprise you that B2B e-commerce is on the rise. According to research data from Forrester, e-commerce will make up about $780 billion in B2B sales – about 9% of all B2B sales – in 2019. They are predicted to reach $3 trillion globally by 2024.

This trend is as much of a threat as it is an opportunity for your member-distributors.

The most disruptive trends in the B2B environment of the last three years have all been related to the rise of B2B eCommerce:

  • Digital Shift. Competitors and customers have moved online, and customer expectations have evolved
  • Amazon and other Marketplaces. These marketplaces want your data and your customers
  • Disintermediation. Manufacturers and customers are increasingly trying to remove the middleman

In general, member-distributors, if they have responded at all, have responded with two strategies – digital innovation and mergers and acquisitions. Unfortunately, neither of these strategies can work without a true understanding of Amazon’s B2B marketplace and its threat to the independent.

First, some history. Amazon’s original foray into B2B distribution did not look like it does today. In 2012, their first attempt to enter this market took the form of Amazon Supply. Amazon Supply followed a traditional linear business model where Amazon owned all the inventory it sold. This approach ultimately failed because it could not compete on price.

Learning from their mistakes, in 2015 Amazon launched Amazon Business, a true B2B marketplace. Disruption since then has been swift, and distributors have struggled to respond.

Why haven’t independents been able to respond and gain their footing in the digital world?

Member-distributors all too often answer this question with their own fatalistic question: “How can we compete against someone as big and as technologically sophisticated as Amazon?”

This question, as well as the strategies of digital innovation and acquisitions, are blind to the biggest reason for Amazon Business’s success. Many distributors have built web- and app-based B2B portals rivaling Amazon in sophistication which have nevertheless been unable to compete with Amazon.

Amazon isn’t winning the B2B war because of their size or their technology. They are winning because of their platform business model.

Amazon Business is a B2B marketplace, or platform, that connects buyers and sellers, taking a commission on every sale. This model has allowed Amazon to grow exponentially since each new producer and consumer increases the value of the marketplace for other users.

Distributors who simply migrate their existing linear business model to the web or who acquire a new location (within the same vertical or an adjacent one) fail to understand the crux of Amazon’s threat.

In part two of this article, I will outline a strategy for buying groups and purchasing co-operatives that would allow their independent member-distributors to successfully compete against Amazon and other platform providers.

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