22 Aug How Amazon’s Challenges are Distributors’ Opportunities
While large distributors do need to take Amazon Business seriously, there are key challenges that Amazon faces that should be accounted for when building a strategy to compete. These challenges provide valuable direction to large distributors on how to compete as Amazon Business continues to gain traction with a new generation of buyers.
Challenge 1: Amazon Culture
First, it may be harder for Amazon to simply acquire companies to enter a market, particularly for targets that are service providers. Amazon has a unique company culture – one where employees work by Amazon’s “Leadership Principles.” There is great power in this approach: staff at all levels are trusted to make decisions provided they align with the principles. This helps Amazon move quickly because decisions are made by the people closest to the results.
In addition, Amazon prefers employees who can move into other departments or divisions over those who are only a “fit” in one. Amazon’s hiring process is notoriously difficult. I personally participated in over 100 onsite interview loops – out of those, Amazon extended offers 15-20% of the time. Amazon’s strategy of always “raising the bar” when it comes to hiring makes it hard to envision an acquisition in which all (or even most) of the company employees would meet Amazon’s standards.
The need to integrate acquisitions into the Amazon culture limits the number of firms Amazon would want to target. Amazon isn’t looking to buy a company, only to lay off most of the staff because of culture fit. This applies even more so for service firms – where the people are the company’s biggest asset. Therefore, the hypothesis that Amazon could buy up a few small distributors and cobble them together into an Amazon-style “megadistributor” is unlikely at best.
Challenge 2: Marketplace Catalog Management
Second, the article mentions that the “only way” for large distributors to compete with Amazon is to open their own marketplaces. Marketplaces can be very powerful tools to help distributors ramp up selection growth and provide competitive pricing. But they also have challenges – particularly when it comes to managing the product content that drives the customer experience.
Every seller and every SKU added to a marketplace increases the complexity of managing the associated content. SKUs need to be matched to existing selection to prevent duplicates. The values supplied for product attributes need to be vetted and normalized to prevent inconsistent formatting and “blowing up” faceted search. Different seller contributions of images, copy, and descriptions must be qualified and ranked to determine which ones are shown to the customer on the detail page for each SKU.
Amazon already struggles with these issues and devotes significant technical resources trying to manage selection. Even on Amazon Business, their efforts have far to go to achieve a unified, high-quality customer experience. Theoretically, Amazon could decide to build out an “authoritative master catalog” of products – pulling product data in from public sources like manufacturer websites to build out SKUs that they don’t even yet have sellers for. This would simplify life for sellers who could then only have to supply a price and inventory feed (rather than supply all the details of the SKU). But that speculation would require significant resources that Amazon has not shown interest in supporting.
Challenge 3: Industry-Specific Customer Experience
While Amazon is a force and a threat, with clear designs on growing in this space, some large distributors are holding ground by competing on customer experience. Sites like those of McMaster-Carr, Gamut, and Misumi – while limited to each seller’s own selection – use high content standards and robust product data to create customer experiences that are not (yet) possible on Amazon.
For large distributors looking to compete – the better path may be to not create a competing marketplace (which would also have to compete with the Amazon marketplace anyway which is also intimidating). Instead, a strategy based on a high-quality, customer-focused digital experience that provides knowledge about product as effectively as it does a purchase point is something that Amazon will struggle to match, given the mass of data sources Amazon needs to wrangle.
This helps the leading distributor sites differentiate themselves and provide ecommerce experiences that beat Amazon today, and can provide a foundation that can continue to be improved on as companies race to stay ahead of the innovation powerhouse.