Amazon is one of the biggest companies in the world when it comes to selling goods over the Internet. While the company has made its mark concentrating on the consumer market, selling music, books and electronic items, its latest shot across the bow is an interesting move. In April, Amazon announced its intent to enter the B2B market with Amazon Supply, a new portal that focuses on goods for the business and industrial sectors. This new service, currently in Beta, already has more than 500,000 potential parts for companies to purchase, in much the same way that a customer might pick up the latest CD or paperback.
For companies in the distribution sector, this represents a potentially significant challenge. Many of their customers will have used Amazon personally, so what is to stop them from shifting over? There are several considerations distribution companies must evaluate for their future pricing and business strategies:
First and foremost is their approach to pricing. This move is part of a wider trend toward organisations gaining greater clarity over the prices they can pay for goods or services, thanks to the availability of Internet data. Online catalogues – and the ability to search and compare prices faster and more efficiently – already makes preparing sales deals more about the whole package rather than list prices. The emphasis, therefore, is on managing these data sources in a better way: Rather than issuing blanket price-list changes every year, which requires weeks or even months to propagate across the supply chain, distributors will have to become far more nimble in managing their product lists in response to changing market conditions and demand volatility.
The second consideration requires looking at the size of deal. While Amazon Supply offers sheer scale and ease of use, the reality remains that the most likely buyer through the service will be those companies looking for smaller order sizes, buying one or two parts as necessary. This compares with deals where companies are developing proposals with hundreds or even thousands of parts, or for order volumes at a significantly higher scale. For organisations that rely on small deals as part of their revenue, this may represent a big challenge for the future; for those that instead work at the high end of the market, they should expect little impact. However, whatever the size of organisation, companies will need to be think about how they manage pricing more dynamically.
The last area for companies to consider is around managing the sales process. Whereas Amazon takes a very simple approach to pricing – the price on the website is what you pay – in the broader distribution markets the reality is that sales are negotiated based on a wider variety of factors than just price alone. Among these are service levels, delivery scheduling, consultancy around products and financing. Companies can differentiate themselves in this market by understanding how they put together their overall sales offerings, including those requirements where customers see significant value.
From a pricing perspective, this involves understanding how sales offers are developed and the potential margin it represents. As part of this process, sales teams can evaluate and change their offers based on what matters most to each customer. This requires information on any previous relationship with the customer, as well as data on wider market conditions. Companies should be prepared to pull data from multiple IT systems both within the company and from the outside market to optimize pricing more effectively for both the customer and the company. Armed with this information, sales teams can design deals that meet the needs of the customer based on value, at the same time ensuring an appropriate level of margin.
As Amazon moves out of Beta and grows its B2B activities, pricing management and optimisation will expand in importance. Effective pricing is not solely about cost: it goes deeper into the heart of business strategy and being competitive in the future.