Will Amazon’s One-Day Shipping Kill the Distribution Industry?*

By: Andrew Horvath Distribution, Revenue Growth Strategy, Sales Strategy

*Only If Distributors Try to Beat Amazon at Its Own Game!

Amazon recently announced that Prime members will receive complimentary one-day shipping. This benefits consumers who are too impatient to wait 48 hours for necessities like HDMI cables, laundry detergent or reissues of vinyl records. Amazon’s upgrade also benefits electrical contractors, facilities managers, plant managers and other B2B buyers who represent the traditional lifeblood of distributors. The benefits, however, come with potential costs for these distributors.

What does this change mean for the traditional distributor go-to-customer model? It entirely depends on the organization’s value propositions. Alexander Group has found that distributors fall into one of three categories:

  • Those who compete on low price, quick delivery and a vast array of SKUs (“the endless aisle”)
  • Those who offer high-touch service through relationship-oriented field sellers
  • Those who strategically monetize value-added services for select customer types

Success in a one-day shipping world will differ for distributors across categories.

Value Proposition 1: Trying to Out-Amazon Amazon

Competing with Amazon’s digital interface and logistical infrastructure was a difficult task when two-day shipping was the norm. Alexander Group worked with a client that ordered a part to their corporate office (which is co-located with a distribution center (DC)) from that DC and the same exact part from Amazon. The Amazon order came three days sooner than the order from the DC. Needless to say, this distributor ceased to lead with “fast deliver, low prices” in pitches.

Beating Amazon on price and availability will take significant investment in digital tools, flexibility on purchasing terms or a loyalty program that rewards customers for sticking with their current distributor.

Outlook: Pessimistic

Value Proposition 2: Loyalty through Relationships

Distribution sales models succeed in part because field salespeople know their local markets well and have long-standing relationships with customers. For many pros, dealers or corporate buyers, the smile of a sales rep will never be replaced by the smile on the Amazon box. But what is the cost of a field-heavy model and how much incremental growth does it drive? Alexander Group has analyzed distributor sales rep time profiles and sales results to determine if sales time (typically distributors’ most scarce resource and greatest expense) is correctly allocated.

Often times, sales reps provide on-site support not to customers with the highest growth and margin potential, but to those they are most comfortable with. In one instance we found that a sales rep spends 85%+ of their time at accounts within five miles of his or her home address. Left to the individual sellers’ discretion (and in the absence of a formal segmentation model to determine which customers should receive the most people-intensive service), distributors misallocate investment in service capabilities and risk overinvesting on low-growth customers.

Outlook: Mixed – depends on caliber of individual salespeople

Value Proposition 3: Service as a Differentiator

Distributors have the ability to bundle value-added services (e.g., customer support, training, technical consulting) to products to offer true partnerships with customers. Many distributors, however, do not effectively differentiate service levels by customer type to appropriately monetize their investments. For large and sophisticated customers, white glove service can be an expectation. Large national contractors, for example, can certainly buy products for less on Amazon, but Amazon does not offer a direct line to a trained customer success manager, something a distributor can offer.

Creating and supporting a service-led organization is expensive, however. How does a distributor know when to offer a customer a particular level or service or support resource? Segmentation is a good place to start. Creating a prioritized view of customers based on size, potential, needs and other qualitative factors helps match segments to service offerings and resources. Furthermore, it directs sales coverage decisions (e.g., field vs. inside vs. digital self-service). Performing this exercise across the entire customer landscape (instead of at a branch or region) allows distributors to match their best resources to their most growth-focused customers and avoid delivering a consultative sales motion to a transactional buyer.

Outlook: Optimistic – assumes constant review and optimization of go-to-customer model

Amazon may be changing the rules of engagement, but distributors who understand the impact of segmentation and value propositions on their go-to-customer models can win in the one-day shipping game.

Are you ready to reevaluate your value propositions in your go-to-market model? Contact an Alexander Group Distribution practice lead today.

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Andrew Horvath

Andrew Horvath is a principal in the Chicago office. He co-leads the Distribution practice, monitoring trends and creating strategies to help growth-focused organizations stay on top of a rapidly changing market. He also supports the firm’s Private Equity practice, working with portfolio companies of growth-focused private equity firms to grow revenue organically. Andrew applies his expertise in customer segmentation and go-to-customer coverage to help clients optimize complex sales models. He also works with Fortune 500 companies across other industries, including manufacturing and high tech.

Prior to joining the Alexander Group, Andrew was a consultant at Stax, Inc., where he managed market due diligence, competitive intelligence, go-to-market strategy, new product testing and marketing strategy engagements for corporate and private equity clients. He designed and executed voice-of-the-customer studies for clients in multiple industries and across several geographies. Andrew has also worked in commercial banking as an internal strategy consultant.

Andrew has an MBA from The University of Chicago Booth School of Business and a B.A. in economics from the College of the Holy Cross.