April 16, 2019
Margins are estimated to be in the low single digits on product that the company sources and sells (first-party). But for third-party sales (Amazon selling on behalf of other businesses) the margins are around 20 percent. And, third-party sales have expanded at a compound annual growth rate of 52 percent since 1999 which is more than twice the pace of first-party business, Bezos said.
That difference in margin wasn’t value created by Amazon – it was value given up by businesses that decided it was better to join the hordes and compete on the price of offerings. Meaning: many of those businesses have decided their products have become commoditized.
All products have an end-of-life, and they often become standardized and commoditized with low margins. In these instances, simple and easy go-to-market options – like selling on Amazon – are completely appropriate.
But most companies are trying to preserve and reap the value built up via investments in product and service capabilities.
Own Your Sales Channel
One way to preserve the value of your offering is to own where it is offered. Often, companies control route to market for new, differentiated products very carefully. Getting the market introduction right, establishing value and creating demand all feel a little bit easier if it’s executed exclusively by your organization’s direct channels. That’s often held up as the ideal, best-case situation. But in the real world, there are many instances where competitive pressures are eroding differentiation – and the value inherently embedded even in your new offer with distinct competitive advantages. Now B2B buyers are “price shopping” assuming the products they seek are truly commoditized.
Deliver Brilliant Customer Experience
Another way to retain control of the value in your offer is to specialize the channel in which it is offered. Set up and operate the channel – distinguished by brilliant customer experience in presenting the right product/service offering at the right price, for the right customer in their moment of decision. Make your best information, highest level of support, and superior buying (and owning) experience available here, and make it the first and only place to obtain your truly differentiated aspects – even if that means creating a sales channel connecting all stakeholders in the value chain: with your customers, with your suppliers, and yes, if properly and independently approached, even with your competitors.
Fierce competition brings out the best in your differentiation, and differentiation educates the market on the potential value that can be derived in use. Remember – you created that potential, so as a provider, some of that value belongs to you. Clarity coming from commoditized competition doesn’t have to mean you start a race to the bottom.
To learn more about navigating eCommerce, digitalization and how Amazon and others are increasingly entering the B2B space, listen to our webinar with Stephan Liozu, Amazon at the Gates.