Is Amazon the enemy of manufacturers?
It’s no surprise that Amazon’s business model is changing the way we do business. Its all-digital approach and expansive network of suppliers and sellers pose a threat to manufacturers everywhere. Even with the growing commodification of products, Amazon still manages to maintain impressive margins. Still, there are several ways for businesses across the spectrum to stay competitive in their industry.
Amazon is a triple threat, establishing competitive advantages in three key areas: suppliers, shipping networks and customer base.
Amazon’s tech capabilities allows it to onboard suppliers at scale while offloading the risk of unsold inventory. Even with the loss of control that comes with becoming an FBA (Fulfillment by Amazon) partner, the relationship is desirable because it greatly increases access to the market.
Amazon’s combination of tech savvy and shipping partnerships make it nearly impossible for smaller companies to keep up. Branded e-commerce stores don’t have the logistical prowess or volume of sales to make fast turnaround economical and struggle to match a nationwide expectation of two-day deliveries.
Amazon’s customer base in the United States is unequaled. In April, CEO Jeff Bezos announced that Amazon Prime had surpassed 100 million paid members in the U.S. and beyond. A number like that captures Amazon’s unprecedented reach.
Not all types of manufacturers fear Amazon, but the list of companies that do are growing. Manufacturers typically have a love-hate relationship with the e-commerce giant depending on the complexity of their product.
Makers of high-complexity products like power tools, medical devices and auto parts stand to benefit the most from Amazon’s growing market share—and Amazon is busy reaching out to many of these companies to establish direct sales. The manufacturers win access to Amazon’s customer base and shipping network without competing with Amazon itself. Meanwhile, they’re able to cut down on unauthorized resellers of their products.
Producers of low-complexity products struggle with Amazon’s growing commoditization of goods. Whether it’s private labeling with Amazon Basics or special partnerships with, for example, Georgia Pacific, to sell paper goods, Amazon excels when it comes to commodifying new product types and becoming a preferred seller.
Manufacturers would be remiss to only point their fingers at Amazon. China’s Alibaba is a growing threat to Amazon itself, alongside other manufacturers, while niche marketplaces like XOM stand to provide the same type of disruption in the metals and plastics industries.
No industry is safe.
To maintain a competitive advantage, manufacturers should watch industry trends closely. Business and consumer habits change rapidly. Digital cameras killed the Polaroid camera, and much later, smartphones killed the low-end point-and-shoot. It seems no industry is safe, but forward-thinking organizations can take steps to maintain a competitive advantage.
Replicate the ecosystem
Whether it’s operations, marketing or logistics, manufacturers may not be able to replicate Amazon’s technical scale, but they can assemble tools that will help them to streamline and grow their business. It behooves manufacturers to make the discovery, shopping and fulfillment experience as seamless as possible.
What makes your business unique? StitchFix makes apparel customers feel luxurious by making personal stylists accessible to everyday shoppers. Manufacturers need to identify their X factor or work towards developing one. At Kloeckner Metals, digitalization is a keystone global strategy that has led to organizational outcomes such as streamlined supply chains and greater transparency across a wide array of manufacturing services, and this is also at the core of our messaging.
Some products simply are commodities, but you wouldn’t know it after the producers’ investments in branding. Making your brand known and desirable allows you to increase prices alongside customer loyalty. Ask yourself, what is your brand’s story? How consistent is it across all of your assets? What is your brand recall in your market? You’ll find that brand awareness is inversely related to the perceived commodification of products.
If your market is at risk, as it was for Polaroid Corp., find ways to innovate or pivot in another direction. For Amazon, the chances of success are much higher and the stakes much lower to introducing new products, but it is no less important for manufacturers to scrutinize their product lines. It might be time to take one step back to reboot an existing product or go after a new market if it means taking two leaps forward and staving off Amazon. MM
Jonathan Toler is head of Product & Innovation at Kloeckner Metals Corp., based in Roswell, Georgia. Toler has long experience in product positioning, product messaging and in defining go-to-market strategies with roles at Owners.com, Triton Digital and Autotrader.com.
Article can be found at: http://www.modernmetals.com/item/14897-complexity-matters.html