Entrepreneurs

Council Post: How Wholesale Distributors Can Compete With B2B Behemoths Like Amazon

By Andrew Butt, co-founder & CEO at Enable, a modern, cloud-based software solution for B2B rebate management.

When Amazon launched its B2B e-commerce marketplace, wholesale distributors knew it would be a juggernaut in the industry. But the stratospheric rise of Amazon Business may have still come as a surprise for many – from 2018 to 2019 alone, its gross sales increased by 60%, which was more than three times the growth rate of the company overall. In March 2021, Amazon announced that it had reached $25 billion in worldwide annualized sales.

Amazon was always going to be a significant force in the B2B marketplace, but wholesale distributors have no reason to panic. Bank of America estimates that the total addressable market for B2B e-commerce will be $5.7 trillion by 2025. While Amazon will capture a larger and larger share of that market, its $25 billion suddenly doesn’t look quite so colossal when viewed alongside the sheer scale of the industry.

But distributors have many other reasons to be optimistic. Amazon’s high-volume, low-budget e-commerce model isn’t the only one that makes sense — many distributors have plenty to offer that Amazon simply can’t replicate: expertise, flexibility, value-added services, unique customer insight, bigger margins and brand differentiation. To fully leverage these formidable advantages, distributors will have to focus on what they do best instead of trying to replicate Amazon’s singular business model.

Meet the demand for personalization.

One of the most marked characteristics of the information economy is the demand (among consumers and business clients alike) to be treated like individuals instead of numbers. According to research from Epsilon, 90% of consumers find personalization appealing, while 80% say they’re more likely to do business with companies that offer personalized experiences. This demand doesn’t just apply to B2C relationships — it’s also at the center of any healthy B2B relationship.

While massive retailers and distributors offer personalization in the form of algorithm-driven recommendations and analysis, they can’t compete with wholesale distributors that have long-standing relationships with suppliers and extensive knowledge of their specific markets, logistical constraints and other unique facets of their business. It’s also vital for B2B relationships to be adaptable — another key element of personalization. Many B2B transactions are contingent on a wide range of factors, such as shifting production schedules, market fluctuations and unforeseen delivery issues.

The term “customer loyalty” usually calls B2C relationships to mind, but it’s just as central to B2B partnerships. Many wholesale distributors have spent years earning the trust and loyalty of their customers, and they’ve learned all about those customers’ unique products and services, markets and pain points along the way. Distributors should put this knowledge to use by working with their partners to fully customize logistics management, their customer support structure, inventory control and other essential components of the relationship.

Offer service that the juggernauts can’t replicate.

According to research from Deloitte, in the years following the Great Recession, wholesale distributors saw an 8.3% decline in returns on operating capital. While this is unwelcome news for some distributors, Deloitte observes that it “represents a fundamental shift in industry performance that will both expose and constrain weaker players, while also creating a breakaway opportunity for leaders.” At a time when Amazon Business is capturing more and more market share, leading distributors have yet another opportunity to distinguish themselves.

Wholesale distributors don’t just have long-term relationships with suppliers — they also have a deep understanding of the markets they serve, which can help suppliers find new customers and identify market opportunities. Independent distributors also allow suppliers to maintain their identities — instead of becoming part of the clockwork of a huge distribution operation like Amazon’s, companies can focus on what distinguishes them from their competitors. This could mean the joint development of targeted promotions, marketing and distribution campaigns tailored to specific market segments, or the creation of brand-focused packaging materials.

A healthy supplier-distributor relationship should give each company powerful incentives to maintain the arrangement. Suppliers sign contracts with wholesale distributors because they can provide personalized service, larger margins and more individualized attention than a behemoth like Amazon. Many B2B relationships are more customizable, flexible and profitable when there isn’t one dominant party setting the terms of every negotiation and policy, and these are points that wholesale distributors should never stop emphasizing.

Leverage technology to level the playing field.

Although Amazon has become practically synonymous with e-commerce, it certainly doesn’t have a monopoly on one of the largest and most dynamic markets in the global economy. B2B e-commerce will only continue to grow, and wholesale distributors will remain integral to supply chains around the world. However, to keep pace with a rapidly changing industry, distributors will have to make digitization a top priority.

The supply chain management software market has been exploding in recent years, and it isn’t difficult to see why. Predictive analytics can help suppliers and distributors reduce forecasting errors by 30% to 50%. Digital monitoring and communication can drastically improve visibility across operations, which many companies say they need but admit they lack. Rebate management software can help suppliers and distributors navigate increasingly complex trading agreements by providing accurate forecasting, mechanisms for dispute resolution and robust tools for communication and collaboration.

Distributors cite a range of impediments to digitization, including resource constraints, a lack of support from management, resistance from the sales team and (you guessed it) competition from Amazon. However, the distributors that believe digitization is cost prohibitive are failing to grapple with the much greater costs of failing to digitize. Wholesale distributors need to focus on getting their management and sales teams aligned on the importance of technology because of competition from Amazon — not in spite of it.

From personalized services to adaptability to higher margins, wholesale distributors have plenty to offer suppliers that will keep their B2B relationships healthy for years to come. But they need to remember the “e” in e-commerce because the last thing they should do is try to fight Amazon with one hand tied behind their backs.

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