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How Distributors Should Respond to Amazon Business Marketplace

How Distributors Should Respond to Amazon Business Marketplace

October 10, 2018

There are strong arguments pro and con to partnering and selling on the Amazon Business Marketplace. The right strategy depends on your product portfolio, customer segments, business model and value proposition. It’s important for every distributor to understand Amazon’s accelerating impact on traditional distribution market channels. That's why MDM is hosting a forum in December.

Amazon Business Marketplace, launched in April 2016, reached one billion dollars in revenue within a year; it’s on track to achieve $10 billion in sales for 2018. That makes it one of the world’s largest distributors within three years of its founding – and potentially the biggest in the world within another year or two.

What’s different is that while distributors have traditionally been successful in what are known as “linear” markets and supply chains, where they have largely controlled the customer relationship, Amazon Business Marketplace and other “platform” models are different and disruptive in the ways they are innovating on behalf of the customer. They are rewriting the rules of success for customer engagement. Distributors have to understand these rapidly changing dynamics to be successful in their markets going forward.

That’s why our team at MDM thinks it’s time for distribution leaders to get together and discuss in an open forum not only how to respond to the opportunities and risks presented by this new and unprecedented entity, but also how to frame your digital journey going forward. Is Amazon an ally? A competitor? Does the answer vary based on the product sector or the time horizon in which you consider the question? These are a few of the questions to get answers to as you manage these disruptive times of digital transformation.

From Dec. 4-6, MDM is hosting the MDM Forum: How Distributors Should Respond to Amazon Business in Denver. We’ll cover how best to leverage your relationship with Amazon if that’s the right path for you, as well as how to evaluate the potential threats to traditional distribution models that the company poses. This will be an open discussion about all things Amazon Business Marketplace and will inform your decision-making about the company and your bigger-picture digital journey going forward.

Amazon operates marketplaces both in retail and wholesale; The Wall Street Journal recently reported that Amazon Business Marketplace sales accounted for 18 percent of Amazon’s total revenues for the first half of 2018 and were growing at about 50 percent over prior year. Morgan Stanley estimates that Marketplace orders generate an average of 20 percent EBITDA for Amazon, making this initiative highly profitable and important to the company .

As part of its customer-obsessive focus, Amazon Business Marketplace creates fairly strict performance and communication thresholds for its suppliers. Part of the equation is that you are losing control of the direct relationships with customers that buy from you via Amazon Business Marketplace. You may expand your available market, but you can’t necessarily market to them at all, except through Amazon’s approved tools. You are also exposing highly detailed data about products, customers and pricing to an incredibly sophisticated company that is a relentless competitor.

Another element in the way Amazon differentiates from other traditional distribution companies is that Jeff Bezos thinks in 10-year terms while most companies – particularly publicly held corporations, such as many large distribution companies – are forced by investor pressure to focus on quarterly earnings. Amazon is playing the “long game” while distributors are trying to hit short-term goals. It’s highly tempting to cash in on the ability to grow sales in the short term by selling through Amazon Business Marketplace, especially if your competitors have become marketplace sellers. But is the short-term gain a good long-term strategy?

There are many other factors to consider. Amazon does not have an encouraging history in terms of supporting partnerships – ask the former executives at Toys ‘R Us and Borders. On the other hand, a recent MDM survey of distributors selling on the Amazon Business Marketplace concluded that these companies are getting value out of the partnership and intend to stay on the platform.

We invite you to join MDM and leaders from across distribution to learn and evaluate how best to respond to Amazon Business Marketplace. For more than 50 years, MDM has provided a forum for thought leadership in the industry through a number of disruptive cycles. I hope you will participate and be part of the conversation as the industry adapts to not only a new type of marketing partner and competitor – but an entirely new business model that is rapidly transforming traditional distribution channels and formulas for success.

As always, please feel free to share your thoughts in the comments below – or by emailing me at tom@mdm.com.

© 2018 Gale Media, Inc.

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