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HRAI26072018a

By contributing writer Bruce Nagy

THE REALITY

Amazon hasn’t just built a web site or phone app. They’re building, testing and refining 10 of them, just for business-to-business purchasing. And these sites don’t just seek to advertise a few products. Amazon wants to own online commerce, much as Google owns online search.

Amazon is stacked with number crunching hawks, who are targeting a generous slice off the top of all of the most profitable transactions in the business world. And in the HVACR distribution world they already know what they want to target first: the most profitable, high margin items such as furnaces that are re-bought over and over by purchasing agents every day.

Within a few years, about 50% of key purchasing positions will be held by members of the millennial generation. Some would suggest that Millennials are privileged and don’t want to work hard. Others say they prefer to “work smart.” One thing we can all say with certainty is that Millennials are online savvy. The web is their sandbox.

Bruce Merrifield is an Amazon specialist, HVAC consultant and writer who focuses on the unvarnished truth about the profitability of HVAC distributors, and the degree to which their operating models are future-proof. He predicts that a good chunk of today’s profit could disappear within 3-4 years, for any distributor that fails to respond to the looming Amazon threat.

Merrifield says that, taken together, extremely efficient Amazon online purchasing tools represent “a highly customer-centric value channel from end-users back to factories.” If they aren’t perfectly customer-centric the Amazon team knows how to improve them, as they are continually testing and tweaking and re-testing new approaches within their existing asset base. Currently it stands at about 100 million prime customers, 60 million of which are in the USA. These customers are already accessing 450 million SKUs from two million resellers. Every test is analyzed and data proven. They’re developing strategies based on real life purchasing patterns, not the opinions of sales managers.

The sales process is supported by the “addictive Prime Member loyalty program and a multimedia video production portal for reseller content with bonus points for watching educational product videos.” In addition purchasers can access detailed product information 24 hours a day, 7 days per week, in the form of reviews and easy to search hands-on advice from industry peers, or manufacturers multimedia resources, chat services and expert telephone support. Orders are efficiently filled by robots in clean, organized warehouses, and delivery progress is easy to track online.

Of course, none of that matters to Millennial purchasing agents buying the same furnace online over and over, delivered, for $100 less than at the local distributor. Over time a growing number of the most profitable top sellers, based on relentless Amazon data analysis, will compete with Amazon branded knock-offs at $200 less, delivered. The Amazon brand is already ranked among the most trusted in several product categories; and it is likely to receive high-level exposure, if not shameless preferential treatment, within Amazon platforms.

SOLUTIONS

“Big data.” “Robust data.” “Data analytics.” We hear these phrases more and more. But what do they mean in the real world? What they might mean to HVACR distributors is that they will help managers to know their business without long-held mythologies and wishful thinking clouding your view.  HVACR distributors need to analyze their sales figures in granular detail, SKU by SKU, customer by customer.

According to Merrifield, “most distributors think that all their problems will go away if they can just generate more sales. But a close look at the data suggests that more sales with a weak business model will just increase losses and therefore increase problems.”

Merrifield has worked with several distributors with an overarching goal to start the distributor on a path toward the total re-evaluation and reinvention of its business model. It will be necessary to both change internal culture and to finance the investments needed to survive in the Amazon Age. For more on what these investments should include please see the next story in this series:  Amazon age repositioning for HVAC distributors.