This week on the podcast, Andy & Brian discuss:

– How will Amazon react to being deemed a “distributor” by the US government, and will that make them liable for the products third-party sellers put on the platform?

– Does digital investment necessarily lead to improved profitability?

– 3 steps to improving your digital profitability.

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Brian Beck: Welcome to Friday 15 with Master B2B, our weekly podcast and LinkedIn live broadcast where we talk about all kinds of great stuff about e-commerce or B2B companies. My name is Brian Beck. I’m here with Andy Hoar, my partner in this thought leadership effort. Welcome to Friday 15, Andy.

Andy Hoar: Yeah, good to be here. Always good to be Friday.

Brian: Always good to be Friday. This is true. So, Andy, as usual, we’ve got to jump right into our breaking news. So, Andy, did you see this this week? Amazon.

Andy: This is really breaking news, actually. It is, big time.

Brian: So we referred to this issue with Amazon about, I think it was maybe two or three months ago, Andy, on one of our Friday 15s, where in the U.S. government, the Consumer Product Safety Commission was looking at ruling Amazon as a distributor and being liable for the products that are being offered on their site, sold by third party sellers. Well, they just found two days ago or three days ago, that they ruled that way, that Amazon is in fact a distributor and is now liable for the safety of products that are sold. It could be sold by somebody selling from somewhere in Asia, some product and someone gets it and it’s dangerous or defective and Amazon is now being held liable by the federal government for that product. This is a potential game changer, Andy, what’s your take?

Andy: This has been an age-old argument about, you know, AT&T did it years ago. Google, all those guys have argued…they’ve all argued that we’re just common carriers and we’re marketplaces at worst. But we’re definitely not distributors. We’re not liable for what’s sold, bought and sold on our network. Except I think the kicker here, for Amazon, is fulfillment by Amazon. I haven’t read too much about this particular point, but my instincts telling me that you can’t actually warehouse the product, merchandise, market, and price the product potentially and not be the distributor of the product. That’s one thing. The other thing is this really applies to danger. That’s what they were focusing on. If you’ve got defective products like hair dryers that blow up in your face or whatever, then you should know whether that’s the case or not. And if you don’t, you’re liable. What’s interesting is what about, and I have to credit Jason Hein for pointing this out – What about if you have incorrect descriptions of products? So he gave the example of if you had a harness that was, you listed as handling 230 pounds, but you transposed it and it’s actually 320 pounds. Or actually, you say it can handle 320, but it actually can’t handle 230. What happens if somebody uses that thing and hurts themselves? It was a mistake. It was a simple product description mistake. But is Amazon liable for that? That’s where it gets really, really ugly.

Brian: They talk about it in this article, which is on MDM. Thank you, MDM, for this. But they talk about it being focused, to your point, around FBA products, products that are held and shipped through Amazon’s Fulfilled by Amazon service, in which Amazon doesn’t actually own the product. As a service, they’re holding the product and shipping it to the end buyer. So remember this as a marketplace – Amazon doesn’t own these products. And that’s what’s really the crux of the issue here. Amazon never owns them, but they warehouse and store them in many cases. And so what I think is going to happen here if this holds and of course, Amazon will probably spend a lot of time in court fighting this.. But assuming that it holds, I’d imagine there’s going to be some additional restrictions placed on third-party products coming in from, from overseas, particularly, particularly Asian other markets where Amazon can’t fully verify the safety of the product. I just think they’re going to have to put more scrutiny on that if they have to live by these rules.

Andy: I’m not sure that’s a bad thing, personally. Should you really be selling things that you don’t know the origin of? This is a big issue around stolen goods. People steal stuff and sell it online. And they say, hey, we’re just selling it here. We have nothing to do with it. Really? Just like Facebook, if they wanted to restrict the kind of content that kids could see, if you started fining them for it, I’m not a big government guy, but I bet they’d figure that one out pretty quickly. And I think Amazon would figure out what’s real and not real in terms of the products. Again, we’d have to have a basic level of safety about what’s being sold. And you can’t just make a ton of money and market all this stuff and house it and say, well, I don’t know what it is.

Brian: I think ultimately for traditional B2B manufacturers and distributors to some degree, this actually could be a good thing. Because they adhere to a lot of these standards. And for the companies, a lot of the companies we work with at, my Amazon agency Enciba, they are fully compliant with all OSHA and consumer product safety commission and all these different standards. And they pride themselves on that. So that could end up being an advantage for them.

Andy: There’s a reason there’s an efficiency about this. Otherwise why play by the rules, you know? T

Brian: So this is an interesting one and we’ll see how that develops. We’ll keep our finger on the pulse on that one. But today’s topic is this. Is profit now more important than sales growth in B2B e-commerce? This is a very interesting question. We got into it in our State of B2B e-commerce report. We’ll get into that in just a moment. But Andy, we see all these stories and we covered some last week. We saw this story just this morning the Dow closes nearly 500 points lower yesterday as investors here the U.S. economy is faltering – the conference board weighed in on some things saying that it is expected to continue to lose momentum in the near term due to high prices, inflation. You hear other stories about, hey, the economy is great and growing. So it’s a mixed bag, but there’s certainly uncertainty in the market. And in the face of that, what’s happening, and we surveyed a lot of B2B practitioners for our State of B2B commerce, and we found in that survey that digital budgets have expanded. So in the face of this economic uncertainty, 83% of executives are spending more in digital this year. So there’s money being delivered into this channel, people are investing, even though they’re feeling and seeing these uncertainty signals. And the other interesting factor, and we’ve highlighted this in earlier Friday 15s, ROI expectations are higher. So compared to three years ago, the timeframe that B2B executives need to produce an ROI has sped up over 60%. So we’re faced with this situation of uncertainty. And we believe, or I believe, that a lot of this is being pushed back and focused into this profitability metric. Now, one thing we know, Andy, this is a statistic I found from Gartner that I’ll read for our podcast listeners. 65% of a company’s business comes from existing customers. And it costs five times as much to attract a new customer than to keep an existing one satisfied. So this profitability pressure, these additional dollars, ROI, where do you go to find the ROI? Well, existing customers, right? What are your thoughts there, Andy?

Andy: The reality is nothing here is new. It’s just that the dirty little secret is that digital is a lot more efficient at selling to people under the right circumstances – not all circumstances, but on the vast majority of scenarios, digital is a far more efficient way of doing it because you can automate a lot of the processes. One of the things we talk about a lot is the cost to serve somebody online is a lot less than it is to serve them offline. People will be upset about that by saying yeah but they’re getting guidance from people that offline thing you’re talking about is talking to sales people (you know that’s my favorite topic) but for reorders and replenishments etc and a lot of items that are naturally sort of identifiable on their own. Why do you need necessarily to talk to somebody? I’ve seen stats that show 50, 60, 70% of what people buy from a distributor is reorder replenishment stuff that you don’t need to talk to somebody about. And so there’s an efficiency dimension here. And efficiency is the same thing as profitability.

Brian: So you think that’s what’s driving a lot of the investment in digital is that the recognition perhaps that it is more efficient in many ways, right?

Andy: Well, it’s a couple of things. At the end of the month, at the end of the year, at the end of the investment cycle, how did we do? To your point about the ROI, ultimately, digital delivers, especially if it’s done well. Now, can you overinvest in this? Can you spend too much money on things you don’t need? Yes. And we saw some of that during the pandemic where it was spend, spend, spend, spend. Funny enough, it’s usually the people that cost the most, not the technology. So it’s really never the technology. But funny enough, the technology is the one that gets the blame. Go figure. But… Yeah. If you overspend on digital, I think oftentimes it’s by hiring too many people. That’s what Amazon found as well as other people. Nobody ever says, oh God, we bought too much software. I mean, it isn’t the case. Sometimes it’s true, but most of the time it’s not that we bought the wrong or too much software. Sometimes it is, most of the times it’s not. It’s usually that we surrounded all of that with too many people and that’s what they end up cutting back on, not the software.

Brian: So this question of profitability versus sales growth, we went out to our LinkedIn community and asked them, in today’s economic environment, is profitability now more important than revenue growth in B2B e-commerce? 79% said yes, it’s all about the bottom line. Only 21% said no. Sales growth is more important. And that to me is fascinating, Andy. You know, it’s always been in digital in my experiences in e-commerce and over the years – it was always about growth, growth, growth, growth, growth, acquire more customers. It wasn’t as much about efficiency, but it seems to be that this has been changing. And I think it’s a sign maybe of some maturity in the market.

Andy: One quick note on that is I do think we’re living in a world now where as the economy slows I think we had some numbers this morning even about about the employment figures that fell below forecasts and estimates so the economy is slowing the interest rate increases over the last year or so have finally started to take hold whether we’re in a recession might be a technical thing but we’re certainly slowing down and what happens when you slow down is it focuses people on what really matters, which is the profitability. I’m fond of analogies and one of my favorite analogies is about revenue is like the gas you put in the car and profit is like how many miles you can drive. Ultimately, you don’t care how much gas you put in the car. You just care how far the car will go. However, there tends to be a correlation between how much gas you put in the car and how far you can go. Now, this could go on forever. I could go into all sorts of dimensions, because what really matters is probably miles per gallon. And I think this is where AI, for example, and software make a big difference, because I think AI could be a leap forward in terms of miles per gallon, where you could get thousands of miles per gallon versus just tens of miles per gallon. But we’ll put that aside for another day. This is what people care about. And so when you start to see the amount of gas you put in your tank go down for whatever reason, all of a sudden people are like, wait a minute, how far can we actually drive this car? And so it does focus you on what is this going to cost us in terms of our ability to execute?

Brian: Well, your AI point is a really interesting one, Andy, because we’ve seen in some of the data that the number one reason or number one thing that B2B companies are thinking about using AI for is efficiency gains. So part of this digital budget stuff, the growth in digital budget might be that. It might be, hey, we want to invest more in AI to drive more efficiency. This theme emerged, Andy, when we were interviewing folks on our webcast this week for the state of B2B e-commerce. And the theme was really about achieving ROI, but doing it by eliminating buyer friction. So profitability, there’s an intense focus, and several folks mentioned this during our webcast. We interviewed, I think, four people. And the theme of friction and really operational efficiency and making the buyer’s job easier on the front and back end really emerged. And we found really three, in our research, we found this show up in three areas. The first was really around easier and faster reordering. You made that point earlier. 62% of buyers are being asked to shift to lower consideration orders to the web. So when we asked our B2B buyer community that question. So that’s fascinating. So there’s certainly an efficiency gain there. And the second thing that emerged was don’t recreate the wheel. Which is really more about accommodating buyers and what they’re expecting from a digital experience. 39% of buyers prefer to buy on the site that is easiest to use or where they already make personal purchases. It’s the Amazon effect. People are used to shopping and buying from Amazon, which is driving Amazon business growth largely. But it’s also, you know, as you think about your own web experience and what you’re delivering, not creating things that are putting friction in the way that are common usability characteristics. Companies like to recreate things that are unique or different. We’re going to our buyers differently and all that stuff. Now, you know, there’s a lot of commonality and B2B companies often overlook this. I have a whole chapter about this in my book. And then finally, making products, all of them, easier to find online. And this is a pervasive theme, just keeps getting more and more sort of reinforced. 64% of buyers research the majority of their purchases online before buying offline. So you’ve got to make it easy for them to find their products. And increasingly, that includes things like showing them pricing and giving them the information they need, the transparency they need. So eliminating friction, Andy. These are three examples, and there’s many more.

Andy: If you serve your customers well, and in B2B, it’s a lot about speed and efficiency because they’re not there to have fun. They’re there to buy stuff. Now, don’t make it unfun, but make it easy. And if you do that, they’ll buy more from you. And if they buy more from you, then you’ll make more money off of them.

Brian: It sounds pretty simple to me. We had another example on our webcast someone was talking about something on the back end, a process. One of the folks we interviewed talked about how their customers, I think it was SAP, talking about how their customers, they are enabling them to pay invoices online, and to look up invoices. This sounds so mundane, but easing the process of just paying invoices, checking balances, it sounds so motherhood and apple pie, but this is the kind of stuff that we’re seeing our practitioners focus on in terms of getting ROI from those digital investments, making the cost, reducing the cost to serve their customers. And the good news is we found in our research that profitability is actually being realized. 65% of the people we surveyed are seeing an improvement in per order profitability. 63% are also seeing an increase in orders from existing customers. This is loudly saying, hey, we really are doubling down on that aspect of our digital efforts.

Andy: What’s driving this profitability per order is clearly technology. It’s definitely digital. It’s making recommendations to people. There are technologies out there that enable sales reps to make a better offer to somebody, a more profit-maximizing offer that they just maybe didn’t know, but the software, which is infinite knowledge, does. So it’s clearly digital that is doing this, which is a nice matchup with the time we’re in today, which is why I think you’re going to see that digital is kind of recession-proof because in the up times, it can help generate more revenue growth – shift and lift. And in the down times, it can help maximize profit. So it’s good on both fronts.

Brian: I’m going to play devil’s advocate to all this, Andy, in that there’s an argument that says in a time when people are pulling back, it then becomes more efficient and it’s more of a time to be aggressive on new customer acquisition and win market share when others are stepping back from that effort. So, just throwing it out as another way of thinking.

Andy: I’m a fan. I think companies should be investing more in technology right now, especially if you have a strong position, even if there’s a down market. This is a good time to use those people who are maybe idle resources to help you create new technologies so that when the market picks back up again, you’re well positioned. Wouldn’t you like to have been some of the people that got early on board with AI, the real AI, the ChatGPT stuff? Wouldn’t you like to have been the ones who adopted ChatGPT sooner versus later to drive things? I sure would have. And that came from people who started early, usually in the time when nobody else is looking at it.

Brian: It also applies into marketing too, or opening new channels. Think about launching new marketing programs, entering new markets, expanding your product offerings, launching an Amazon program, whatever, those sorts of things. And from a marketing perspective, the dollars are presumably a little bit lower when other people aren’t spending. Remember how Amazon, Google, all these pay-per-click and other things work. Those are auctions. Those costs go up when there’s a lot of demand. Well, guess what? Costs go down when there’s less demand.