The news keeps coming: “Amazon is getting in the promotional products space.” “Walmart is now in the promotional products space.” And the latest (as of this writing): “Costco is now in the promotional products industry.” The saber-rattling is so deafening from these large brands entering the promotional products business because they typically come with an e-commerce promise that threatens to destroy all of our businesses.
But why do these large brands, and e-commerce in general, seem like such a threat?
Mainly, they’re big. Big names. Big brands. Big buying power.
They are seen as a threat by virtue of their size, and they can make investments in tech that the average distributor can’t and, of course, they already have magnificent B2C sites. But does size-of-distributor really matter in this high-touch, personal, and customized business?
The largest market leader in the promo space (Staples, with promo sales at $592MM and total sales at 20+ billion) has had a direct pipeline to B2B buyers in the promo space for years now, with a healthy online advantage, yet they still command less than 3% of the market share. If Staples hasn’t made a more significant dent, why does any large brand, like Amazon and Walmart still pose such a threat? But this is the weakest argument, let’s move to something more substantial.
The problem we, as an industry have, is chronic and twofold:
The Inferiority Complex: We’re crippled, unjustifiably so, by an inferiority complex when comparing ourselves to larger brands, which is ludicrous, as most large companies do not disrupt industries as much as chip away market share (Amazon perhaps the sole exception). Disruption generally occurs from smaller, more nimble radicals (hello, Airbnb). We all know a story about the downfall of a giant by a small disruptor, a shepherd and a simple slingshot can still topple the largest foe.
The Echo Chamber: We’re victims of our own industry echo chamber. We’re in a friendly industry (and thankful for that!), but this also means it’s a close industry. Crippled by our inferiority complex, we tend to fall prey to the negative confirmation bias that resounds within the walls of our industry. We swirl rumors and negative news because fear-mongering still has a mesmerizing quality to it, it’s too dramatic to ignore. But it creates a future-outlook that is fear-based rather than opportunity-based.
Let’s remove the blinders from our own confirmation bias and take a look at what the e-commerce “threat” really looks like by viewing its impact on our industry, to-date.
The Top 40 Distributor Sales-List published by ASI, represents approximately 24% of the total industry sales (The Top 40 combined distributor sales are $5.6 billion; PPAI estimates total industry sales at $23.5 billion). What’s often overlooked is that 75% of the industry’s sales are not reflected in the Top 40. But anecdotally, if we were to take the Top 40 as a microcosm and say that the Top 40 is a reflection of the entire industry, you could suggest that online sales comprise 18% of total industry sales (that’s the percentage you get when you add the total sales of Top 40 online companies: 4Imprint, Discount Mugs, ePromos, and Cimpress).
Admittedly, these are fairly broad numbers; however, they are very close to what PPAI's 2017 Sales Volume Study reflects, that online sales comprise 23% of total industry sales. According to PPAI, “online is defined as orders placed by consumers through an online store or website.”So, for argument’s sake, let’s go with the most valid number we have (PPAI’s) and say that online industry sales are 23% of total industry sales. And for some context, when we consider the might of someone like Amazon (obviously, an astounding company), we must remember that though they were responsible for 44% of all US e-commerce sales, they commanded 4% of all US total retail sales. Worth noting for our conversation below. But the first real question about online promo sales, the one that no one seems to be asking, is:
Have we become so fearful about outside threats that we’ve failed to examine just what kind of threat this really is to our business? What kinds of sales are comprised of “online” sales? There are typically two types: Consumer-driven, small orders (though, there are also huge orders coming to online players too), and also (largely)price-driven customers, which is a different market requirement than the average client in a consultative, creative distributorship.
Online sales are, for the most part, transactional; offline sales, for the most part, are consultative. But to help us gain a different perspective, and perhaps, for a clearer example, consider the food industry. Comparing transactional sales and consultative sales is like comparing fast food and fine dining. Both serve food, both are in the food industry, but they serve two completely different markets for two different reasons. What does fast food sell? Convenience. What does fine dining sell? Experience. Does fine dining cower under the threat of fast food? No! It’s ridiculous to think so, why?
A fine dining establishment isn’t threatened by fast food, therefore, they don’t even think about trying to become fast food, they don’t allow the fast-food industry to reshape their identity.
Yet, in the promo industry, we are still trying to be all-things-to-all-people and serve all markets, trying to build an e-commerce component into our consultative enterprises even though these are two entirely different businesses. For example, to seriously play in the promo online space, it requires an all-in attitude, no part-timers or dabblers can make a dent in that space without a serious investment in both infrastructure and ad-spend. And by serious, I mean serious. Generally, six figures (or more) in tech infrastructure and six-figures in ad-spend, annually. The second serious question that no one seems to be asking is:
What about the $17+ billion that is “the fine dining experience” of the promotional products industry?
This vastly larger part of the market has higher margins, higher-order averages, larger per-client-revenue, and is high-touch service (which means it cannot be easily replaced), or, as Craig Dunlap and Kirk Meyer said in a recent podcast interview, “it’s better than e-commerce”:Is the saber-rattling in our industry so deafening that we’ve lost all common sense? Why is everyone in the fine dining business trying to get into fast food?
It’s virtually impossible to focus on two separate markets with the same business.
A few years ago, I was touring the amazing headquarters at SanMar, along with a few colleagues, and I remember Jeremy Lott going around the table asking questions about what we thought of the industry and its future. I stated that “I wish we could trade every minute we talk and worry about Amazon or suppliers selling direct, for a conversation that simply was about building better businesses for our clients.
If we traded all that time and negative energy for positive ideas, we would future-proof our industry.”While watching for the online disruption, are we ignoring building better businesses that focus on and could command more of that $17+ billion pie?
I don’t want to be dismissive about the impact of e-commerce on a certain sector of the business. Some distributors will be disrupted by the Amazonian-Walmarts-of-the-world, and these are distributors who do not solve problems for their customers and distributors who cannot clearly define their unique value. The online players will continue to take business from offline, transactional companies who provide no real solutions. Nor would I suggest that e-commerce is unimportant; it is vitally important and has influenced the way B2B customers buy. But the “E” commerce we should be passionately pursuing is engagement commerce. Given that shopping cart driven e-commerce is 23% of a $23 billion dollar market, and drop-ship sales that come from a highly engaged and consultative approach represent 77% of the market, it’s time we stopped focusing on the threat of e-commerce and shift our attention (and resources!) to enhance the customer experience through richer engagement (see links below for more information).
The consultative companies who provide solutions-through-product via consultation and who enhance and streamline the customer experience through technology will continue to command higher margins, continue to grow, and continue to thrive.
In the end, the final question becomes more about the question of being. If you were to become a restauranteur tomorrow, would you want to open a five-star steakhouse or a McDonald’s? Both are valid decisions that can lead toward profitability, but you can’t arrive at an actionable answer by asking, “How do I capture all food sales?” Yet, in the promo business, that’s what many try to do by becoming all-things-to-all-people, which is exactly how to commoditize your business and sacrifice your identity.
Schopenhauer wrote that “we forfeit three-fourths of ourselves in order to be like other people.”You only answer the final question by asking: Who do I want to become? Which clients would I enjoy serving the most? What kind of business would bring me the greatest return, the most profit, and (dare I suggest it), joy? And: What distinguishable, engagement experience do I want to create for me, my team, and my customers?”
For more ideas on how to implement engagement commerce in your distributorship, check out the conversation that started it all, The Future of B2B E-Commerce. That conversation kicked off our three-part series on Engagement Commerce: