Five weapons to turn back Amazon … and a quick thought on Tesla

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Updated May 10, 2018

By Bill Wade, Wade & Partners

Start with an often-ignored fact that affects every truck parts and service business TODAY. Developments in previously disjointed fields outside of our day-to-day operations — such as artificial intelligence and machine learning, robotics, nanotechnology, 3D printing, quantum computing and genetics and biotechnology — are all building on and amplifying one another.

Add to this encroachment by the likes of Amazon and Grainger (not to mention reenergized dealer chains, direct importers and OES marketers) and you have a chaotic soup of fleet purchasing options. The key to surviving this new industrial distribution revolution is to lead it, at least locally.

This requires two new elements of agile end-user service: awareness of disruptive technology and a plan to develop talent to make the most of it.

Amazon’s first-quarter 2018 results blew the doors off, even by impossible historical growth standards: sales grew 43 percent over the 2017 first quarter results to $51 billion.  Operating income grew 92 percent to $1.9 billion. AMZN is close to becoming the world’s first company to be valued at $1 trillion (only 16 of the world’s 192 nations have a GDP over $1 trillion!).

“OK, Wade, what should we do?”

How about mirroring the beast? Not by matching their capabilities, that’s absurd, but in terms of matching their obsession with meeting customer needs and parsing their wants. This sensitivity to customer exists on steroids within the Death Star.

Amazon does very little competitive analysis. But they are absolutely obsessed with the “customer experience.” They know exactly what it’s like for customers to buy from them. They constantly work to improve this experience so that customers increasingly prefer the company to alternative sellers over time.

They are not invincible. Note the substantial progress of Walmart in face-to-face competition.

Amazon has shelved plans to sell and distribute pharmaceutical products through Amazon Business, its marketplace for business customers. The biggest challenges include complexities around selling in bulk to large hospitals and building local logistics networks to handle pharma delivery.

One thing that is a critical understanding — Amazon is far superior to anyone in the aftermarket when it comes to moving boxes. They are the best in the history of man! But the one thing I don’t see them involved in is service. Think about it:

  • Services represent about 65 percent of global GDP;
  • They should be about three-quarters of global growth over the coming decade.

Companies that jump on this idea position themselves to capture this growth, while those clinging to traditional models will face growing pressure from digital attackers.

Five offensive/defensive possibilities

To cash in on these real opportunities, leaders are studying five key propositions:

  • Expand your idea of what constitutes ‘service’

We serve a universe of wildly different end users and vocations. Question: Does service mean the same to a self-maintaining garbage packer operator as it does to an OTR linehauler that outsources service?

Not all service requires on-vehicle work (that may piss off someone in your traditional market area). Customers now dictate distribution as never before. Specialized component diagnosis and repair is hard to ship via FedEx. Hydraulics, pneumatics and electrical repairs fall into this bucket. Creation of one-of-a-kind spring sets or custom trailer work lighting are examples of local service that will take time to face duplication by Amazon.

  • Institutionalize service innovation

Services, like products, have a shelf life. Customer demand evolves, service expectations change and technological advances constantly bring new possibilities. Services, therefore, should be periodically examined and refreshed, just as products are.

Many companies think of R&D as exclusively for product development, yet when they dedicate resources and management attention to developing and refining their service offerings systematically, they can make significant improvements.

For example, when one Midwest trailer service operation examined the relationship between customer satisfaction and the scheduling of field services, it discovered that many customers were less concerned with the actual date of service than with getting an appointment rapidly. Customer-satisfaction scores have improved markedly because the uncertainty, and anxiety, around the scheduling process has been removed.

  • Personalize the customer experience

Companies have always sought to understand customers better to tailor services to their needs. Traditionally, this has meant focusing on customer segments or groups.

While that wisdom still holds, the advent of massive new datasets and the spread of mobile devices mean that services can now be personalized cost-effectively to a much greater degree. Previously, salespeople have played this role, believing that solving problems themselves strengthened relationships.

  • Simplify service delivery

Digital attackers tend to thrive on simplicity. Many adeptly combine new technology with process improvements to make services straightforward and more pleasing. Meanwhile, big incumbents, burdened by legacy IT systems and entrenched processes that have evolved over time, often struggle to keep things simple. We can bring more simplicity to service operations by looking at the world the way our customers do. 

Consider the experience of a hugely successful parts and service distributor that faced increased pressure on margins and rising customer expectations. On closer examination, the owner realized that unnecessary complexity was a factor— each of the internal groups involved in providing service used its own metric to gauge success.

By optimizing its own contributions, the company inadvertently overlooked the downstream effect on other internal groups and thus the overall effect on customers. In response, management gave the front line additional decision-making authority, which helped employees resolve and prevent more customer-service problems. Together, these moves helped increase the proportion of error-free orders by nearly one-third.

  • Utilize Amazon Services that may be available to small business

Yesterday, Amazon announced that it is offering to pass along the discounts it gets on credit-card fees to other distributors if they use its online payments service. The move shows Amazon is willing to sacrifice the profitability of its payments system to spread its use. Amazon Pay is among many products the company offers to get a piece of others’ e-commerce revenue.

Distributors (and suppliers) selling goods on their own websites can let Amazon handle warehousing, packing and shipping for a fee. Many find it cheaper to pay Amazon for logistics than do it on their own because they benefit from Amazon’s volume shipping discounts.

Read up on Amazon Web Services (AWS). It is a secure cloud services platform, offering computing power, database storage, content delivery and other functionality to help businesses scale and grow. Millions of customers are currently leveraging AWS’ cloud products and solutions to build sophisticated applications with increased flexibility, scalability and reliability. It is not for every market nor customer base, but it is definitely worth a look.

Get past the hype to get to your ‘service epiphany’

The new services landscape is unlocking innovation opportunities in nearly every industry. Yet for many heavy-duty parts guys, managing day-to-day operations is all-consuming. Even the most forward-looking incumbents find that implementing an innovation mindset can be daunting.

The quest for simplicity is rarely simple — especially as the pace of innovation and customization continues to grow. Companies that excel at this, while keeping the customer at the center of everything they do, will be best positioned to survive the mounting pressure from attackers and to master the new services environment.

One other thing: Tesla is over

Elon Musk is now facing the reality that the car and truck business is very, very hard. Tesla is way behind on Series 3 deliveries, as traditional auto builders are announcing new vehicles daily that technologically leapfrog Elon’s latest.

Guess what, humans outperform robots 5 to 1 on a Tesla auto assembly line. No legend of John Henry here (yet). And Tesla continues to lose $10,000 to $17,000 PER CAR! All cost numbers are approximate, as Tesla changes key accounting principles (all non-GAAP) every year.

As for Class 8 Tesla tractors, Anheuser Busch ordered 80, UPS reserved 120, and PepsiCo and Ryder got on the promise list, reportedly over 400 in all.

What are we missing? Using Tesla’s own numbers., a tractor battery would weigh between 12,000 and 14,000 lb. (about 30 percent of the payload). Even discounting today’s state-of-the-art Tesla battery pack efficiency, the necessary packs would cost $100,000-$140,000 all by themselves.

Add competition from Volvo, Mack, Cummins and a handful of startups from the U.S. and China … I agree with ex GM guru Bob Lutz who says Tesla is bankrupt but has not yet realized it.

One last intriguing fact 

A paper published in the journal Science looked at credit card spending data and found that data scientists could pinpoint 90 percent of the shoppers by name with just four random pieces of information from sites like Facebook, Instagram and Twitter.

Bill Wade is a partner at Wade & Partners and a heavy-duty aftermarket veteran. He is the author of Aftermarket Innovations. He can be reached at [email protected]

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