Amazon certainly has juice as a B2C (business-to-consumer) company, bringing about doomsday for Borders and others made irrelevant by best-in-class logistics. So what happens if Amazon goes B2B (business-to-business)? Watch out.

Amazon is quietly testing (in beta) a B2B site known as Amazon Supply, selling everything from drill bits to automatic hand dryers for commercial and industrial applications.  Some experts are dismissing Amazon, noting that competitors will counter with personalized service. But haven’t we been down this road before? Didn’t the pundits discount people buying books online, and digital downloads to Kindle, etc., etc.?

One might think the Amazon Supply is just a commercial version of an e-commerce solution, but suppliers of like products should take pause. Amazon is offering a 365 day return policy, lines of credit and free shipping for orders over $50[i]. If Amazon can reach economies of scale, they could be a force to be reckoned with. Out of the gate, Amazon is offering a mind-boggling 500,000 items, and they are just getting started.

Of course the flip side is that Amazon could be a boon for manufacturers, offering a new channel for online distribution, replacing the need for e-commerce sites. In many industries, distributors are struggling to provide value, and their manufacturing partners complain that they have become order takers. Amazon Supply offers the potential to completely disrupt how commercial products are distributed, just-in-time, at ultra low cost.

The shift occurring before our eyes is that Amazon has moved from a seller of products to a logistics company, proving an engine that is formidable and can compete with other channels on price and speed.  Organizations with marginal buying power (and who are seeking cost savings) will certainly be intrigued.

The offering (of Amazon Supply) is not limited to tangible products; fleet maintenance and other business services are offered at a discounted rate.  Amazon Supply comes on the heels of Amazon Web Services (AWS) where Amazon is offering developer tools, databases, and operating systems.[ii] Customers can even use popular features such as “one click” to complete transactions, much like they do on the B2C site.

B2B suppliers in categories offered by Amazon will have to do some soul searching on whether they want to try to compete with the behemoth or partner with them.

They taught us in business school to be attentive to the Pareto principle; also known as the 80/20 rule. Pareto states that 80% of outcomes are a result of 20% of causes, or more commonly in business, that 20% of customers drive 80% of volume. Larger competitors are governed by Pareto, and spend significant time, money and resources to capture market generated by the vital few.

The 80/20 rules assumes that a provider can leverage a higher return on investment by addressing behemoth customers who require fewer interactions at high volume. Such efficiency is intuitively satisfying to our management sensibilities.

One counter that can be employed by smaller competitors is to seize an underserved market often described as “the long tail”.[i] The Long Tail flips Pareto on its head, and suggests that money can be made from addressing the remaining market, made up by those who buy infrequently and in smaller increments. To serve such a market requires the provider to offer a wide offering.

The Long Tail concept has been an enabler to the e-commerce revolution. Amazon (for example) has proven that a provider can reach the mass-market one customer and one product at a time, which is quite different than the customer buying multiple products from a retailer in a single trip.

In B2B (business-to-business), the long tail may provide some respite from vicious competition. However, to compete in this space requires a mindset of low cost, operational efficiency and virtually no inventory. Numerous e-commerce sites utilize “pack-n-ship” methodologies, outsourcing the bulk of the manufacturing, distribution and transactions to others. To provide the wide breadth of offering through pack-n-ship requires an integrated logistics system.

As with many other things, technology is the great equalizer and can provide a solution for what would otherwise yield higher acquisition and distribution costs. Much of the premise of retail is the last mile of distribution, which dictates that the last mile is the most expensive (which is why products like food don’t fare well in e-commerce, as getting the product to the consumer is too costly). Certain products that are not too costly to ship fit within this strategy seamlessly.

To pursue the long tail requires a penchant for serving niches, and the unmet needs of buyers with unique tastes or buying patterns. The larger competitors will often ignore these markets as too costly or difficult.

So if you’re looking for a novel strategy with less competition, consider the long tail.

One must contemplate the distinction between branding and rebranding. Rebranding is often miscast as an exercise in repairing one’s reputation. Some rebranding efforts focus on mitigating a negative image (such as Philip Morris’s name change to Altria or AIG’s move of their advisory business to Sagepoint). Yet rebranding may also represent subtle changes in positioning, or the recasting of visual identify, such as Starbucks recent move to a more contemporary look.

If you’re thinking about rebranding your company, bear in the mind the following considerations:

Seek out simplification-Today’s rebranding efforts are often a function of providing clarity to the marketplace and removing brand confusion. Citi’s recent rebranding removed a single word (if the word bank is in your name, it may not be a bad idea to remove it). Our cluttered market values simplicity.

Leverage Social Media from the ground up- Within our firm, we recently rebuilt our website, refreshed our brand, and printed new business cards (including a QR code). All of our marketing includes embedded social media components, with the intent of driving traffic to our website where prospects can experience various multimedia tools that are featured online.

Use emotional triggers-Google famous Parisian Love ad (when an American finds love in Paris) is a classic example of using emotional messaging to capture the imagination of your audience. All marketing should utilize emotional triggers.

Enter new markets- Pabst Blue Ribbon, perceived as an also-ran in the U.S. rebranded in China as an ultra-premium American lager (PBR) and is selling for upwards of $44 a bottle (the Chinese may not have everything figured out).

Reshape perceptions about quality-Rebranding should not appear cosmetic or contrived. Harley Davidson’s slide in perceived quality in the 80’s was magnified by stiff competition from Japanese competitors.  The company’s drastic repositioning included a return to its core products and the formation of the Harley Owners Group (HOG’s),  which reestablished Harley a bad boy brand.

Identify unmet needs- Your offer may need to change as the utility of your product or the benefits that differentiate it may shift over time.  Marketers will often use a tag line when they wish to preserve their brand equity, and point out new features or benefits.

Use professionals- Rebranding can back fire when companies draw attention to their marketing.  Many smaller companies try to utilize self service template web sites and similar home grown tools that come off as……home grown. Marketing requires constant investment. Hire people who can assist you with both messaging and technology.

Understand the hard and soft costs- Change can be expensive, given the need to reprint, re-sign, change email addresses, etc. Consider all your hard and soft costs (including management team band) with as you refresh your brand.

Organizations often under appreciate the importance of branding. In this world of hyper-competition, the way you communicate the nuances of your brand are more important than ever.

Whenever they call a day “black”, you know something bad is going to happen. On the Friday after Thanksgiving, I wanted to vomit. Not because I ate too much, but because of the destruction done to the U.S. economy. As a purveyor of value creation, I find Black Friday repugnant. Even if you are not a retailer, there are lessons here for all of those fighting off commoditization.

U.S. retailing used to be the Pareto Principle in action, with as much as 75%-80% of profits being realized in the 4^th quarter. The holiday season has turned into a race of who can open the earliest, and sell the cheapest flat screen TV (you could have bought a 42 inch flat screen at Best Buy for $199).

Last year I was talking to a corporate Vice President who was quite happy with herself after doing all of her Christmas shopping on a single day (I believe 4 AM is still the middle of the night if you want to get technical). I asked her, “how many items did you buy”, “17” she said. “How many were on sale” I asked- “17” she replied.  The defense rests.

Retailers work on “blended margin”, the ability to attract customers with lower priced goods, only to flip them to higher margin products.  In grocery stores, staples such as milk which are very low margin are at the back of the store, and higher margin produce and deli at the front in the “traffic pattern”.  Black Friday represents the destruction of 100 years of merchandising evolution, and creates a frenzy of deep discounts (one shopper in Porter Ranch, CA used pepper spray on another over an Xbox).

Some may argue that the “strategy” is to win shoppers for future trips and control market share. That may work for the low price leader (WalMart), but it doesn’t work for other retailers and boutiques. Those are the retailers trying to train their customers to realize the value of their service, knowledge, and unique offerings, and may only have one or two shots at the buying crazed mother with three kids.

Here is the single most important and basic business principle one could ever communicate in a business blog: prices should be high when demand is high, and prices low when demand is low. The destruction of the industry is inevitable if retailers continue to discount the deepest when demand is high. The shame, the shame!

Here is a prime illustration of how deeply this perverse thinking has infiltrated the industry. Recently I was shopping at Macy’s, selected a garment and brought it to the register, clearly marked with the price I was willing to pay. The cashier pulls out a coupon and says, I can give you another 25% off.  The defense moves for an immediate verdict your honor.

Defenders will say that the competition made me do it. What competition? China, WalMart, Best Buy? The true answer is Amazon and other online retailers who have changed the game forever, and this year kicked in free shipping to make their offer more compelling (online purchases are predicted to rise another 17% this year). So the real problem is not some evil empire. We have seen the enemy and it is us.

In order to fend off deep discounting:

1. Find products that can co-exist with online purchases. How can your products compliment the deeply discounted products? An iPad offers very little margin to the retailer, but accessories such as head phones and adapters are very high margin and offer the opportunity for repeat business.
2. Reinvent your model so that you are purposeful in selling complimentary goods. If you are going to sell them a gun at cost, you had better have the staff, expertise, merchandising and inventory to sell them some bullets as well.
3. Teach your employees the profit formula. Most of your employees think you are making a ton of margin on those handguns, so you need to teach and incent based on your objective of selling more ammo (I would have picked a more pleasant example but I am feeling like a curmudgeon after all of this discounting).
4. Provide the ultimate in-store experience that rivals or beats the online experience. Perhaps customers can see, touch and feel products that are shipped to them later, or to their loved ones.
5. Select targets (product, location, etc.) that are less vulnerable to price attacks from discounters and online retailers.

Let the treasure hunters go to the competition; they are the least loyal of shoppers and you can’t make any money selling to them anyway.

With the sluggish selling season will be plenty of opportunities for deep discounts. Deep discounting marginalizes a business (unless you are the low cost leader). Retailers may need to offer products at cost, but should do so with a clear pricing strategy built on balancing market share and profit.

Many CEOs feel that they are the victims of a lackluster economy and a government that is ineffective at offering any meaningful stimulus. In fact, 79% of CEOs fear that the fundamentals of our sluggish economy will remain the same or get worse.[i]

Economists have long understood that our thinking about the economy is governed by emotion. U.S. history is riddled with periods of growth and decline steered by the mood of the nation.

My generation grew up with a relative level of stability. We are simply not accustomed to the notion of “economic uncertainty” and we are not very happy about it. As a result, we have the tendency to overreact to stimuli in the form of collective euphoria or collective despair. This emotional response explains the nature of bubbles, as we all race to adhere to the conventional wisdom of the moment.

Today’s wisdom is that we should be scared…about sluggish growth, high raw material prices, health care costs, China, the Federal deficit, taxation and lots of other things. You know our psyche is a bit fragile when people are worried about inflation and deflation at the same time.

Our thinking often crystallizes around “the economic cycle,” which is something of a misnomer. Every business participates in this broader cycle, as well as a monetary cycle, industry cycle and company life cycle. The economy itself is merely a component in a spider-web of stressors that can be triggered by a myriad of forces from around the world.

Our expectations seem unrealistic, framed during a time when banks over leveraged, real estate was overpriced and stock market multiples were in the stratosphere.

The reality is that our economy is still growing (although perhaps in tepid fashion). Forecasts are for GNP growth of 1-2% for the remainder of 2011. When our GNP is growing at 4% we are bulls, but at 2% we are bears.  This meager difference illustrates that our fear is based on perception and is somewhat irrational. It is like the fear of flying: one knows that statistically there is virtually zero chance of a crash, yet to some, the fear is quite real.

Perhaps what we really have to fear is fear itself.  We should not be scared of a 2% variance, we should embrace it. In many instances, it will be the confidence of the CEO that will drive the level of investment businesses make, which will in turn either be the impetus for growth or maintain mediocrity.

Of the CEOs recently surveyed, 41% believe that prices of their products or services will rise next year. The potential for rising raw material and energy prices in 2012 could actually be a boon to vendors who are posturing to raise prices.

It is time to reset expectations with our customers, vendors, employees and ourselves. Within this data, there is plenty of salt, but perhaps there are a few grains of sugar as well.

A good leader must exude confidence in his or her business every day. If you don’t see the value in your products and services, no one else will. When the competition is weak, it is time to attack. Let your competitors have the scarcity mindset, while you focus on the strategic gambits that will grow your business and create sustainable competitive advantage. We will get our 2% back some day—we just need to be a little patient.

[i] Vistage CEO Confidence Index

Google’s behemoth $12.5 Billion acquisition of Motorola’s phone business set a salvo across the bow in technology circles. Google’s largest acquisition raises the stakes in the quest for platform dominance. The trend towards vertical integration is clear, as Coke and Pepsi buy up their bottlers, and manufacturers such as General Motors and Boeing eat up suppliers.

Consider the plight of HP, who has no software dancing partner in the world of mobile computing and announced last week of their exit from the desktop business. Investors penalized the company (who bought competitor Compaq a decade ago) severely, erasing $12 Billion in market value with a matter of days. [i]

And then there is e-textbook publisher Kno, the VC backed darling of Silicon Valley, who recently shelved plans to create a tablet for the education market after realizing that they did not have the chops to compete on a global scale with tablet manufacturers. The company moved towards an App for iPad only to have their margins raided by Apple (who earns a 30% royalty). [ii] While Kno has enormous upside, it is unlikely to realize its vast potential unless it owns or is owned by a distribution partner.

Today’s turf wars are not with a single competitor, but with their entire distribution platforms (as in the case with mobile devices). So the consequences of globalization persist; the large get larger and the small find the right alliance or face considerable competitive disadvantage. Vertical integration provides a recipe for greater control of cycle time and quality and a significant cost advantage. At a time when margins are slimming, companies are looking to participate both up and down stream.

It appears that the swell of distribution channels has made distribution even more important, so those who can find unique methods of delivery are creating a first to market advantage, such as Amazon has with books. As private equity investors look for deal flow, and shrewd entrepreneurs look for bargain basement acquisitions, they should look not only at competition, but for suppliers or customers that present control and cost advantage throughout the entire supply chain.

With so much cash on the sideline, some sectors may be ripe for another round of consolidation. The choice many businesses face today is will they be the consolidator, or the consolidated?

In Outliers, Malcolm Gladwell asserts that one needs to invest 10,000 hours in an activity in order to become an expert. I take solace in knowing that I am evidently both an expert in Strategic Planning, and overcoming the drama induced by teenage daughters.

The rapid escalation of global competition has brought about a new round of hyper-specialization.  The concept of specialization is nothing new; the division of labor has been a key tenant of economics since the birth of capitalism. Yet sites such as Guru or eLance, have propelled specialization to a new art form, where one can access dozens of specialists from around the world in any conceivable competency in a matter of minutes.

Specialties that do not require any special education (other than what is readily available on the internet) such as graphic arts have quickly commoditized. You can hire a graphic artist online for $15 an hour.  In cases where greater technical aptitude is required, specialists still out-earn generalists. The median Internist in the U.S. earns $176K per year, while Cardiologists earn a median of $403K (some make $800K or more). [i] If you had a heart attack, which would you see?

Perhaps the most common strategic blunder I observe within entrepreneurial companies is a penchant for addressing overly broad targets. Marketers, seeking the largest audience cast too wide a net. In their need to satisfy the largest number of prospects, they become de facto generalists. That is, instead of addressing a niche market with specific solutions, they try to satisfy a larger audience with a multitude of products and services. At some point, the value they can provide suffers from diminishing returns.

The more crowded a space, the more difficult it is to differentiate, and the greater the need for expertise. Before its bankruptcy filing, GM attempted to sell within every segment, from sub-compact to Hummer. GM experienced what is often referred to as the peanut butter effect; the wider you spread something, the thinner it gets. GM’s branding was diluted and ability to control quality constrained.

Many small businesses may employ generalists because of their lack of talent depth. To have one IT professional manage a network, build the company website, select an ERP package and fix all the desktops is an archaic paradigm worthy of recalculation.

The reason that specialists are worth more than generalists is that they have a deeper subject matter expertise that drives:[ii]

Quality-Processes replicated over time promote less deviation, less defects and fewer errors.  The specialist thinks deeply about an area of expertise in which they have experience and are less likely to make mistakes.

Speed- Specialists do not need to reinvent things. Cycle times on proposals and product delivery is faster. If a company offers 50 stock products instead of 500, they can manage less inventory and ship items quicker. For every new project outside the boundaries of a company’s expertise there is resource draining learning curve that costs time and money.

Relationships-As the specialist is highly respected, their opinions are sought after by the media and people who want to know them, hire them and refer them to others.

The realities of outsourcing and off-shoring are driven by these phenomena. It is inherently inefficient to participate in activities that are not within a firm’s core competency and do not directly contribute to the bottom line. Thus, the migration of labor (outsourcing) will rise at a fervent rate.

In fact, the entire concept of the corporation, with its multiple functional departments (such as accounting, sales and marketing, design, operations, engineering, manufacturing, etc.) is under some attack. Social norms around what constitutes a working environment are shifting quickly and enabling greater specialization. Collaboration tools make the world of work far more virtual, which will continue to feed the frenzy.

Think about how to specialize as to optimize your revenue, margin and profit.

Businesses often fall in the trap of thinking that because their customers are happy, that they will remain in the fold.  Global competition has brought about switching options that did not exist before the world was flattened like a pancake. Businesses who serve other businesses (B2B) must go deeper than the occasional sales call, Christmas gift and customer satisfaction survey; they must find ways to box customers in.

I often travel on behalf of clients, who arrange rooms at the Marriot, Hyatt and upscale locations such as the Four Seasons and Ritz Carlton. If any of these chains solicited my feedback, I would give them high marks; I am satisfied. Yet given a choice, I will go out of my way to book a Hilton. As experts at J.D. Power and elsewhere have pontificated, there is a chasm between satisfaction and loyalty.

I find it fascinating that the term Customer Relationship Management (CRM) has become synonymous with overpriced and monotonous software.  The CRM revolution offered the promise of analytics that promoted tracking the most profitable customers as calculated by their lifetime value. The premise of CRM is to treat valued customers differently than less profitable ones. Somewhere along the way, many organizations lost sight of the point.

While frequent flyer programs and the like are popular, few realize the promise of customer loyalty. In the case of Hilton I receive free breakfast, cocktails, bottled water, Internet and frequent upgrades. Hilton truly treats me like a VIP, and they have boxed me in at a very low incremental cost.

So how can a B2B enterprise apply such thinking to deepen their customer relationships? There are certainly ways to provide special benefits to your best customers. The definition of best should not be limited to the customers that buy the most. It could mean who pays on time, participates in key programs, attends vendor events, etc. Special rebates can be paid to customers who demonstrate their loyalty and are easy to do business with.

There are also other intangible benefits such as direct customer service lines and faster cycle times that can be extended to those who meet certain thresholds. Companies that utilize distributors should evaluate, score and incent those that represent their product best, and meet specific performance criteria.

Your best customers are worthy of this investment, as they are the ones that are most apt to look beyond price when making decisions about their vendors. Treat your best customers like VIP’s.

As a result of the liquidity crisis and the giant sucking sound that followed, business-to-business customer relations have taken a dramatic turn.  Salespeople, beaten down by heightened customer demands and rampant discounting have become far more tactical.  As customers have attempted to flatten the playing field through RFQ’s and reverse auctions, vendors have been conditioned to comply with a new set of norms. How tedious and unfortunate.

The art of dissecting customer needs has deeply eroded. These new realities put the seller at a tremendous disadvantage, and often impacts margins and profitability. Selling organizations are better off identifying the minority of customers who are still willing to have strategic conversations.  Below are 4 types of questions you should be prepared to ask in a strategic meeting.

Perhaps the most critical element of consultative selling is getting to a decision maker. Procurement departments are typically focused on one variable; price. One way to orchestrate a senior level meeting is to ask for a strategy session or peer review. This can be positioned simply as…”the senior management of my company is planning a trip to…and they wanted to know if we can have a strategic conversation about the future and how we can; take cost out of the system, improve customer experience, reduce cycle time, etc…” In some cases, you may need to be prepared to suggest that you are considering investments that will decrease the total cost of doing business for the customer (that does not mean a price concession).

Salespeople should prepare rigorously for the meeting, digging up every possible piece of information on the company, their customers, their competitors, your competitors and about the people you are meeting with. Linked In, Facebook and other internet sites offer all type of information about clients-everything from the alma mater, to hobbies and interests.

Always allow the client to be seated first, but if possible, position so that your organizations are not seated on opposing sides of a table. Begin the meeting with opening questions and quickly transition to strategic questions. You want to first set a tone that you are there to probe and listen:

Stage 1: Opening Questions

• How many years have you been in the industry, or how many years have you been here?
• What did you do before?

Stage 2: Strategic Questions

• What is your vision for growing the business?
• What are your strategic objectives?
• What separates you from you competition?
• How will your company need to change to maintain its advantage?

Explain to your salespeople that if they interrupt the customer, or speak while you are asking questions, you will fire them on the spot (and mean it).  Many will have an overwhelming desire to present (and not to listen). Here is the golden rule: if you are speaking for more than 20% of any meeting, you are losing!

While asking strategic questions, you are observing the customer’s tone, pace and body language. If they are tactical thinkers, or simply don’t want to have a strategic conversation with you, you will observe their discomfort and move on to lower level discussions (which you should be fully prepared for).

After you have established the fundamental business problems, create a transition where the customer views you as the solution (without you even suggesting it).

Stage 3: Anchor Questions

• What are the long term ramifications of …?
• What would be the affect on revenue/profit/cycle time/customer experience, if …were to continue?

Stage 4: Closing Questions

• Do you have any initiatives to outsource … to suppliers?
• What if we were to…?

Here is the hammer. Companies (and especially purchasing departments) have seen dramatic contraction of headcount. If there is a way for your organization to accept the burden of certain  activities on behalf of the customer, you have reduced their total cost of ownership.

This approach will not work with all of the customers all of the time, but it will promote dialog the most profitable customers and those are the ones who are worthy of our time and investment.

Adapted from A Seat at the Table by Marc Miller

A common theme in recent years is the thirst to diversify. Often organizations wish to minimize customer concentration risk, or seek out new markets with less competition.

Competition is a matter of degrees, and one can predict which markets will attract competitors based on the ease by which they can enter or exit. While there are industry specific hurdles to consider in any business, barriers to entry include:*

Economies of Scale- Companies seek out volume or vertical integration in an effort to control raw materials or create a cost advantage.

Capital Requirements- The need for access to heavy equipment, factories, or labor is so expensive to fund that only large competitors enter the fray.

Switching Costs- The cost for customers to switch suppliers becomes too high.  When one takes on a new cell phone contract, the price penalty to switch is punitive. By the end of the contract, when switching costs are low, providers offer incentives to keep customers in their network.

Access to Distribution- Companies such as Coke, Pepsi, Nabisco and Frito Lay control distribution at retail outlets, keeping competitors off the shelf. Once distribution is established, it is relatively easy to expand into new categories such as bottled water and iced tea.

Cost Advantages- In some instances cost advantages have nothing to do with scale, but are a function of strategic alliances or bets that provide cost savings.  During the last run up of fuel prices, Southwest Airlines’ clever hedge only expanded their cost advantage.

Government Policy- Government is unpredictable and is an X factor in many businesses. Government contracts often exclude suppliers who cannot meet or choose not comply with a myriad of requirements from eco standards, to minimum labor rates.

When analyzing which business you should be “in”, it is not enough to consider the current state of competition. How might competitors behave in the future?  Is the market large enough to attract behemoth companies?  How have such companies reacted to price competition in other markets?

Another consideration is the cost of exit. Companies who provide parts may have legacy costs that may last many years and erode profits. There are many variables to consider in any new endeavor, and diversification offers both opportunities and a myriad of risks.

*Adapted from Competitive Strategy by Michael Porter