Office Depot Makes a Bold Play – Who’s Next?
ODP Corp., Office Depot’s new holding company, made waves last week with the news that it hired Prentis Wilson to lead its digital transformation initiative. Wilson made his name by launching Amazon Business and turning it into a $10 billion business in five years. With another former Amazon Business executive, Terry Leeper, already in place as chief technology officer, ODP is sending a clear signal that it fully intends to transform and disrupt the office supplies industry.
The ripple effects could be huge. We’ll explore the potential changes on the way and why rapidly digitizing office supplies companies must address the pricing implications.
The Marketplace Bet
The brain trust at Office Depot, like many others in the office supplies industry, are looking for solutions to stagnant or declining growth numbers. Office Depot’s sales were down 8.8% over the last year, a good portion of which could be explained away by the pandemic. But the company’s net income has hovered around break-even for the last three years, and the industry as a whole has been on a slightly downward trajectory for the past decade.
Clearly, the status quo is not the answer. The office supplies market has proven to be vulnerable to disruptive marketplace providers that thrive on low-complexity logistics and B2C-like customer experiences. In a twist on the old adage, “if you can’t beat ‘em, join ‘em,” Office Depot has seemingly decided, “if we can’t beat ‘em, hire ‘em.”
“The very best people to build a competitor to Amazon Business are the people who built Amazon Business,” said Ian Heller of Distribution Strategy Group in a recent webcast. “If you’re in the office supplies business you’ve probably had a lot of your revenue taken away by marketplaces already and now they have decided at Office Depot, apparently, that they’re going to fight back.”
It’s a big swing, one that will likely lead to more office products distributors accelerating their own plans for omnichannel digital commerce, including their own forays into the marketplace scrum.
The Retail-to-B2B Shift is Real
“(ODP Corp.) has pivoted increasingly more and more to emphasizing its B2B offering over the last four years and moving away from its retail reputation,” writes Mike Hockett of Industrial Distribution. “Wilson will help establish and scale ODP’s new technology business that ‘combines cloud innovation and eCommerce technology with the company’s B2B assets to transform how businesses buy and sell.’”
As digital marketplaces like Amazon have commoditized retail, companies are looking to their B2B entities to become their true value-added differentiators. The opportunity for revenue and margin expansion is huge in B2B, but also immensely more complicated. With more and more traditional retailers embracing B2B, they will need to consider:
Customer-specific agreement pricing, including how often to update contract prices and how to automate that process
How to account for contract prices when selling to your customers on an online marketplace
Dynamic pricing and more efficient strategies for cost pass-through
How to automate the time-consuming and often profit-eroding negotiation process
How to avoid a race to the bottom in an atmosphere of extreme price transparency
How to equip B2B sales reps with prices that are consistent across channels and relevant to market conditions
How to effectively execute and measure sales campaigns
Establishing a clear B2B strategy, bolstered by advanced technology and data science, will make the difference between leaders and laggards in this space. Back to Office Depot for a minute, the company has also recently announced a strategic partnership with Microsoft. This figures to propel the company into artificial intelligence capabilities, such as enabling B2B customers to quickly order new pre-approved supplies from their desk over a smart speaker.
While these types of potential shopping transformations are exciting, companies must spend equal time, if not more, ensuring that products purchased through those voice commands are priced right for that customer, every time. What they’ll quickly learn is that only through data science and AI can millions of SKUs and thousands of agreements remain rationally priced as cost changes and other pricing triggers (events that necessitate a price change) come fast and furious.
Marketplace Pricing Strategy
Zilliant General Manager of Commercial Excellence Barrett Thompson and Digital Commerce 360 Editor Paul Demery recently tackled these very topics on an episode of the B2B Reimagined podcast.
“I think companies were expecting, ‘Okay, maybe five years from now we really need to be well-suited in B2B eCommerce or Amazon Business is going to come eat our lunch,” Demery said on the show. “With this pandemic, with so many people working from home and not doing as much face-to-face sales interaction, more companies realized they had to move up their plans to have a good self-service electronic commerce option for their customers.”
Listen to the episode to learn about the challenges and opportunities that are becoming apparent when it comes to B2B eCommerce and marketplace pricing, and what to do about them.
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