Channel conflicts, arbitrage and disintermediation in eCommerce – and what you can learn from rugs for cats

I stumbled across a very interesting article by Jason Feifer on the “Entrepreneur” page. It’s a story about arbitrage and not-asked-for middlemen. There seems to be a business model to buy articles from Amazon and re-sell it via eBay with a profit. Once you order such a product from eBay, the middleman buys it from Amazon, and has it shipped directly to you from the Amazon distribution network. This sounds “ok” for all parties at first glance.

The story elaborates nicely on the possible damage to brand and customer satisfaction, and even profit of the original manufacturer – once the buyer realizes he paid too much or wants to return the product.

On the other hands, this story indicates a  “price flexibility” between markets – aka an opportunity to capture more profit as a manufacturer. Dynamic pricing is common with airlines, online retailers, hotels or Uber taxis. Interestingly, the topic came up in recent discussions with steel and concrete producers as well.

Let’s be clear – even without arbitrage a consistent and channel-conflict-free e-commerce strategy is a challenge.

Most mill manufacturers, including metals, paper, furniture, building products, use several channels already:

• EDI
• Direct consultative, ETO-like sales
• Own e-commerce platform e.g. SAP Hybris Commerce
• Sell via Ariba Network like National Business Furniture
• Sell through eBay (also via Ariba Network)
• Sell through Amazon or Alibaba
• Sell through distributors, DIY shops, metals traders

Which channel fits for which product, especially considering make-to-order/finish-to-order configuration is a separate discussion (see “customer centricity and commerce” section in my previous blog).

What the article from entrepreneur nicely illustrates is the challenge (and opportunity) to control & protect your brand, and drive profitable growth by smartly playing across channels.

Aurelian Popa, CIO Long Products EMEA at ArcelorMittal, the world’s largest integrated steel and mining company, noted at the SAP Conference for Mining and Metals that today’s customers demand an Amazon-style shopping experience. Not only do they want digital interaction all the way from placing an order through to paying for delivered goods, they also expect constant access to data, such as the supply chain.

Will it make sense for you to sell low-margin standard products through Amazon (and share some of the profit with Amazon)? Or is it more advisable in our industry to establish an own eCommerce, and excel with seamless digital interaction and state-of-the-art customer experience across the entire supply chain?

Have you come across similar arbitrage situations in your business? How did you react?

What has all this to do with rugs for cats? The Entrepreneur article follows Fred Ruckel’s start-up product “ripple rug” and its eCommerce journey between Amazon, eBay and an own webshop. Have a cat yourself? Buy a ripple rug directly from Fred’s shop. Your cat will love it.

What are some ways companies are working with digital technologies?  Learn more about Digital Transformation in the Metals industry.