A turning point in the history of sales. It came about when Wal-Mart, the world’s biggest retailer, completed an internal audit of their purchasing department.
They discovered that 75% of an annual $1 billion dollars spent on purchasing, accounted for less than 5% of total sales.
In a lot of instances it had cost Walmart more to buy than profit from it.
What Wal-Mart did in response, coinciding with the rise-and-rise of the Internet (and social media) as a delivery platform,
…changed the dynamics between buyers and sellers, forever.
You may not know this yet, but it also changed the dynamics of your business forever. It’s why those not using social media for business are feeling the pinch today.
If it ain’t broke don’t fix it…
What if it’s broke, but you don’t know it’s broke?
…you know it’s broke, but you don’t know where?
(I’m sure you’ve had a tonne of advice from social media agencies and other experts to date)
You’ll find one on every corner after all.
But before we go on, I need you to understand two things about expert advice;
1. “Great coffee“ is as good as the best coffee you’ve tasted.
2. You “don’t know” what you “don’t know”.
(this will make more sense in a later post)
Wal-Mart is the World’s Biggest Retailer…
Their national purchasing department supported close to 4,000 staff.
The average purchasing agent at the time was meeting with 6.8 salespeople, every day.
I told you already, as it turned out, 75% of their purchasing costs contributed to less than 5% of all sales.
Clearly Something Had to be Done!
“The obvious goal” would have been to increase productivity in the purchasing department.
But who was Wal-Mart going to “bring-in” to improve their current average of 6.8 sales meetings,
(per 8 hour working day)
…per purchasing agent?
That’s “purty” efficient already…
It’s like one meeting an hour for goodness sake,
(with an hour lunch break)
Well, how many eCommerce websites do you think a purchasing rep can visit in a day?
Six an hour maybe, 50 – 60 a day perhaps?
Think about that for a second…
I’m going to borrow a phrase (or two) from my virtual mentor on this stuff.
Neil asks his students (me) the following question;
Why would Wal-Mart continue to have 6.8 walking talking sales brochures visit their
offices every day?
Just to communicate features and benefits of mouse traps,
(& whatever else they’re selling)
… to Wal-Mart’s purchasing reps,
…If purchasing reps can visit a supplier’s eCommerce store to read about features and benefits, or place orders, as and when they need?
So What did Wal-Mart do?
What any “world’s biggest retailer” would.
Change their entire purchasing strategy.
They cut purchasing staff from close to 4000, to half that number.
They decided they no longer needed to pay so many buyers to sit in cubicles — listening to sales reps recite sales brochures.
They invested in Internet infrastructure instead, using social media for business networking, and crowdsourcing, to source products their customers wanted.
They told vendors:
Don’t send any more sales reps.
We no longer pay staff to meet with them.
We’ll still buy your stuff. But we’ll buy it online.
(That way you don’t need to employ so many sales staff, we don’t need as many purchasing staff)
Not to mention the savings in administration because online transactions leave data trails that we can map into our inventory & accounting systems — automatically.
…and one more thing.
Because you’re paying fewer sales staff.
We expect bigger discounts.
While we’re at it “another-free-tip,” improve your website’s navigation because if our buyers don’t like their online experience, or,
… if you “drop the ball” on support.
We’ll “drop you” like a “fish milkshake”.
Our people no longer share “real-world relationships” so “we aint gonna miss you” if we find better deals.
Here’s the kicker though…
Most large retailers throughout America adopted this same (Wal-Mart’s) purchasing strategy.
Estimates have the average saving at 11% of purchasing costs, for the exact same volume of goods purchased across the country.
That meant this model on average, is costing retailers 11% less to generate the same revenues.
Your buyers (customers) are no different to Wal-Mart’s buyers,
(Wal-Mart are their vendors customer)
…they’ve become both strategic and ruthless in how they secure a better deal
They’re using better information accessible over the Internet as their vehicle to better deals.
(social and mobile technologies)
It cuts both ways, though.
Wal-Mart’s buyers (consumers) will use mobiles to comparison shop whilst standing
in their store.
Today’s (young) buyers are more than happy to use retail storefronts to pick the brains of experts, staff retailers pay to sell their products.
Today’s buyers use this no cost resource to confirm products, labels and dress sizes.
Knowing once they extract this information, they’ll buy it online,
What can a retail business owner do?
Well believe it or not, the answer to this question lies in the maternal instincts of an eel.
(living in a murky pond, Sydney, Australia)