Source: Amazon.com
Brands are simply guests on Amazon’s platform and that’s okay
Through a special arrangement, presented here for discussion is an excerpt of a current article from the blog of Kiri Masters, founder and CEO, Bobsled Marketing. The article first appeared on Forbes.com.
Amazon.com’s rapid private label expansion is making many branded manufacturers uncomfortable. According to Scrapehero, Amazon’s private label offerings now encompasses 6,825 products across 100 distinct labels. Of these, nearly 70 percent are in the apparel category.
Beyond anxiety over Amazon’s emerging “frenemy” status, brands are vexing that tactics being used to promote those private labels run counter to the site’s “open marketplace” promise.
In early October, for instance, CNBC reported that Amazon had started promoting its private brands at the bottom of brand seller’s listings. Last week, Bloomberg reported Amazon was distributing free samples to incentivize reviews of its private label goods — ironically, on the same platform it initially developed to reduce review manipulation.
None of this is a cause for panic. Scrapehero found 40 percent of Amazon’s private label are priced below $20. In apparel, food, home and kitchen, most private labels are under $40. Generally speaking, Amazon’s in-house brands are the “cheap” alternative to national brands. They’re filling gaps in the assortment.
Meanwhile, Amazon can make 15 percent from marketplace sellers and avoid the design, sourcing, marketing and other hassles of developing in-house labels. Amazon’s best interest is to keep sellers around.
Moreover, Amazon doesn’t have to play fair. They spent years building a platform that is now responsible for about 50 percent of online sales. It’s their house. You have to play by their rules.
At the same time, every brand can make smart choices around products, presentation and relationship building that minimize the threat from Amazon’s private labels.
Brands shouldn’t try to undercut Amazon’s pricing but give shoppers a good reason to choose their brand. Patent innovations, unique features or even an extended warranty can be a differentiator.
Most importantly, brands need to remember to follow the data. Use Amazon sales data, customer reviews and even off-platform reviews to understand why customers are buying. Drive awareness and build social influence to encourage buyers to come to them first. This is the long-term defense against Amazon private label.
Discussion Questions
DISCUSSION QUESTIONS: Is Amazon overstepping its bounds in giving preferential positioning to its private brands? How should brands and third-party sellers respond to Amazon’s private-label expansion?
Poll
BrainTrust
Anne Howe
Principal, Anne Howe Associates
Brandon Rael
Strategy & Operations Transformation Leader
Kiri makes a great recommendation: Don’t try to “out-Amazon Amazon.” Instead, find your own niche. The key to standing out in Amazon’s crowded, competitive market is no different than the key to standing out on the high street: localized assortments. If you treat Amazon just as you would any other “location” and develop assortments that align to the customer, competitor and experience nuances of that channel, you can carve your own space and find ways to make the most of one of the world’s largest online selling platforms.
Amazon is a for-profit business and has every right to prioritize their own interests. This is no different than a brick-and-mortar retailer promoting their own private label brands (something that happens today whether the retailer is Nordstrom or Kroger). To combat Amazon’s private-label expansion brands must be brands — represent something and offer great quality — if they don’t Amazon’s offerings will gobble them up.
National brands at retail have always had to compete with private label products. And the need for marketers to truly understand why shoppers choose a brand versus PL is still a cornerstone of success. It takes hard work, insight, great product and a bit of brilliance to build and sustain a great brand. Amazon is just another vigorous retailer! Game on.
It really doesn’t matter whether we think Amazon is overstepping its bounds — As Kiri points out, it’s their sandbox. Brands aren’t going to win on the budget angle so the key is to understand what other imperatives consumers really care about and market against those. Does the consumer care about the product’s materials or sourcing? Does the consumer care that the product will fit into a broader narrative of how they want to look? There are ways brands can win in the Amazon ecosystem. They just have to be laser focused on the needs of their consumers.
Lots of good points in this article, but part of it is simple. Amazon is doing exactly what every department store has been doing for decades. And that is developing private labels that compete directly with the national brands. It’s pure, raw competition — now on steroids with the reach that Amazon enjoys. Kiri rightly points out that it is in Amazon’s interest to keep sellers around. They’ll balance their assortments while they learn from the customer how best to evolve their own brands. More good advice from Kiri — innovations, unique features, differentiators. Strong brand promises will prevail. Weak brand promises will wither. Competition and evolution — on steroids.
There is certainly an element of risk associated with joining Amazon’s ecosystem, yet there are clear advantages as well. Retailers and brands should treat being a part of the platform as yet another shopping channel, where there are also clear opportunities to leverage it as a form of media and connecting with customers.
At the same time, Amazon has their own business to run and they have every right to position their private label brands ahead of the nationally recognized brands. It’s a losing proposition for retailers and brands to join the Amazon marketplace, and expect to compete for both positioning and pricing.
Retailers and brands simply need to connect with their customers in whatever channel they wish. Being a part of the Amazon platform is a must for any competitive brand.
It’s their platform, so presumably they can do anything they want with it. They created, not just the platform but the industry and — as the old saying goes — to the victor go the spoils. I guess in some way I don’t understand the question. Are there any rational brands out there that don’t view Amazon at best as a double-edged sword? Amazon has been a threat to branders since Day One, but it’s just too big and too effective a market to ignore. What Amazon has done, perhaps indirectly, is to democratize product quality and access. Smart brands can leverage innovation and marketing to remain viable in the Amazon environment or eventually they will either go away or be absorbed.
Amazon is a marketplace. Just as our favorite grocery store is a marketplace. Same as the local mall is a marketplace. I was in Publix the other day. Walking the aisle I saw popular national brands next to Publix private label products. It is Amazon’s marketplace. They can and will place the private label products next to or ahead of the other brands. Time and sales will tell them if it is successful and a smart move. Or not!
Sound, grounded and sometimes hard to swallow… but realize that Amazon owns the playground. When you own the playground, you get to choose where the swings go. So it is ultimately up to them regarding preferential treatment. Naturally, they too have to be customer and channel focused. Peeve enough channels, retailers, and CPGs… and eventually other options will become more attractive.
The best advice on competition is to differentiate. Differentiate on what makes you unique, and stay away from price. The race to the bottom is NOT a winning strategy!
At the end of the day, Amazon is like every brick-and-mortar retailer, namely it enjoys a local shelf monopoly. The challenge is to offer customers more than simply price in purchasing own-label. Traditional retailers learned this lesson years ago and have repositioned their own-label offerings to highlight their differential advantages.
Other brands and third-party sellers need to follow the same advice. What do we need to highlight about our brands that will result in customers choosing our brands over the Amazon offering?
Any retailer who has not viewed Amazon as a double-edged sword has been blind. Brands need to present a competitive advantage over private labels everywhere. In addition brands have the opportunity to sell items that are in small demand in individual locations but preferred by the customers who purchase them. Individual retailers may not want to offer slow moving items but Amazon can make them available. If they do not offer high volume, Amazon may not want to invest in them as a private label so the brand can offer unique items to loyal consumers.
Kiri makes a number of great points in the article. I would sum it up as others here have – you can’t out-Amazon Amazon and you shouldn’t be trying to. That’s a losing battle. Instead, brands need to treat Amazon the same as they would any other national retailer that sells competing private labels. Is this really different than selling your apparel at Macy’s or Nordstrom? It’s Amazon’s marketplace/store so you have to play by their rules, but, you also still need to understand your customer and what value your product brings to them so that they choose you over a private label. This dynamic doesn’t change just because it’s on Amazon’s marketplace!
There aren’t any bounds for Amazon to overstep; it as a platform is maximizing its profit opportunities. With Amazon’s strong customer loyalty and trust, there is definitely potential for brands to lose market share however they need to continue viewing the platform as a distribution channel rather than a competitor. People choose to purchase one thing over another for more than just convenience and price reasons. It’s the job of the brand to work out their unique value proposition, and continue to deliver this.
Amazon seems to continue to believe the Bezos-stated myth that “in your margin is my opportunity” despite the reality that they are only profitable due to the highly-differentiated, high-margin AWS business.
They are merely a store. Quick growth of private label at first is always the reality… But there is a limit to its growth — at least there is if the brands are doing the right advertising and communication and product development.
This is an issue — but will end up being a small challenge to brands not a big one.
Walk into Kroger, Walmart, etc. and you see the same thing happening — private label brands merchandised alongside or with better positioning than national brands. It is Amazon’s marketplace, and like any other brick and mortar marketplace, it sets the rules. For brand and third party sellers, their success will hinge on whether or not they can continue to innovate and offer products that fill unmet needs. Like many private label brands, Amazon’s brands are primarily lower priced copy cats of what is already selling well. As brands stay ahead of the curve and continue to invest in smart product development, they will continue to enjoy success on the marketplace.
If you are a brand selling commodity products or low price point products of average quality, it may be difficult to compete with Amazon’s private label products. It will also continue to be difficult to compete with many other competitors as a low-cost commodity product strategy is not a sustainable business model in a hyper competitive retail world.
Premium brands with a strong reputation for quality craftsmanship or a coveted fashion design will not be threatened by inexpensive private label brands. Product and brand differentiation is imperative for long term survival.
Amazon is not overstepping its bounds because its mission is not to be a great partner for brands — its mission is to be the most customer centric retailer in the world and offering lower cost alternatives helps with competition which helps the consumers. Brands (big and small) and 3rd party sellers just need to understand that if their product or category is successful, Amazon will enter it with a private label, customer info and Amazon marketing muscle. You may get some much needed volume by being on Amazon, but you can’t rely on them in the long term. Brands needs to build direct, meaningful and hopefully ongoing/recurring relationships with their customers to win over the long term.
Amazon needs to be one channel, not the only channel for e-commerce and retail strategy in general.
Brands and third-party sellers should think of Amazon as not only a marketplace, but a media platform. Even when purchases are made in brick-and-mortar stores, a majority of shopping trips begin online. Consumers aren’t just shopping on Amazon, they’re using it to research products, read reviews, compare prices and more. Brands need to optimize their digital real estate on Amazon by using optimized product content to highlight differentiators and introduce usage occasions. Your presence on Amazon should be equally as good as your owned brand site.