News & Insights
What Amazon’s Private Label Plans may Mean for your Brand
As Amazon has grown, so has its focus on private label brands. Inspired by the success of house brands in brick-and-mortar stores, Amazon hoped to capitalize on its ability to market low-priced products backed by the company itself. Since committing to the tactic, they have offered private label products, some bearing the Amazon name, in categories ranging from food to clothing to electronics.
However, new reporting indicates a shift may be on the horizon. While sellers and brands utilizing Amazon have previously focused on competing with Amazon’s private label brands, the new priority may be on learning how to adjust to a marketplace with fewer Amazon-branded products available, but new challenges that would accompany such a transition.
Both Vox and the Wall Street Journal addressed the potential change in Amazon’s strategy in recent weeks. Their reports centered on the possibility that Amazon’s efforts to drive market share in-house may lead to more harm than profit.
Among the motivations for a decision to minimize these offerings is the scrutiny Amazon has faced from government regulators due to their private label products. There are well-documented questions about how Amazon’s role as a marketplace and data-collection company may conflict with its aspirations to sell more of its in-house brands. Regardless of what happens in the future, current sellers should be aware of the industry climate and have a plan to respond in ways that will grow their businesses.
What is Amazon Private Label?
Since 2005, Amazon has sold private label brands to shoppers online. Beginning with its Pinzon line of household goods, this effort expanded in 2009 with the addition of its AmazonBasics brand. Experts estimate that Amazon now has more than 100 different private label brands, and the company currently has more than 250,000 unique products under their in-house brands.
As with other retailers, these private label brands are typically manufactured by third-party companies but sold under the store’s brand alongside similar brand-name products. Often, the private label products are sold at lower prices than competing brands and for a higher markup, resulting in more potential profit from private label brands compared to third-party brands.
These Amazon brands are separate from Amazon exclusive brands, which may provide the company with similar cost advantages, but are not owned by Amazon. In some cases, it can be difficult, if not impossible, for shoppers to differentiate between Amazon’s private label brands and its exclusive brand sellers.
Competition from Amazon
In the past, Amazon has claimed that its private label products account for only about 1 percent of its total sales. However, this doesn’t fully reflect that Amazon’s private label products are relatively new, and some categories saw growth as high as 81 percent in a single year. Nor does it illuminate the fact that in some categories, Amazon’s brands account for significantly more sales than listings. In clothing, for example, in-house brands made up 9 percent of sales but less than 1 percent of the product listings.
Revelations such as this have drawn concerns about Amazon’s competitive fairness to sellers utilizing the platform. While the customer reach that Amazon can offer its sellers is difficult to match, a biased algorithm or other tactics that push buyers toward private label brands would greatly diminish the value of that accessibility.
Concerns & Controversies
While the intent behind Amazon’s private label brands was to increase the company’s profits, the effort has had substantial negative consequences. Because of the amount of data at its disposal and the opaque nature of the search algorithm, Amazon faces more challenges than a traditional brick-and-mortar retailer when it comes to selling private label products.
Since launching its private label brands, Amazon has faced increased scrutiny from the U.S. government. Primarily, federal regulators are concerned that Amazon’s role as both the manager of the Amazon marketplace and a seller and brand owner on that marketplace creates an irreconcilable conflict.
The government is concerned that Amazon gives its brands preferential treatment, making it difficult for other brands to compete. These circumstances would create an unfair advantage for Amazon and result in an opportunity for legislators to demand more oversight of the company and new restrictions on how it manages its operations.
One of the chief concerns regulators and sellers have about Amazon is its unlimited access to category and brand-level sales data. While Amazon has claimed that its policies prohibit the use of seller data to guide its private label decisions, there have been examples and evidence individuals within the company sometimes violate those rules.
The reason this possibility is concerning is because, real-time data on metrics such as sales growth and customer preferences could guide Amazon’s decisions about launching new products under its in-house brands. And, if they use information unavailable to other sellers, it could provide an unfair advantage that hurts small businesses depending on the site to roll out their new products.
Since Amazon controls almost 50 percent of the U.S. e-commerce market, brands are increasingly dependent on their Amazon sales. However, they are also legitimately fearful they could spend vast sums of money growing their brand on Amazon, only to have the retailer launch a copycat product.
Any successful product is likely to invite imitation. And although this challenge is not limited to Amazon or only e-commerce, it is a growing concern among businesses on the platform. Search results, product visibility, price and shipping methods play such a critical role in Amazon sales that a private label copycat can quickly transform Amazon from being a product’s largest retailer to its largest competitor.
What it means for current sellers
In the immediate future, brands should be less worried about Amazon copying their products. Due to the increased emphasis on ensuring a fair marketplace and reports that Amazon is re-evaluating its private label strategies, it’s doubtful that Amazon will launch many new private label brands or products in the future.
All indications are that the company will instead focus on ways to reduce outside interest in its corporate activities. This should be a massive relief to many brands on the Amazon platform, but it also means they should learn from what has happened thus far and prepare for what may come next.
A change is likely coming
There’s no question that Amazon’s antitrust issues are for real. The company has already offered significant policy changes in an attempt to appease a European antitrust investigation. Among those changes is a commitment not to use proprietary data against third-party sellers, expanding access to Amazon Prime badging, minimizing the data and search advantages the Prime program can offer Amazon, and revamping its approach to the Buy Box.
Similar concessions could be coming for their U.S. marketplace soon. That’s because it is clear that Amazon is worried about the government here taking action against them for anti-competitive behavior. And since their private label business was one of their main drivers behind those inquiries, expect the company to pivot away from those brands, at least partially.
Marketplace vs. seller
It is also becoming apparent that Amazon would rather be a marketplace than a retailer. Today, the company essentially runs two businesses in retail. One is a marketplace, like eBay, where millions of third-party (3P) sellers can list products for sale. In this business, Amazon charges roughly 15 percent commission to sellers and doesn’t own inventory. The second Amazon business is as a seller on its own marketplace, or first-party seller (1P). In this business, Amazon owns the inventory and sells products directly.
Over the past 20 years, the marketplace side has grown from zero percent of total sales to over 60 percent, giving a strong indication that Amazon would rather be in the marketplace game, rather than continue to deal with the headaches that come from also being a 1P retailer in the marketplace they run.
Launching new products is hard
One of the most important revelations from the recent news about Amazon’s private label business is easy to overlook. Despite access to some of the best data in the world, a company can still struggle to launch a successful brand.
In addition to avoiding controversy, Amazon’s willingness to turn its attention away from private label brands is also because many were underperforming and unprofitable. As it turns out, a thriving and profitable business is hard to create, even with some significant advantages underpinning your efforts.
Preparing for the future
Although a thorough understanding of the changes that could be coming for your Amazon business is helpful, it’s not the only element to focus on. You should also be preparing a plan to respond to the disruptions that might be heading your way.
The source of it may change, but competition on Amazon will continue to be fierce no matter what the company does next. And even if there are new assurances about how Amazon utilizes its data, sellers will need to make the most of the metrics available to them and take intelligent steps to stand out, attract shoppers and convert them to buyers.
Stand out among the competition
As we see in their European proposal, Amazon may choose to increase competition among 3P sellers by increasing visibility across the board. However, expanding Buy Box functionality or broadening Prime badging would likely result in less differentiation and more competition between existing sellers.
Similarly, if Amazon’s private label products begin to dissipate, there’s a good chance it will attract new sellers to the marketplace. In addition, fewer fears about Amazon’s misdeeds will likely encourage more brands to consider joining the platform.
Current sellers will need to have a plan to retain their existing sales as these types of adjustments roll out on the site. Undoubtedly, it will be more important than ever to find ways to separate your brand and product from various new competitors, not just Amazon-backed ones.
Make the most of available data
Knowing how to analyze accessible data and the best ways to use it to inform your decisions will be more critical than ever. Even if you don’t have to worry about Amazon using data against you, it would be a mistake to ignore metrics that can help grow your brand.
Amazon tools, such as their Storefront feature and the accompanying Manage Your Customer Engagement system, provide a valuable advantage to the brands that leverage them efficiently. If you don’t have the time or expertise to do so, be sure your company has someone in place who does.
Optimization is an evolving necessity
Another aspect of selling on Amazon that will continue to be vital is the importance of listing optimization. As competition increases, whether from private label brands, copycat products or a changing customer shopping experience, the products with the best chance to succeed will be the ones that take their optimization seriously.
There are no signs that A+ Content, keyword optimization, or customer reviews will become less of a factor in a listing’s visibility or conversion rates. However, as the Amazon marketplace becomes more accessible to sellers and the ability to rise to the top of rankings fairer, the best practices and nuances of optimization may change. Successful brands will need to stay informed of this evolution and have the capacity to make adjustments that will benefit their products.
Navigate uncertainty with an experienced partner
No one can predict the future, but with the right plan, you can prepare for it. Crafting that plan begins by having the resources you need when you need them. And nobody is better positioned to meet the moment for Amazon sellers than Amify.
Amify’s team of generalists and specialists offers a full-time, full-service solution to successfully maintaining your Amazon platform management. You’ll have a partner with a proven record of client growth and confidence that all the expertise your brand needs, now and in the future, is at hand.
From our comprehensive onboarding process to our client-focused account leads, reach out today to learn how our services can help optimize your listings, elevate your customer service and increase your profitability. Schedule a free Amazon Quality Assessment or simply start a conversation about how a partner like Amify can be the most efficient path to success on Amazon.