Amazon and its private labels: the once and future "frenemy" of brands?

Let’s begin with the provocative. Scott Galloway, a professor of Marketing at New York University, is reported by The New York Times to have stated as follows:

“I think, effectively, you have a company that has conspired with about a billion consumers and technology to destroy brands. Their attitude is that brands have, for a long time, earned an unearned price premium that screws consumers.”

The “company” to which Galloway refers is Amazon. “Wait a minute, doesn’t Amazon make it easier to buy a wide array of products via its platform. Isn’t Amazon a brand’s best friend?” Before you dismiss Galloway’s words out of hand, consider the recent article, mentioned above, by Julie Creswell, “How Amazon Steers Shoppers to Its Own Products.” Amazon may not be the ultimate destroyer of the brand, but a credible argument can be made that Amazon and brand owners are at best “frenemies” (when one is both a "friend" and an "enemy"), with the trend in favor of being more “the enemy” and less “the friend”. It has to do with Amazon’s stepped-up efforts in selling its own private label products through its platform.

As reported, Amazon now has for sale on its online marketplace approximately 100 private brand labels, 60 of which have been introduced during the past year alone. But few such products are sold under the "Amazon" brand, with most being sold under such names as “Spotted Zebra” (children’s clothes), “Good Brief” [Merpel says— “Not a bad name at the descriptive/suggestive trademark divide for men’s underwear"], “Wag” (dog food) and ‘River” (home furnishings). Interestingly, some of these private label products can only be purchased by customers who pay an annual subscription fee to sign up for Amazon Prime.

Behind what the article describes as a bevy of “anodyne” private label names lies the prediction for massive growth by Amazon in the private label industry. Amazon is said to anticipate that, within a couple of years, up to 50% of all on-line shopping will be carried out on its platform, translating, according to the estimate of one analyst (SunTrust Robinson Humphrey), into potential revenue of up to $25 billion dollars within four years. Not impressed by that number? Consider that $25 billion is reported to equal all of Macy’s 2017 revenue.

That is all well and good, but there is nothing new in a retailing behemoth entering the private label space, offering lower-priced merchandise under a set of private label brands. One need only think of Walmart, where private label brands and third party proprietary brands have lived together for many years. What is it that makes this initiative by Amazon particularly interesting? In the words of the article,

“Amazon is utilizing its knowledge of its powerful marketplace machine — from optimizing word-search algorithms to analyzing competitors’ sales data to using its customer-review networks — to steer shoppers toward its in-house brands and away from its competitors, say analysts.”

The quandary for branded competitors is this: while Amazon may be seeking to drive customers to the Amazon private label products, thereby cutting into the profits of the branded products, competitors have no real choice but to continue to offer their products on the Amazon platform, often paying substantial amounts to run banner ads that promote their products.

Add to that the power that Amazon’s customer analytics can play in supporting the company’s private label offerings. For instance, as the article describes, nearly 70% of word searches on the Amazon browser are for generic goods. This enables Amazon to get its private label alternative for that product in front of the potential customer as well to signal new areas of growth for private label products. Third parties are apparently entitled to get access to these data, but at a steep price. As well, it is reported that Amazon does not make available all of these data, even at the elevated price. So, third parties pay more but get less with respect to these data.

And then there is the Amazon Vine/Vine Voices product-reviewing program. Here, particularly engaged reviewers on the Amazon marketplace are invited by Amazon to exchange receipt of free products (receipt of which is, this Kat understands, is publicly acknowledged) for an undertaking to write evaluations. The thinking is that such reviewers are particularly influential, and their views can potentially sway customers. Malcolm Gladwell, in his book “The Tipping Point”, popularized how the dynamics of such influencers on decisions in groups and even populations. Their use appears to be a key part of the promotion of Amazon’s private label products and the discussion has already begun whether there is a bias factor in the reviews in favor of these products.

The year is 2025: “Is Amazon good or bad for brands”? If you have been the owner of a successful brand (unless you are Amazon), you may squirm, or worse, at the answer.

by Neil Wilkof

Photo on lower left by Mark Marathon and is licensed under the Creative Commons/Attribution-Share Alike 3.0 unported license.