Amazon is no longer what it seems. And brands that are not paying attention will soon learn that the hard way.
In the early 2000’s, I had a first row seat as dozens of e-commerce retailers began their slow but certain decent into irrelevance. I wrote about that experience in a previous post).
In short, Amazon exposed the reality that most e-commerce retailers were peddling commodities - identical products that were available from so many indistinguishable retailers they could only be distinguished by price. Amazon was built to sell commodities, so like a boa constrictor it wrapped itself around the competition and began to squeeze.
Since that time, new trends have emerged. Many retailers have taken the, “If you can’t beat ‘em, join ‘em” approach. And many brands (and retailers) are even relying on Amazon for a significant percentage of their online sales.
82% of households with $112,000+ incomes subscribe to Amazon Prime.
Despite the ‘Marketplace’ branding of their platform, if they are still a marketplace, it is a corrupt one. Amazon is no longer in the business of democratizing retail. Outsourcing the hard work of building an online brand to Amazon is a naïve and deadly move.
Amazon no longer provides a neutral platform for retailers. What once was a may-the-best-man-win, free-market digital shopping center, is now tainted. But to take a deeper dive, let’s look at six other realities to brands selling on Amazon in 2018:
1. Amazon isn’t selling for you anymore, they are selling against you.
These are not just generic brands, a la Amazon Basics. These are full fledge brands targeted at very specific market segments. For example, their new furniture line Rivet has a striking resemblance to West Elm. Similarly, Stone & Beam was dropped right between Joanna Gaines’ Magnolia Home line and Pottery Barn.
If you are farming fertile ground in Amazon’s “marketplace”, don’t be surprised if the competition heats up soon. Amazon spokespeople told the New York Times its:
…overarching goal is to provide customers a wide range of products and brands.
It doesn’t sound like this trend will stop anytime soon. 🚩
2. Amazon’s brands increasingly receive favoritism.
Not only is Amazon officially competing with your product, they are also stacking the odds against you. Stores having their own brands is not a new concept. Target (Up & Up and Market Pantry), Publix (Greenwise), and Walmart (Equate and Great Value) have been offering competing brands in their stores for decades. But when was the last time you saw an end-cap of Great Value products at Walmart? You don’t. Retail brands, many of whom pay good money for prime shelf position, wouldn’t stand for it.
So why do brands allow it to happen online?
Amazon has recently started plugging their own brands all over the place - most notably through search filters and advertising. We also see favoritism play out via “Best Seller” and “Amazon’s Choice” badges, as well as the bent shown towards Prime products through events like today’s Prime Day. Additionally, several of Amazon’s private-label products can only be purchased by Prime customers. 🚩
3. You are opening your books to your competition.
In a world where data is king, brands partnering with Amazon are voluntarily abdicating their thrones - to their competition, no less.
For years, the great hope of online retailers has been data - personalization and specificity in the sales funnel that cannot be matched by Amazon due to its scale. However, by outsourcing sales to Amazon, brands are giving up access to data and, instead, providing their competitor unfettered access to invaluable information including customers’ conversion paths.
The value of this data cannot be overstated. Although Google knows what folks are interested in and Facebook knows who they are, Amazon knows how they shop and what they buy.
NBC New’s Claire Atkinson put it this way:
For advertisers, the short-term opportunity that Amazon offers is offset by the realization that they could be providing the company with the data and market power it needs to eventually run them out of business.
Advertisers that spend money to display their products on Amazon's search page give up data about their customers in return for sales, but those same marketers are also helping Amazon build a better mousetrap by learning more about customer intent.
Just imagine, a shopper buys your gourmet coffee through Amazon. Amazon knows when they bought it and what other brands they considered along the way. Amazon also knows that the average coffee buyer from that region places a repeat purchase on their platform every 30 days. A month later, that buyer begins to see ads for coffee. Is it your brand appearing in the ad? Perhaps. Or perhaps Amazon has a white-label brand they want to push instead. Or perhaps a competing brand has better margins or better inventory. Perhaps your brand is nowhere to be seen. 🚩
4. You are still in a race to the bottom.
I have counseled several brands who are attempting to sell their product on Amazon, but who are being undercut on price by retail no-names. Ignoring the value of buying direct from the manufacturer, if a customer buys on Amazon, the merchant is chosen by algorithm.
Price, inventory, and seller performance metrics all factor into which retailer wins the ‘Buy Box’. The notion of prestige pricing is widely unwelcome in the Amazon ecosystem. This gives fly-by-night retailers a competitive edge with their counterfeit products and illegitimate reviews - both of which are easy to implement when you do not have a brand reputation to manage.
All of these factors encourage a race to the bottom, both in terms of price and quality, which is great for consumers…until it becomes terrible. 🚩
5. There is a growing cost to hitting bottom.
It’s never a good thing to trust the middle man on the internet.
Remember when brands were pouring significant resources into growing their Facebook fans? Before long, Facebook updated their algorithm so a small percentage of fans were able to see brand posts unless, of course, the brand wanted to pay to ‘boost’ the posts. Suddenly that valuable asset transformed from a one-time cost to a subscription model. You are welcome to communicate to “your” fans as long as you pay every step of the way.
Amazon is notoriously known for cutting out the middle man. However, they have become the ultimate middle man themselves.
I’m talking about advertising.
In the first quarter of 2018, Amazon reported revenue for its “other” segment, which is primarily advertising, rose 139%, to $2 billion.
Retailers shouldn’t only be worried about encroaching white-label products, but also getting Facebook’d. It is reasonable to expect the not-too-distant future of selling on Amazon will include not only a race to the bottom in terms of price & quality and the significant transition fee structure, but also the need to pay for your product to be found in the first place.
If you don’t believe me, just consider the media conglomerate Amazon is building. Amazon’s sales team is currently selling ads on the homepage of Amazon Fire tablets, Kindle e-readers and their movie database site, IMDB.com. Of course, there is also their television streaming platform Prime Video, which provides a very traditional channel for advertising monetization.
Amazon is also primed (pun intended) to bring advertising to their recent acquisition, Twitch, a popular online service for watching and streaming digital video broadcasts. Lest we forget Alexa, Amazon’s voice assistant that dominates its market. Although there is not currently advertising through Alexia, it’s coming. And in the meantime, as a sign of things to come, Amazon is already favoring Amazon brands in Alexa’s e-commerce capabilities. 🚩
6. You are commoditizing your brand.
According to a study by Jumpshot, brands with the largest market shares on Amazon are barely edging out their competitors. In other words, brands competing on Amazon have no market share advantages. The differentiation between brands’ market share on Amazon and off suggests Amazon shoppers have no brand loyalty. This is a huge problem for brands, who are increasingly relying on Amazon as a sales channel.
In short, retailers may be getting sales, but they are not getting customers. Retailers are not building their brand. They are building Amazon’s brand for them. The customers do not belong to the brand. They belong to Amazon. 🚩
For these reasons, I am concerned for brands leveraging Amazon has a key partner in their online retail initiatives. On the jungle floor of the internet, too many retailers are sitting by, docile, as Amazon once again wraps around them and begins to squeeze.