You’ve bought a private label product, haven’t you? Heck, you might have bought one and not even known it (Here’s a list if you’re interested). Chances are that if you’re reading this you’re more interested in how your brand (or managed brand) will compete against private label products than the products themselves. While it may seem as if the giant, unstoppable, blitzkrieg of a force that is Amazon is coming for your brand with private labels…worry not.
Amazon’s goal isn’t to conquer every imaginable vertical in search of profit, it’s to improve their product, which (as many of us seem to have forgotten) is the Amazon platform. Of course, they’re making money off of private labels — an estimated at $7.5 billion this year. And of course, this isn’t going to make it easier for your brand, but the profits are more a symptom of how they are trying to improve the platform than the end goal.
The platform itself is pretty well rounded even for non prime-member users but the experience isn’t the issue. The issue that private labels help solve is the gaps in verticals where certain products, or at least quality products, don’t exist. Amazon views competition amongst the products it lists as a positive trait. More options mean better quality at a better price.
Filling the gaps in verticals
Verticals are filled with them, and they come in all shapes and sizes. These gaps hurt users looking for quality products across myriad of product categories. The most glaring gaps that Amazon’s private labels brands fill are where a quality product simply isn’t offered. You can find almost anything on Amazon but honestly, there’s so much that is still knock-off crap (note: beware of sunglasses). Filling these gaps offers the consumer quality products across more categories. If you could find an affordable and well-made anything on Amazon, why would you shop anywhere else?
Before you freak out, not every Amazon product is of the highest quality. The recently launched Accelerator Program, directed at recruiting manufacturers to become a part of the “Amazon Family of Brands,” is aimed directly at this issue. There are areas, clothing for example, where many Amazon product reviews don’t hold up against national brands. Finding manufacturers that produce better clothing, which is sold exclusively on Amazon, is a win-win.
The gaps across the Amazon marketplace are just like those of the greater economy in general. Categories with little competition and overly expensive products, or lack of product quality and features exist everywhere. It’s hard enough to identify some of these areas, let alone fill them, but Amazon has the sales and review data to do exactly that. Filling these holes helps round out the Amazon platform and benefit different and new types of consumers.
Meet the competition
A big part of the knee-jerk reaction to Private Labels is that Amazon appears to do everything they can to promote them over outside products. However, your brand isn’t doomed once a private label product is launched in its category. Amazon wants more 3rd party brands, not less. More brands mean a better variety of products at a better price. The huge increase in private labels across Amazon is less about category-specific competition within its own platform, and more about improving the platform as a whole and buttressing its position against competitors like Wal-Mart and Target.
Not that it’s going to be easier but there are positives in facing competition from Private Labels. Because Amazon puts so much advertising dollars behind them, and the simple fact that it’s Amazon, there are numerous cases where the introduction of a private label brand has grown the entire category. If you are offering a quality product at a competitive price, there is no reason that your brand shouldn’t profit from increased attention and traffic to its category (and also a fantastic opportunity to capitalize on running ads). This is exactly why measuring your brand’s growth in relation to its category growth is so important. Growth is great, but growth in total market share should be the real goal.
Ad space and reviews
There has been a recent uproar since Bloomberg released an article outlining how Amazon is “doling out freebies” in return for reviews of its own products through its Vine Program. If you’ve been selling on Amazon for more than a few years, you probably remember that they took measures to kill off this program for outside brands, a decision they recently changed in regards to their own brands. This is advantage-Amazon and brands are going to have to get used to it. The good news is that many of these reviews are quite lackluster—another opportunity for brands. Users lean on reviews quite heavily, especially for tech, and tend to have a hard time trusting a one-sentence review that doesn’t speak specifically to the product’s features.
There has been further noise around Amazon beginning to promote its own private labels on competitor brand pages through sponsored product ads. This was always going to happen and is unlikely to stop. The point here is that Amazon isn’t making out like a bandit. The ad space that they are using for their own products is space that could have been sold to other competitors. It’s not “free” because of the opportunity cost in not selling that space. Amazon is surely monitoring the performance related to the private label sales that is being driven.
The introduction of private labels will directly affect your brand, but it’s not all bad news. Increased attention and traffic to a category can benefit all of the brands within it, especially if they are high quality and affordable. Private label introduction doesn’t require a sea change in strategy for your brand, it simply means that the fundamentals of selling on Amazon have become even more important. Brand pages and stores need to have fantastic content, both text and visual, and ads need to be appropriately optimized for growth.