Amazon's Private Label Brands: Should You Be Worried?

Several articles have come out in the past few weeks documenting Amazon’s growing suite of private-label products. Most everyone already knows about Amazon’s branded products (Kindle, Echo, etc.), but Amazon has kept surprisingly quiet about the rest of their private label brands. Some of the brands include:

Some of these brands are more evidently sold by Amazon — some are Prime exclusive, while one (Pinzon) explicitly tells you that it’s an Amazon brand. However, not every customer could identify that these are Amazon brands at first glance, and there are many more than the ones we’ve listed here.

Now, Amazon is a retailer, not just a marketplace, so they have every right to sell on their own platform. However, their obsession with driving prices down below every other market on the Internet and copying successful brands at the expense of the original brand owner is cause for concern. Let’s get into it.

Tough Competition

Amazon’s private label brands are performing well in most every category they’ve entered. An analysis by 1010data shows that Amazon-associated brands such as AmazonBasics batteries, Amazon Elements baby wipes, and the Amazon Echo are top contenders in their categories, holding at least a third place market share (by dollars spent) in all three categories and products boasting anywhere from a 50–200% higher conversion rate than the category averages.

This makes sense for a number of reasons. First of all, Amazon has an absurd amount of data at their disposal, letting them easily decide on the best products and most profitable niches to invest in. Imagine the sorts of decisions you could make if you had data from every product that’s ever sold in a category. Second of all, Amazon’s private label brands basically have all of the benefits of being a Vendor, with none of the downsides. They don’t have to worry about price negotiations and low margins that normal Vendors need to worry about, because they’re Amazon — margins are the least of their concern when they have the resources that they do.

So, it’s logical to be a bit worried about an Amazon brand entering your category or niche. Although they don’t completely muscle out the competition, they can take away any less-than-solid footholds away from sellers very quickly as they cement themselves as a leader in the category. After all, they only enter a category after having canvassed it from top to bottom and chosen a product that they know will do well. Furthermore, there’s no such thing as too low a margin for Amazon — they’ll price as low as they need to go in order to beat the competition and make sure Amazon.com has the lowest price in town.

Now, it is important to consider that not every Amazon private label brand is dominating to the extent that Amazon Elements and Amazon Echo are. Those brands may have around twice the average conversion rate in that category, but that’s because Amazon has overridden normal restrictions on product descriptions and given themselves top-tier content that no other seller has access to, as you can see below.

Amazon Elements Description

If Vendors get A+ content, we might call what Amazon brands get A+++ content. Amazon’s brands that don’t use the Amazon branding at least play within the rules, and limit themselves to regular A+ content. Still, there is reason to be concerned if Amazon is making a move into your category, given their history of performance and price wars. There’s even a possibility that, rather than entering a category with their own take and a new product, they closely mimic or outright copy a leading product.

Amazon's History of Mimicking

Amazon’s entry strategies into different categories varies quite a bit, but Amazon does have a concerning history of closely imitating or copying the products of successful third-party sellers. When they identify a category or product that’s performing well, Amazon will usually do one of two things. Sometimes, they’ll try to take advantage of the potential in that category, sometimes by mimicking a successful product while also putting their unique spin on it. Other times, they will directly contact the manufacturer of the original product and place a huge purchase order.

Copier Icon

If you’re a Brand Registered private label seller, Amazon won’t actually list directly on your ASIN, because that would be infringing upon your copyright. What they’ll do instead is brand the product themselves, create a new UPC/ASIN, and make their own Amazon listing — at a greatly reduced price. While they technically wouldn’t be hijacking your listing, once Amazon has promoted their product enough, customers will look at the features of both your products, figure out that they’re largely the same, and spring for the cheaper one — Amazon’s. This can easily tank your sales, forcing you to drop your prices in response, but it’s almost impossible to win a price war against Amazon. Amazon is almost never concerned with turning a profit, as they almost always have wider considerations. They’re willing to go deep into the red on a product if it means beating the prices of other online retailers, for example. A third-party seller simply can’t compete with that, and will often be forced to raise their prices back up to the MSRP.

If you’re worried about this sort of thing happening to you, an exclusivity agreement with your manufacturer seems like a prudent idea. However, in reality, even that’s not enough to fend off Amazon. At the end of the day, manufacturers are interested in producing for as many people as possible, so if Amazon comes to talk to them about a product they’re exclusively producing, they will often make a small, cosmetic change to the product and start supplying it to Amazon. The change is usually enough that they can claim the exclusivity agreement wasn’t violated, but the product will almost always be fundamentally the same.

Conclusion

Amazon is more than just the marketplace they host: they’re a retailer, and that means you need to entertain the possibility that they will start directly competing with you if you sell on their marketplace. Unfortunately, it’s almost impossible to compete directly against Amazon and win; they simply have too many resources.

There are two long-term solutions to the looming threat that Amazon might pose to your business. The first is diversification, the second is lying low.

Diversification has been a recommendation for online sellers for a very long time — Amazon may be the biggest game in town, but you shouldn’t let your entire business rest on the fate of one site. If you put all your eggs in Amazon’s basket, you don’t just risk Amazon competing you out of the market — a suspension could also spell the end for your business.

Lying low basically means trying to stay out of Amazon’s crosshairs. If you find an extraordinarily successful product in a heretofore-unexplored niche, you may ride the wave for a little bit, but people will start to notice. Of course, other sellers will start to notice and start competing, but if you’re doing well enough, Amazon will rear its head and start eyeing that top spot. Therefore, the paradoxical way to be successful on Amazon is to not be too successful. If you can find a smaller niche, one that won’t draw Amazon’s attention and lead to a price war or a copycat product, then you’ll feel much safer in the long run.

Have you run into competition from Amazon, either direct or indirect? What has your experience been? Tell us about it in the comments below!

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