30 Jan 2019
In 2009, a very important change has taken place within Amazon – its decision to move from an ecommerce advertising retailer platform, to a hybrid of advertising platform and retailer itself, with the launch of a range of “amazon own brands”.
As of 2018, Amazon is selling more than 100 Amazon own brands, with more investment in own brand sales planned.
This article will explore the significance of the Amazon own brand to retailers everywhere and will consider how brands can compete with Amazon own brand products.
Background – Amazon’s transition from retail platform to hybrid retailer and retailer advertising platform
With a market valuation of $770.3 billion in 2018, and a $45 trillion slice of global consumer spend in 2018, Amazon is one of the most powerful international players in ecommerce. Identified in research by E-Marketer as occupying third place, behind Google and Facebook in the ranks of the most successful digital ad sellers, Amazon is an established powerhouse in digital and ecommerce sales, whose position is only growing stronger.
Amazon began as a “middleman” of retail, with retailers queuing up to launch their brands and products on the Amazon digital advertising platform. This continues to be the case, however Amazon has recently taken the decision to begin selling a large range of “own brands”, placing the Amazon platform firmly into the “retailer” category itself.
This shift has resulted in a surge in its market valuation, which experts predict will rise to $1 trillion in 2019.
For example, in the clothing sector, in 2018, after launching its own brand clothing label FIND in 2017, Amazon is set to become one of the world’s largest clothing retailers, with a market share of 30% of the global clothing and footwear market projected for 2019.
However this robust growth has also resulted in tensions between current Amazon platform users and Amazon itself, with platform users arguing that Amazon’s exceptional growth has not evolved without controversy. It has even attracted attention from regulators, who continue to ask questions about how fair Amazon’s tactics are.
One of the major controversies is Amazon’s use of the data it collects on pricing, to set their own prices. The EU has recently announced a preliminary investigation into how Amazon has acted in using third party sales data in limiting competition, and whether any antitrust regulations were violated as a result of its use of sales data.
Some experts have observed that while Amazon is experiencing record growth on account of the proliferation of its own brand portfolio, the attention Amazon is receiving from regulators could stall overall growth. This is one of the biggest risks that Amazon in spite of its burgeoning share price and market share of the digital ads sales sector.
Amazon’s new own brands
So, what are the brands to look out for and recognise as the new Amazon own brands?
Some are easy to recognize, for example “Amazon essentials” and “Amazon basics”, however some of the own brands have developed branding that does not explicitly refer to Amazon as their parent brand.
An example is Mama Bear, an Amazon-owned brand for nappies.
Some of their clothing, shoes and jewelry brands include Painted Heart, Paris Sunday, Plumberry, 206 Collective, A for Awesome and Peak Velocity.
How does Amazon’s diversification impact retailers, and what can a retailer do about it?
There is no question that Amazon’s move into own brand sales has the potential to put a lot of retailers out of business, and the move places a greater focus than ever on the importance of price. Indeed, Amazon is uniquely positioned to compete on price, since their own platform collects and holds information on price, which can be used to continually set pricing competitively.
To make matters worse, Amazon has introduced a controversial new strategy to advertise their own brands, which involves placing links at the bottom of similar product pages, which lead the customer to Amazon own brand alternatives to the product that has been placed in the Amazon basket.
What can retailers do to compete with Amazon?
Retailers will obviously be interested in the progress of the EU investigations into how fairly Amazon is competing with retailers advertising on Amazon, but there are also practical measures that retailers can adopt to protect their position, and reduce the stress on their sales margins that has come about as a result of Amazon entry into the own brand sales market.
1. Promote brand loyalty
For retailers competing with the very platform that sells their own products, the subject of brand loyalty has become more important than ever. If a retailer can create a sense of brand loyalty in their customers, some customers will even be prepared to spend more on their products, just to ensure that they are buying from a brand they trust and know.
Points systems, where customers earn rewards and incentives by spending cash on repeat purchases, is an excellent method of promoting brand loyalty. These systems are used to make customers return and make repeat purchases with the same brand, so as to earn points, which can be exchanged for discounts on future purchases.
Some brand loyalty systems go further than offers points, which can be offset against future purchases. Some brands offer additional incentives like entry into competitions.
Other brands partner with external brands who sell complimentary products, and as such they extend the reach of their own points system. This adds convenience into the mix, as the link between related brands makes the purchase of the complimentary products they offer, quicker, and easier.
A tiered system of points loyalty makes the whole process of collecting points competitive, so customers are encouraged to gather more points for higher value discounts in future.
2. Focus on quality and uniqueness
An own brand focuses on price as one of their key drivers of their sales. They will frequently try to undercut the price of brands selling similarly priced products in an effort to establish their brand.
However, it is important to remember that customers regularly spend more cash on higher priced products to be guaranteed one thing – quality.
Product descriptions should promote the quality of their products and their uniqueness in product descriptions. Factors like how long the business has been in business for, how many years of experience they have in manufacturing particular products will differentiate the brand from something, which has just been created.
Product descriptions could also choose to describe materials, and where they have been sourced from. This gives customers a sense of confidence in the brand they are buying from and as such some reassurance as to the quality of the products.
3. Pricing strategy
Amazon updates their pricing very quickly due to their monitoring of the competiton. So, if you are using a system of manual price setting, you need to stop and invest in software that gives you the same advantage that Amazon already has.
A sophisticated price monitoring software package allows you to monitor price, the price for postage and packing, and also the price of products that are like yours but not exactly the same.
With all of this information at your fingertips, you will be able to stay ahead of the game when it comes to your pricing strategy and ensure that others don’t get the opportunity to undercut you on price.
An own brand looking to compete, largely, on price, will sometimes be vulnerable to problems relating the ethics of their supply chain. They may be able to get materials for cheaper, but does the more cheaply priced material, come at a cost to the environment, or to the workers who produce the products?
Research has shown that ethical considerations have the power to drive sales, to attract new customers and to prompt customers to stop shopping with a brand, on its own terms. In other words, ethical considerations are extremely important.
Ethical considerations can be approached in one of two ways – they can be avoided, in other words, a brand can ensure their supply chain uses ethical means of manufacturing their products so as to avoid scandal and controversy, or a brand can tackle ethical considerations proactively, by devising and implementing a corporate social responsibility strategy.
To be fully protected from an ethical standpoint, retailers should consider implementation of both approaches.
Amazon’s strategy is daunting, but some practical measures can still be taken to protect your brand
Many retailers will go out of business or have their profits severely limited because of Amazon’s decision to expand their own brand operations. That is the nature of competition.
However, it is important to recognise that there are many steps a retailer – even a small retailer, can take to protect their sales margins and keep their businesses afloat despite the increased competition.
Simple considerations like whether your business has a smart corporate social responsibility strategy, has full product descriptions that highlight products in the best light possible, and emphasise factors like quality, longevity in business and ethical supply chains are enough to keep customers loyal, even if they are tempted by lower prices elsewhere.
Are you interested in price monitoring? Request a demo today to see how Competitor Monitor could benefit your business.