Practical Ecommerce

Implications of Amazon’s Dominance for Brands, Retailing

Consumers around the world are acquainted with Amazon. I spent $3,607.08 on Amazon in 2016 alone. With 54 million U.S. consumers (64 million worldwide) in its Prime program, Amazon rivals any modern company in both scope and revenue. If you’re a typical U.S. shopper, you bought something from Amazon in the last few weeks, if not today.

Amazon is convenient: Consumers can shop for clothing, luxury goods, musical instruments, and even food. The company also takes good care of its clientele. From a money-losing strategy for the benefit of shoppers to guaranteed Prime perks, Amazon’s policies keep its customers happy.

So happy, in fact, that the migration to Amazon is generating massive creative devastation — 2,386 brick-and-mortar store closings have been announced by 12 of the largest U.S. retailers in the last three years alone.

Retailing vs. Technology

Amazon started by selling books online through a virtual storefront and consolidated logistics. After much success, it expanded its product offerings, built out its supply chain infrastructure, and then transformed into the massive technology company we recognize now. It also serves as a search engine for retail products, a marketplace for third-party sellers, a personalization-intelligence source, and a price scientist.

Amazon’s most profitable division could be Amazon Web Services, or AWS, its cloud-computing platform that brings in $10 billion in annual revenue.

Amazon has coupled sophisticated, algorithm-driven ecommerce with aggressive delivery automation, supply intelligence, and loyalty programs — for extraordinary results.

Amazon’s seemingly endless aisle of inventory combined with its prowess in search engine marketing — organic and paid — has produced enormous traffic. Personalization tactics have expanded on-site conversion. Terrific customer service and the 2-day shipping guarantee of Prime membership help Amazon retain its shoppers.

Some retailers now sell excess inventory through Amazon’s marketplace. Other retailers sell drop-shipped products through Amazon — retailers create the listings on Amazon and then notify the supplier or manufacturer to ship the products when they are sold.

Worrisome to Brands

As Amazon has become the demand hub for products online, not every brand has been eager to offer its supply, and for good reason..

Apple won’t sell hardware or software through Amazon, in large part due to Amazon’s most recent additions of competing technologies like the Kindle, Fire TV, and Prime-exclusive phones. (This works in the reverse, too: Amazon bans competing products.)

Moreover, it was recently discovered that over 90 percent of Apple-certified products on Amazon were actually knockoffs, further hurting Apple’s brand. Apple forbid any direct sale of its hardware on Amazon as a result.

In fact, brands are getting more blame for the toxic counterfeiting fallout on Amazon’s marketplace. Brands end up spending more time identifying counterfeit suppliers who, for example, boast claims of genuine Apple chargers. These counterfeits can not only be dangerous for the brand, but also create safety risks for the consumer.

Birkenstock recently pulled its entire inventory from Amazon, alleging that the “open market, creates an environment where [it] experiences unacceptable business practices which [it] believes jeopardizes [its] brand.” Amazon’s lack of quality control of third-party sellers was, in effect, too much for Birkenstock to handle.

Amazon’s business-to-business support center is almost entirely automated. So, as a brand, if one of your resellers or competitors accuses your company of fraudulent or illegal activity, Amazon will remove your products for two weeks while your lawyer subpoenas the accuser to get it to retract its report. You’ll find it nearly impossible to speak with a human at Amazon to state your case. How would two weeks without revenue impact your company?

What’s especially difficult for brands, however, is Amazon’s price manipulation via its algorithm — an extremely precise and sophisticated method of making sure Amazon’s product is sold at the right time, at the right price, to the right consumer. On many high demand items, Amazon reportedly sets the price below its brand competitors (who have agreements to sell the products at fixed price ranges) — sometimes 20 percent lower. Thus, even when brands and retailers feel like they’re winning the battle against Amazon, the moment of purchase proves otherwise.

In short, brands are unable to preserve their reputation in Amazon’s marketplace. While some brands have exited the Amazon ecosystem early, many others remain. For them, an even larger threat is coming.

Amazon’s Private Labels

The brands that remain on Amazon could end up competing directly with Amazon’s private labels. After years of providing Amazon with shipping, sourcing, and all types of consumer data via retailer relationships, brands fear that Amazon could replicate their products.

Their fears are not unsubstantiated. Amazon has identified high margin, replicable product lines where it can insert a private label brand. This includes AmazonBasics, MyHabit, Happy Belly, Mama Bear, Presto!, Lark & Ro, and North Eleven, to name a few. Many brands worry that the trend will continue.

So why don’t all brands remove their products from Amazon? Because Amazon has enormous revenue potential. A brand that walks away from Amazon is handing immediate revenue to its nearest competitor in the Amazon marketplace. Brands, paradoxically, find themselves unwilling to relinquish immediate revenue, even if it means being out of business in 10 years.

The Road Ahead

Some brands are pulling away from Amazon. But that, again, is leaving room for their competitors, resellers, or for an Amazon private label. Some retailers are striving to differentiate through better service, better product curation, or with their own endless aisle of products. But Amazon is investing heavily into technology and talent to win seemingly every sector of retail.

Offsetting the Amazon advantage could require the combination of strong central technology for the “everyone but Amazon” market, and a mindset of partnership across retailers and brands. Consumers, however, may not be ready to adopt that approach.

The road ahead will likely see retailers dump obsolete assets, merge to survive, or collapse. For example, Sports Authority, the sports equipment retailer, could eliminate its own retail operations and then direct its customers to Amazon to buy Sports Authority’s Champion products. But eventually Champion could be cannibalized by Amazon’s private label.

To be bed with Amazon is to be bed with a competitor — a very specialized and powerful competitor that has more data, logistics, and consumer demand than any other company in history.

The only chance for brands could be the hard-but-courageous thing: cut their products off Amazon and then give consumers a reason to buy.

Jeremy Hanks

Jeremy Hanks

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  1. James Thomson January 10, 2017 Reply

    Very interesting article bringing awareness to key tactics that Amazon uses with brands. While it’s hard to disagree with the consumer appeal of Amazon, we have a different perspective on how brands should address the Amazon channel, instead of abandoning the channel. Let us start with one important assumption for brands of any decent size – whether you like it or not, your brand will get sold on Amazon by someone at sometime.

    Few brands have such tight control of distribution that they can prevent even a few units from showing up on Amazon, and even if those units are units being resold by Johnny who didn’t like Grandma’s birthday present, listings of the brand’s products will show up at some point. Now the dilemma – does the brand get active with the Amazon channel, or ignore it completely? We believe at a minimum the brand needs to own the channel around brand equity / brand content – who is managing the listings for the brand? Who is making sure the content is aligned with what the brand does in its other channels. With Amazon listings getting often indexed higher on Google than any other listing content, the brand could easily find that its Amazon listings quickly and poorly created by some fly-by-night seller will show up higher on Google than the brand’s own delicately developed listings for its own website. Certainly for Birkenstock to be abandoning the Amazon channel, this risk of its online content being dominated by inaccurate or incomplete listings generated on Amazon is a real threat to Birkenstock’s ability to manage its brand equity online.

    Next, if a brand is not selling on Amazon, but its competitors are, then Amazon customers who already do more than 50% of their initial product searching & shopping starting on Amazon (and another 25%+ of product searching on Google) will most likely find themselves considering only the competitor brands – so the competitor brands will likely grow faster as their exposure is much higher than the brand that has left the Amazon channel alone. Brands like Under Armour made the decision to be on Amazon but control all shipping so as to be able to have some shot at marketing to the Amazon customer through the advertising content of what they send to Amazon customers in the shipping box. Brands like Reebok have done better than expected on Amazon in part because Nike will not participate on Amazon (for kicks, check out all of the poor Nike listings created by grey market sellers on Amazon today).

    As painful as it may be for brands to participate on the Amazon channel, we believe that it is more painful in the long run to ignore the channel altogether. Even if you choose not to sell, make sure you control your brand equity by loading your product listings, and locking the content down with Brand Registry (we see lots of brands set up a third-party seller account just for the purpose of controlling brand content … not to sell a single unit of product). If you choose not to sell any of your mainstay products, that’s your choice, but respect the channel as a place to unload old inventory or excess inventory. And keep in mind any of your distributors or retailers could easily to the same by selling old/excess inventory to Amazon Retail through Vendor Express — a grey market haven for product where Amazon Retail is the only buyer.

    There is no easy answer for brands and Amazon. We don’t believe you can ever walk away completely. Instead you have to balance the various pains of dealing with Amazon.

    James Thomson

  2. Carlos Rivera January 12, 2017 Reply

    Jeremy — thank you for your insight some of the hidden long term tactics Amazon uses to grow its business over time. Fascinating!

    James — thank you for your additional complimentary input regarding this complex subject. Your wholesome analysis of Amazon really drives the point home as to what we are dealing with.

  3. Karen J January 12, 2017 Reply

    James Thompson’s comments are very insightful and obviously from a position of experience. But also from a position of a marketer vs. a designer, manufacturer or brand. Amazon can irrevocably damage a brand and not only that, become vunerable to Chinese factories who are allowed to directly compete with US companies for the American consumer’s business. Worse yet, the US government promotes this practice with subsidized USPS ePackets allowing Chinese factories to ship from China to the US, likely without accurate duty/customs clearance, for pennies on the dollar. Meanwhile US companies are bearing the brunt of not only the proper freight and duty, but also the costs of distribution/wholesale mark-ups, marketing and brand protection. Amazon may be on track to kill not only brick and mortar but also the online mom and pops at a rate that will dwarf the original Walmart era.

  4. Paul Rutter January 13, 2017 Reply

    Great article and 100% correct. We used to trade with Amazon under our trade name Prettycool and we operate in the UK. We had loads of products overwritten by other sellers and prices cut by massive margins and in the end pulled away, this was more then 2 years ago but still they use our trade name and sell products using our feedback even though their products and customer care is not as good as ours. This feedback now has affected our own site but as you said in your article you can’t talk to anyone who has any authority and you just waist your time. I believe Amazon will do to small web store what the big supermarkets did to the High Street shops in the past and must be stopped!

  5. Mike Healey January 13, 2017 Reply

    Great article Jeremy. Four important points to understand as a brand:

    1. Amazon is the dominant place consumers search for product info. (Forrester estimated 55% of consumers use Amazon for product research) Every manufacturer needs to manage their content.

    2. Amazon is designed to compete with itself. The ‘seller’ and ‘vendor’ sides of Amazon are internally pitted against each other for revenue and customers. Actual search results and calculation of the buy box aren’t controlled by either; that’s the A9 search team that operates with relative autonomy.

    3. Every branded manufacturer should have a presence on both sides. Selling TO Amazon opens up volume and marketing opportunties. A presence on the merchant side not only provides an opportunity to support the supply side inventory, it also gives great brand and data insights vs the vendor side alone.

    4. They are a data company first. It drives our manufacturing clients crazy that buyers are more interested in metrics vs product features. That’s how Amazon is designed. Great products will not rise without great digital content customized to Amazon. Single pictures and a generic catalog description don’t cut it.

    Again great job. Nice to see some broader discussion about their impact on brands (vs just their impact on retail)

    Mike Healey
    Yeoman Technology Group

  6. Marcia Kaplan March 9, 2017 Reply

    Sports Authority went into bankruptcy and closed all its retail stores on July 31, 2016. If you go to their website, you are directed to Dick’s Sporting Goods. The company is entirely out of business.