Private labeling on Amazon is very lucrative online business.
Amazon figured that also.
From batteries, baby wipes, coffee, supplements to clothing. Wherever Amazon sees a market gap that other sellers aren’t fulfilling, it launches its own private label product.
Recently, this eCommerce giant has launched several private label brands to compete against other sellers. These significant investments further strengthen its competitive position.
For now, Amazon focuses only on the most competitive niches, because that’s where the biggest volumes are.
I have received a lot of panic questions on this subject so I decided to share my thoughts on how it will affect sellers and which strategies we need to implement.
This strategy isn’t new
All major retail chains, including Costco, Walmart and Target, leverage their own private label brands to improve profit margins.
Private label products usually have higher profit margins compared to branded goods. This is because the companies save on brand development and marketing.
There is a difference between these two. In this context private label is considered to be a product that is offered directly by a retailer. Example of Amazon’s private label brand are these batteries, and example of competitor’s branded goods are these Energizer batteries.
Like any other big retail chain, Amazon also has its own private label brands. Store’s private label brands are in most cases a cheaper alternative to name brands.
List of niches in which Amazon currently sells its branded products (this list will expand over time):
- Vitamins & Supplements
- Baby Wipes
- Diaper Wipes & Refills
- Vitamin K2 Supplements
- Turmeric Herbal Supplements
- Mobile & Tablet Accessories
- Cables & Chargers
- Car Chargers
- Screen Protectors
- Stylus Pens
- Computer Speakers
- Bluetooth Speakers
- Audio Receivers
- Audio Cables
- Computer Accessories
- Bags & Cases
- Computer Speakers
- Keyboard & Mouse Combos
- Audio/Visual Accessories
- HDTV Antennas
- HDMI Cables
- Fiber Optic Cables
- Speaker Cables
- Camera Accessories
- Tripods & Monopods
- Bags & Cases
- Remote Controls
- Office Accessories
- Carrying Cases
- Storage & Organization
- Clothes Hangers
- Garment Racks
- Shelving Units & Shoe Racks
- Laundry Storage & Drying Racks
- Comforters & Bedding Sets
- Sheets & Pillowcases
- Towel Sets
- Kitchen & Dining
- Dinnerware Sets
- Kitchen Scales
- Comfort Standing Mats
- Patio, Lawn & Garden
- Fire Pits & Heaters
- Patio & Grill Covers
- Pet Supplies
- Pet Beds
- Crates, Carriers & Kennels
- Car Seat Covers
- Waste Bags & Training Pads
- Exercise Balls
- Exercise Bands
- Jump Ropes
- Exercise Bands
- Foam Rollers
- Yoga Mats
- Sports Accessories
- Travel Accessories
There are probably a few more that I missed.
However, the point is that Amazon is aggressively investing in private label brands.
By now Amazon has launched over 1,800 private label products, while AmazonBasics has over 900 products.
List of Amazon private label brands:
- Wickedly Prime
- Mama bear
- Happy Belly
- Over 7 fashion brands
- Franklin & Freeman
- Franklin Tailored
- James & Erin
- Lark & Ro
- North Eleven
- Scout + Ro
- Society New York
Again, I probably missed a few.
Clothing line was launched just recently and Amazon is on track to become the biggest retailer of this $250 billion industry. According to Cowen and Company, by the end of next year, Amazon will probably surpass Macy’s and become the biggest clothing retailer in the US.
I am actually quite surprised that Amazon didn’t move into private labeling earlier. This strategy has been around for a while in the world of traditional retail chains. Take a look at list of Wallmart private label brands.
It was just the matter of time WHEN will Amazon start aggressively introducing its own private label brands.
Study data from the past in order to predict the future!
Why is Amazon moving into private label?
DATA & MARGINS
There are a two important distinctions between how Amazon and traditional retail chains approach private labeling.
Amazon is the biggest buyer search engine, which means they have the most valuable data at their fingertips.
Since search data is related to customer intent, Amazon can easily determine category size, demand and growth. For example, during the holidays out of 1,1 billion searches on Amazon, over 17% resulted in sales.
Basically, Amazon lets third party sellers test the waters and once there’s enough demand and growth they enter a market. This approach minimizes risk drastically, since they are not making decisions based on guessing but rather on actual data.
Amazon has the potential to analyze what people are searching for. However, what’s interesting is that Amazon can see what customers are finding and more importantly what they are NOT finding.
This is an easy way to find supply/demand gaps. As you know, Amazon has never revealed official numbers of monthly searches data. Now we know why.
QUICK TIP: If you have your own website, whether its a blog or eCommerce store, try to include a search bar and closely monitor what your visitors are searching for.
Amazon has the ability to analyze reviews on a scale.
If you follow my Amazon private label course then you understand that customer reviews are gold nuggets for product improvement ideas.
As a third party seller you need to read every single review one by one in order to understand what is wrong with competitors product so you can get improvement ideas.
However, Amazon has the ability to analyze all reviews on a scale, giving them strong competitive advantage.
Not to mention that Amazon can leverage Vine, Subscribe & Save, and the Amazon’s Choice tag to drive growth for new products.
But Amazon already earns referral commissions?
Yes however, if you are an active private label seller, you are aware that profit margins in private labeling can go up to 50%.
Access to data and immediate buyers gives them the ability to improve profit margins in certain niches.
Consumable goods have inherently low margins, so Amazon needs to improve its margins. And there is no better way then to tap into an existing customer base with products that have higher profit margins.
The main driver is margin-related. Basically, if you can eliminate the intermediary, you can save on distribution and marketing cost.
Someone asked, isn’t this illegal dumping or monopoly activity?
Actually, it isn’t!
In economics, “dumping” is considered to be when a manufacturer exports a product to another country and charges below its cost of production.
A monopoly position is when a specific company, brand or person is the only supplier of a particular product. For example, a monopoly would be if Amazon had wiped out all sellers from a particular category in which they are selling their own brand.
What are the numbers like?
According to the Private Label Manufacturers Association, store brands sales reached $118.4 billion in the US in 2015, an all-time record and an increase of about $2.2 billion from the prior year.
Based on measurement of online spending from a panel of more than 10 million consumers between September 2015 and August 2016, 1010data found that Amazon and affiliates controlled a whopping 94% of the approximately $113 million in online battery sales. The AmazonBasics private label had a 31% share of online battery sales, according to 1010data, more than double the 13.1% share that private-label batteries had in offline stores for the 52 weeks ended Oct. 18, according to Nielsen data from Deutsche Bank.
About 10 or 11% of all US grocery sales are accounted for by private label brands, while that percentage is much higher in Europe.
How this affects YOU
Out of millions of products, Amazon is currently offering only about 2,000 private label products. Even if they double the effort, that would be only 4,000 products.
There are PLENTY of opportunities available right now on Amazon!
The problem is that way too many sellers get emotionally attached to Amazon and never expand to other distribution channels.
But lets think rationally!
- There are no products with 100% market share, and rarely with 50% market share – What I want to say is that markets are already competitive enough and by Amazon introducing a new product in a certain niche it won’t drastically affect other sellers.
- Amazon’s mission statement is focused on offering cheap products – Store’s private label brands are inherently associated as a “cheaper alternative”. You should be focused on offering truly premium products. I say truly because many sellers source cheap lemon squeezers on Alibaba and just put PREMIUM in product description thinking that would make their product more superior to justify higher selling price. Well, it’s NOT!
Amazon still earns referral commissions from every third party sale. If we reflect to Jeff Bezos napkin you’ll see that Amazon is all about growth through huge product selection and cheap products.
Amazon understands that third party sellers are the only way to have large product selection, A to Z store if you will. They also understand that third party sellers need to be profitable in order to be enough motivated to sell on a marketplace. Without third party sellers Amazon won’t be able to achieve large growth.
What Amazon is doing with its private label brands is exactly what you should be doing as well, filling market gaps.
It’s wise to take the reverse approach on this one. Instead of thinking what would happen, try to think what has already happened in similar situations. Private label brands are everywhere, yet established brands are still growing and selling strong.
Are they offered on the same website? Yes.
Do they cost the same? Yes, about the same.
Do they rank for same search terms? Yes.
Hmmm, I am confused, then why isn’t Amazon making the most sales? The answer is BRANDING and SALES FUNNELS!
Branding isn’t some hocus pocus hype word. It truly exists! People tend to be loyal and emotionally attached to brands mostly because of its unique value propositions.
And in this context, sales funnels are sources of traffic that are directed towards product listings. For example some products are selling well because of recommendations that they got on high traffic review sites or blogs.
Please invest some time into analyzing and understanding WHY do certain products still sell well even though Amazon is directly competing with them.
There is no doubt that Amazon is focused on high moving consumable goods.
If you are not in one of the fast moving consumable goods niche then there is a good chance that Amazon will never compete directly with you. At least not in the near future.
However, you still need to change and adapt, here is how…
What to change in your private label strategy
Few years ago there were a LOT of market gaps on Amazon. You could easily find products where demand was much higher than supply.
Those products were silicone spatulas, lemon squeezers, watermelon slicer type of products.
Also there were much less sellers, meaning that market saturation rate was much lower.
This has changed. Market gaps are harder to find and trendy products get saturated much faster.
ACTION TIP: download my new product selection guide.
Which brings us to…
Differentiate and innovate
When choosing a product to sell it is important that you don’t sell identical product that 10 or more sellers are already selling. Yes you can still succeed with those products but it will require higher budget and more effort.
Differentiate, innovate, add value, solve problems that competitors aren’t solving, or simply have a stunning product design.
Have a unique value proposition!
This is a prerequisite not a magic pill. If you don’t have a USP, then all other promotions efforts might go down the drain.
If you don’t listen to customers and innovate, Amazon will and they will become a key player in your category.
ACTION TIP: Choose a product that has a USP (at least in some way better than competitors)
Launch, listen, improve
Spend time to actually understand what your customers want. What do they want; what do they want to pay; and, are you meeting their needs? Amazon understands the value of moving beyond price and looking more comprehensively at assortment.
Amazon has a ton of data about what consumers like, what consumers are willing to pay, and has control over a wide array of levers to create awareness of its brands.
Interesting fact: All Amazon products began with more than 20 reviews at the time of launch.
Expand beyond Amazon
If you are an Amazon private label seller then there is a great chance that most of your sales are coming from Amazon.
That is extremely risky!
There are many horror stories where Amazon has shut down seller accounts without any specific reason leaving seller without sales, destroyed.
Amazon shouldn’t be your only distribution channel. Look at all big international brands.
Do they sell in only one store? NO.
Copy their approach and expand. Private labeling is nothing new. Model strategies that have worked for decades.
Think long term, beside a product launch week you should focus on steady increasing organic reach while building an engaged email list and brand equity.
Cross and up sell and tailor your product offerings to specific platforms. For example, Amazon offers Wickedly Prime products in single packs on Prime Pantry while promoting multi-packs on Amazon.com
Experiment with PPC
Although Amazon PPC numbers are getting higher, you should still experiment and analyze data from your PPC campaigns. This will reveal what customers are actually searching for and what you might offer as a cross
If your Amazon PPC campaign can’t be scaled to a profitable level because of too many competitors, then explore other paid traffic options off of Amazon and build sales funnels and email lists along the way.
Copy what Amazon is doing
Copy Amazon private label best practices, just like you would from a best student in class.
Brands should be looking at what Amazon is doing as inspiration. Watch and study what Amazon does closely.
What does the packaging look like?
How does it come shipped?
What content are they building?
What’s the selling price?
What marketing leverage are they using to create buzz, traffic and ultimately sales?
They have access to data so their every move has a specific reason. Amazon is a reactive brand, they react to demand and market gaps based on data with strong statistical confidence.
You can still massively succeed even if your product doesn’t have all of the above mentioned characteristics. However, please understand that Amazon is getting crowded and that selling generic products now requires more effort and higher budget. The more your differentiate the better.
Selling physical products on Amazon is still the way to go.
U.S. online sales will surpass $530 billion by 2020 and Amazon could drive 80% of U.S. e-commerce growth. Other international markets are growing strong as well.
However, you need to adapt your strategies as Amazon evolves.
It’s important that you always keep in mind that Amazon is just a distribution channel. As a private label brand owner it should never be your only one!
Let me know your thoughts in the comments below!