Recently, Amazon made news by being the target of an anti-trust report penned by the House Judiciary Committee. The report claimed that Amazon (along with big dogs Apple, Facebook and Google) has been abusing its power to maintain an anti-competitive environment.
One of the biggest accusations that came out of this barrage was that Amazon uses third-party, or 3P, seller data when developing new products. Of course, with Prime Day 2020 bringing in $3.5 billion for these 3P marketplace sellers, this would be excellent data to mine. But even though Amazon might want to use this data, they really don’t need to.
What data does Amazon use?
One good thing about being the largest online retailer in the United States is that you have plenty of information at your disposal. However, there’s a big difference between what information is and isn’t off-limits.
According to this report and a preceding hearing this summer, Amazon stands accused of using 3P seller data to develop new products. However, the company separates internal access by creating two entirely different platforms: ”Vendor Central” for Amazon and its vendors and “Seller Central” for 3P sellers to manage their own listings of other brand’s products.
So if these platforms are separated, what data does Amazon use? Well, signs point to literally everything else.
According to Jeff Wilke, Amazon’s CEO Worldwide Consumer, it (as well as anyone else) can use the “best-seller list” to create new private label brands. According to Wilke, “...the things that we end up making in private labels are the things that sell the most that are at the top of search results.”
Amazon also likely combs through customer reviews and FAQs to determine what products are missing. Again, anyone can do this, but Amazon has the means to do it.
The major advantage that Amazon has is that it can test products on the fly. This massive retailer can carry a limited stock of a new private label product to test its performance. Then, they pull their own 1P data and if the product’s a success, they keep it and if it CRaPs out, they flush it...remember the Amazon Fire Phone?
Also, having a name like Amazon has its advantages. Say Amazon notices that a reseller only has a limited amount of inventory for ASINs in their account, but they’re selling like hotcakes and they can’t keep them in stock. Wouldn’t that be a good indicator for Amazon to test out a private label product (especially if it creates a better customer experience)?
And it’s not like Amazon is the only company out there doing this. It just happens to be the biggest.
All the cool kids are doing it
Private label brands have always been around. We’ve all heard the rumor that Costco gets their Kirkland Vodka from the same supplier as Grey Goose, but we don’t think twice about the fact that Costco also sells everything from dog food to parmesan cheese under the Kirkland brand.
Some brands even make it out of the “private label” stigma and become self-sufficient, selling to other retailers. Just look at Craftsman, which was created by Sears in 1927 and now stands as one of the most affordable, trusted brands in personal power tools.
There’s also grocery powerhouse, Kroger, which can be found on shelves everywhere next to its name brand counterparts. A key difference between Amazon and these grocery stores is that the stores have direct access to their 3P data, i.e. everything that goes home in a (hopefully reusable) shopping bag. This helps them determine what products are private label-worthy.
But this competition doesn’t make private label brands bad. In fact, they push manufacturers to be more innovative, invest in R&D, and build up their marketing strategies to stand out.
Just take it from our President at Channel Bakers, Lionel Garcia, who says, “If you don’t have a private label strategy, you won’t have a sound retail strategy.”
Speaking of strategy
With all of this information at Amazon’s fingertips, they were just following in the footsteps of other retailers by creating awesome private label brands.
It all began with a tie back to their bookstore roots when they created the Amazon Kindle in 2007. Now a household name, Kindle is just one of the many technological advancements to come out of Amazon’s secretive Lab126. The roster includes the Echo, Fire TV, and more.
However, this isn’t where Amazon’s future private label game is going. The (sometimes too) hot AmazonBasics is the all-encompassing label that has the antitrust committee up in arms.
With now over 100 private label brands and 638 exclusive “Our Brands”, Amazon is selling everything from batteries to baby cribs and it's not showing any signs of slowing down. The company also entered the fashion market with AmazonEssentials, which is a trend we should all be watching.
Note that this doesn’t guarantee success. While other private labels represent around 18%-85% of sales for retailers like Walmart, Costco, and Walgreens, it only provides around 1% of sales for Amazon.
Proprietary platforms like Amazon Music, Prime Video and, “The Future of Digital Viewing”, Twitch allow for Amazon to advertise their products, keeping the consumers brand loyal. It’s this brilliantly complex ecosystem that’s allowing Amazon to continue to build their influence and make Jeff Bezos the richest man alive.
The last point I’d make is centered around their core tenet of “always focus on the best customer experience”. We’ve seen Amazon create businesses like AWS out of necessity because its customer experience with existing products in the market wasn’t cutting it for them as a user/customer. So, they created a “real solution” that ended up becoming marketable to other customers (some of them that are competitors, but also customers).
When it comes to private label, I expect that Amazon will continue down this path with a goal of consistently delivering the very best customer experience possible. Customer experience is at the heart of almost every decision, product, or service that Amazon creates in the market.
Joshua Kreitzer is founder & CEO of Southern California-based Amazon agency Channel Bakers, widely known as the first-ever Amazon advertising-focused ad agency. Channel Bakers is a global agency with more than 100 employees across 5 offices focused on leading brands presence on the Amazon platform, with present and past clients including Samsung, Logitech, Intel, and Levis Jeans.