‘I would say advertising continues to be a bright spot both from a product standpoint and also financially.’
Amazon CFO Brian Olsavsky, 201812
Today, if you search for coffee on Amazon, the first thing you see at the top of the page is a banner ad sponsored by Folgers. But you only need to scroll down slightly to find Amazon’s equivalent ‘Top-Rated from Our Brands’ private label banner as well as items from its AmazonFresh and Solimo ranges listed on the first page of search results. It’s also common for Amazon’s private label products to feature a badge denoting that the item is a best-seller, sponsored product or ‘Amazon’s Choice’ (meaning that the item is Prime-eligible, in stock and has a review rating of at least 4.0, among other criteria).
Amazon hold all the cards here. While generating revenue from digital advertising, they’re simultaneously optimizing the placement of their private label products with the aim of maximizing the conversion of shoppers to their own brands. This is not unlike a brand paying a slotting fee to feature on a supermarket’s shelf, only to find the private label equivalent sitting next to it. But here’s where Amazon differs – customer reviews. Imagine a grocery shopper at the shelf, trying to decide between a trusted national brand like Heinz or Coca-Cola and a less well-known own label. The shopper can see there is a cost advantage to buying the own label, but what’s the quality like? Will it taste like the national brand? Will the kids turn their noses up at it?
Amazon can help to sway shoppers at this point thanks to its online customer reviews. If that same shopper can see that the own label item generates thousands of 4.5-star reviews, then they’re probably going to feel more confident giving it a try. So, to build trust and awareness of its private label items, Amazon has been proactively utilizing its Amazon Vine programme to build up customer reviews of these new items. Under the invite-only scheme, Amazon’s most active reviewers post opinions about new and pre-release items in exchange for free products. According to ReviewMeta, an analysis of over 1,600 private label products available on Amazon showed that approximately half had Vine reviews.13
‘Private label is one of the highly underappreciated trends within Amazon, in our view, which over time should give the company a strong “unfair” competitive advantage’, said SunTrust analyst Youssef Squali in 2018. ‘“Unfair” because it’ll be very difficult to dislodge the company once it attains it; fair because it’s earned, not bestowed.’14
At times, Amazon has resorted to more aggressive measures for driving private label conversions, for example by running own label advertisements on other brands’ product detail pages. According to a 2018 Gartner L2 report, a whopping 80 per cent of product pages in the paper products (toilet paper) category featured an ad for Amazon’s Presto range.15 ‘They have access to things other brands don’t – like special templates for content and various merchandising placements’,16 said Melissa Burdick, an ex-Amazon executive, in a 2016 LinkedIn post. As an example, Burdick notes how on the Amazon Elements baby wipes detail page, the ‘hot link’ feature to see other items within the Amazon Best Sellers rank is disabled, making it more difficult for shoppers to find other best-selling alternatives.
And it’s only going to get tougher for suppliers as voice-activated shopping takes hold: Alexa produces just two search results. ‘When it comes to voice search you go first position or you go home because beyond the first or second place there is no future’, says Sebastien Szczepaniak, former Amazon executive who now heads up e-commerce at Nestlé.17
We’ll discuss how Alexa prioritizes search results in the coming chapters, but for now it’s important to understand that in instances where the customer’s shopping history is unknown, Alexa’s recommendation will be an Amazon’s Choice product. In a 2017 study, Bain & Co. found that for customers making a first-time purchase without specifying a brand, over half of the time Alexa’s first recommendation was an Amazon’s Choice product (over top search results). And for those categories that featured an own label item, 17 per cent of the time Alexa recommended the own label item even though such products account for just 2 per cent of volume sold.18
There is some good news for brands here. Voice works best when shoppers know exactly what they want, so if that brand loyalty already exists then Alexa will simply shorten the path to purchase and, crucially, remember the customer’s preference for the next time.
Amazon has to maintain a delicate balance between driving private label sales and giving customers what they want. But for suppliers, the gloves are well and truly off. Many have succumbed to selling on Amazon because of its undeniable reach, but as own label becomes a greater focus so does Amazon’s leverage.
Amazon’s own label efforts have, perhaps surprisingly, been largely focused on fashion. They have quietly built up a portfolio of highly targeted sub-brands – Lark + Ro, Ella Moon, Mae, Amazon Essentials, Buttoned Down, Goodthreads, Scout + Ro, Paris Sunday and Find (in Europe), just to name a few. In fact, clothing, shoes and jewellery make up 86 per cent of its own label lines, according to a 2018 Gartner L2 report.
It has the reach, but can Amazon convince shoppers that it’s a credible fashion destination? Does its USP of convenience and choice really lend itself to fashion, a category where it’s all about the product? Like grocery, the fashion sector is notoriously fickle. We don’t doubt that Amazon can shift a boatload of clothes (remember, they’re likely to be the largest clothing retailer in the US by the time this book is published19). But selling socks and t-shirts is not the same thing as selling fashion.