Juozas Kaziukenas’ article “Amazon-Owned Brands Far From Successful” is based on a report he set up called “Amazon Private Label Brands“. This report is oddly disjointed, crossing statistics in and out, changing his metrics at random and finally coming out with a conclusion which is totally at variance with the content of the article. It’s impossible to see where the sales statistics come from and thus can’t be verified. Reviews – and unrelated metric – is used as a proxy for sales success where he doesn’t mention actual sales figures. Yet major news outlets, such as Bloomberg (Most Amazon Brands Are Duds, Not Disrupters, Study Finds), Business Insider (Most Amazon private labels aren’t flying off the shelves yet, but the company is taking huge steps to change that) and many more have apparently taken the conclusion of the article at face value, seemingly without reading the article itself and are publishing this piece as some sort of evidence that Amazon’s monopoly position is not a problem.
In his analysis, he starts out saying that the top 10 most successful private label brands contribute 81% to total sales at a value of $7.5 billion in 2018. He then arbitrarily removes 7 of these brands and states the total sales by private label brands at under $1 billion. For any retailer, this is a huge turnover. Oddly enough, the next figure presented is that total retail sales generated online by Amazon is $122.9 billion. A quick off the cuff guestimate puts the top 10 Amazon private label brands at around 7% of total online retail. Considering Amazon has 23,142 own products, you would assume the total Amazon slice of the pie would be quite a bit larger than 7%.
Interestingly, Marketplacepulse has a statistics page where Amazon international marketplace sales are shown to be a staggering $15.55 billion in Q3 2018 alone and North American sales pegged at $34,35 billion in the same quarter. Focussing on the top 10 brands seems again to be wilfully missing a huge amount of online retail revenue on marketplaces owned by Amazon.
Search is then stated to be the primary driver of purchases and some time is spent looking at click through rates. How he got these figures is up in the air, but could it be that they were provided by Amazon? Is it possible that Amazon is, in fact, funding this analysis? While mr Kaziukenas at some point does mention the related products feature and he does briefly demonstrate its importance in product visibility, search results for specific terms are the metric he goes for here.
The study then quickly and embarrassingly shows that in the lower end of the price spectrum, price is a driving factor. This will return in the study when it is shown that products like batteries are indeed stealing customers from other manufacturers.
Product reviews are used as a rating factor for product success in the study. Reviews are an unrelated metric and the article notes that where batteries and cables are concerned, Amazon owns the market share even with a below average rating. Unfortunately, turnover, or any financial metric, is no longer used to measure product success once the study has passed the opening paragraphs.
A lot of time is spent on a few randomly selected products, which are neither cheaper nor better than the competition. He manages to quite unsurprisingly demonstrate that more expensive, lower quality Amazon products don’t do quite as well as cheaper, better quality non-Amazon alternative products. A 6-foot-long HDMI cable is used as an example to prove that cheaper Amazon products do better than the competition: “AmazonBasics 6 feet HDMI cable sells for $6.99 and is the number one best-seller HDMI cable on Amazon” (again, how he knows what the number one best-seller is, is a mystery to me).
Continuing on, the study shows that Amazon does copy products and the contradictory statements start flying fast and hard. First the quote is given: “In July, a similar stand appeared at about half the price. The brand: AmazonBasics. Since then, sales of the Rain Design original have slipped.” followed by the statement: “Today Rain Design’s laptop stand sells for $39.99 and seems to be outselling Amazon’s $19.99 copy.” I assume that the “seems to be outselling” part of this statement is based entirely on the review status and not on any actual sales data. Next the study claims that this product copying is “rare” and goes on to state “There is no basis to assume that copying products is part of the Amazon strategy.” This doesn’t ring very true next to the two examples on display – and surely many more examples can easily be found. Mr Kaziukenas states: “The story of Rain Design’s laptop stand is scary but doesn’t happen often.” Again I would like to see where the metrics being used here come from and the definition of “often”. It’s stated as though he has actual data on this, but chooses not to share this. I somehow doubt that Amazon would be happy to provide him with this data.
Now the study continues to say that having data on the competition is not useful, but specifies this as a vague “ability to utilize that data for brand building” and then states that because Amazon isn’t the first choice in the upper price market, or established brand space, it’s not utilising this data very well. He then goes on to state that where brand is not important (the cheap product space, eg. batteries) they are the number one seller. Let us not forget that this failed brand building of products in the space beyond the top three products (as arbitrarily chosen by this study in the beginning) is netting sales of around $6.5 billion!
Now comes a pretty bizarre part where an argument is put forward that if you use the search by specifying a brand name before the generic product name, Amazon products are not given an advantage, despite being shown in the related items. Even though if you put in a generic product name, Amazon products will come forward and fill the screen, unless you have a sponsored the search term, as demonstrated by a page full of cheaper Amazon HDMI cables. This is somehow used as an argument that there is no advantage in Organic Search Results, an arbitrarily and very narrowly chosen term which has no relation to the part of the article in which at every turn it is clearly shown that Amazon uses their advantage to push their products. Totally beside the wayside is the fact that different people are shown different search results, depending on a huge multitude of factors. What Mr Kaziukenas sees as results are not going to be the same as other shoppers on the platform, although he gives his search results as being that one single truth.
The conclusion of the piece states that Amazon’s private brand business (ie, those not labelled with the word “Amazon” in it) don’t do very well. The generic goods business (ie, those where potential customers have no reason to look specifically for a brand name) is cast aside. Somehow the final thought is that Amazon therefore doesn’t want to be in the physical products business. The sheer scale of the sales numbers presented in the article, however, belie this statement. Amazon is making billions of dollars in the physical goods segment and is using its position to push out competitors – to make no mention of the magic arbitration system of goods and fraud on the market place, the conflict of interest in being both a marketplace and a salesman in that marketplace: but that’s another story, covered by other articles.
8/4/19 EDIT:
If it feels like your Amazon search results have been overwhelmed with promotions for their private-label brands, like Amazon Basics, Mama Bear or Daily Ritual, that may be changing. As lawmakers pay more attention to the most powerful tech companies, Amazon has begun quietly removing some of the more obvious promotions, including banner ads, for its private-label products, reports CNBC, which spoke to Amazon sellers and consultants.
Amazon’s aggressive marketing of its own private brands, with ads that often appear in search results above listings for competing items from third-party sellers, have raised antitrust concerns.
[…]
Amazon’s private brands quickly became a major threat to third-party sellers on its platform, increasing from about a dozen brands in 2016, when some of its products began taking the lead in key categories like batteries, speakers and baby wipes, to a current roster of more than 135 private label brands and 330 brands exclusive to Amazon, according to TJI Research.
While Amazon benefits from higher margins, cost-savings from a more efficient supply chain and new data, third-party sellers often suffer. For example, they may have to cut prices to stay competitive, and even lower prices may not be enough to attract customers away from Amazon’s promotions for its own items, which show up in many search results.
Other recent measures Amazon has taken to ward off antitrust scrutiny include reportedly getting rid of its price parity requirement for third-party sellers, which meant they were not allowed to sell the same products on other sites for lower prices.
Robin Edgar
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