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INSIGHT: Amazon House Brand Strategy Set To Hurt CE Marketplace Partners

As Amazon gets set to cut Australians off from their overseas web sites, some of their marketplace partners who are currently selling consumer electronic accessories are starting to get worried, with Amazon set to roll out their own house brand products which they claim will “cannibalise” sales of marketplace listed products in Australia.

Some marketplace participants have told ChannelNews that they are also concerned that Amazon is collecting data on their sales and that if a product is “proving popular” the big online retailer will launch an Amazon branded product up against a marketplace product.

According to 1010data Market Insights, which analysed sales trends on the private label brands for a full year, Amazon products are making serious headway. The company now has roughly 100 private label brands for sale on its huge online marketplace, of which more than 60 have been introduced in the past year alone. Several of these are set to be launched in Australia.

Amazon’s batteries, for example, saw 93 percent year-over-year growth and now account for 94 percent of all batteries sold on Amazon.com.

In Australia Amazon has recently appointed a division of Edelman to handle their PR, they have also moved to roll out national advertising campaigns and will heavily promote “Cheap” Amazon house brand products later this year.

Another recent imitative following the appointment of new Amazon marketing and communication staff in Australia, is that the US Company has chosen to only brief or issue press releases to a small select group of media including TV and select national media, this was evident last week when the Company announced their new Prime strategy for Australia.

Trade and business media are now being issued the same press releases that has gone to TV stations up to 14 hours later. The move is designed to minimise “negative” criticism said one insider.

Consumer Electronics which is seen as a major category for Amazon in Australia is set to a key battle ground.

The Amazon Echo is the online retailers biggest foray into electronics. The Internet-connected speakers hold a 45-percent market share among voice-based electronics in the USA, and its sales have grown 67 percent year over year since launching in 2015.A victim of this success is that more people are choosing an Amazon speaker over a Sonos speaker.

The Amazon Tap—another type of connected speaker—just hit the market in the USA and is set to be released in Australia shortly.

Amazon Basics—the oldest of the Amazon private label brands—is a full line of electronics, including USB cords, disposable batteries, computer mice and speakers, tripods, laptop bags and more. It was launched in 2009.

It was around this time that Amazon quietly entered the private label business in the USA by offering a handful of items under a new brand called AmazonBasics.

Early offerings were the kinds of unglamorous products that consumers typically bought at their local JB Hi Fi or Harvey Norman or Officeworks store: power cords and cables for electronics and, in particular, batteries — with prices roughly 30 percent lower than that of national brands like Energizer and Duracell.

The results were stunning. In just a few years, AmazonBasics had grabbed nearly a third of the online market for batteries, outselling both Energizer and Duracell on its site.

Analysts predict that nearly half of all online shopping in the United States will be conducted on Amazon’s platform in the next couple of years. That creates a massive opportunity for Amazon to more than double revenue from its in-house brands to $25 billion in the next four years, according to analysts at SunTrust Robinson Humphrey. That’s the equivalent of all of Macy’s revenue last year.

In Australia Amazon has already run the numbers on what it will take to take on the likes of Officeworks, Big W, K Mart and retailers such as Harvey Norman and JB Hi Fi. Years of Australian purchases have been analysed utilising its knowledge of its powerful marketplace machine — from optimizing word-search algorithms to analysing competitors’ sales data to using its customer-review networks — to steer shoppers toward its in-house brands and away from its competitors, say analysts.

And as consumers increasingly shop using voice technology, the playing field becomes even more tilted. For instance, consumers asking Amazon’s Alexa to “buy batteries” get only one option: AmazonBasics.

When The New York Times recently wrote a story on Amazon’s house brand strategy, the Company refused to supply a spokesperson.

but in a response to a list of questions, the company said its overarching goal is to provide customers a wide range of products and brands.

“We take the same approach to private label as we do with anything here at Amazon: We start with the customer and work backwards,” the company said in its statement.

The New York Times also reported that as Amazon uses its powerful platform to bolster its private-label business, there is debate in legal circles whether some of its activities could be viewed as monopolistic in nature.

Some say Amazon could face a legal challenge akin in size and scope to when the Department of Justice two decades ago filed antitrust charges against Microsoft for bundling its own browser into its software, making it difficult for consumers to install a browser from Microsoft’s top competitor, Netscape. Microsoft lost that court battle.

“I think there is a potential monopolization case against Amazon,” said Chris Sagers, an antitrust professor at the Cleveland-Marshall College of Law in Ohio. “The Amazon marketing people are geniuses. They’re brilliant,” Mr. Sagers said. “But if they are getting massive penetration in the market and preventing customers from buying products from their competitors? Well, it’s like they’re writing the plaintiff’s complaint for them.”

For Amazon, those word searches by consumers allow it to put its private-label products in front of the consumer and make sure they appear quickly. In addition, Amazon has the emails of the consumers who performed searches on its site and can email them directly or use pop-up ads on other websites to direct those consumers back to Amazon’s marketplace.

Some of this data is also available to big brands or vendors selling on Amazon’s platform through a program called Amazon Retail Analytics Premium. But it is expensive, with vendors paying 1 percent of their wholesale cost of goods sold to Amazon or a minimum of $100,000 to get access to a database that lets them see to some, but not all, of the data Amazon has compiled.

“Amazon has access to data that nobody else has,” said James Thomson, a former Amazon executive who now works at Buy Box Experts, a consulting firm that advises companies on how to build their brands and sell products on Amazon. “I can’t just walk into a store and say, ‘Excuse me, did you look at this brand of cereal this morning and decide not to buy it?’ Amazon has that data. They know you looked at a brand and didn’t buy it and they’re not going to share that data with any other brands.”

With that data, Amazon is able to conduct regional or one-day price tests, dropping the cost of its goods in certain markets to discover at what price more customers purchase the item.

And while traditional retailers can readily scan their sales data and understand what size shirts and colours sell and which ones don’t, Amazon has hundreds of reviews of competitors’ products on its website, providing customer feedback on how the shirt looked after five washes or how it fit different body types.

“Amazon can analyse those reviews and figure out why customers were dissatisfied with a certain product,” said Cooper Smith, an analyst at research firm Gartner L2. “Amazon can then turn around and create a private label for a similar product but improve upon it based on what customers say.”

When Amazon introduces a new private-label product, it doesn’t go all in. It often uses a technique analysts call “test-and-repeat,” ordering a small batch of product from its manufacturers, testing demand and then, if the product is successful, reordering a bigger batch of product as well as expanding its assortment.

Another marketing technique that Amazon has utilised is set to appear in Australia is called Amazon Vine. This is a reviewing program used to drive traffic to their private-label goods.

Amazon Vine, or Vine Voices, are very active reviewers on the Amazon marketplace who are then invited by the company to participate in its Vine program, which identifies them as influential reviewers. In exchange for free products, which they disclose receiving, the reviewers agree to write evaluations on Amazon’s site.

Amazon has actively used Vine Voices to help introduce its private label brands. An analysis of more than 1,600 products across ten of Amazon’s private-label brands, including AmazonBasics and Amazon Essentials, showed that about half had Vine reviews. Of those 835 products, more than half of the first 30 reviews were from the Vine program, according to ReviewMeta.com, an online tool that helps customers identify inauthentic reviews.

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