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Amazon’s rapid expansion into private label brands

Earlier today, TechCrunch published an article titled “Amazon to Expand Private-Label Offerings—From Food to Diapers” detailing Amazon’s successful push into private label brands covering lucrative categories ranging from batteries, mom & baby to even perishable food items. The concept of retailers selling their own private label brands has been around for ages, mainly adopted by grocery chains with the goal to increase margins for often low-profit consumer packaged goods (CPG) categories. It’s not so much players like Amazon are doing this but how and why they’re doing this that should ring some alarm bells with brands.

The ultimate bait and switch

Global ecommerce giants like Amazon and, increasingly, local Southeast Asian players like Lazada and MatahariMall are offering perks to entice brands to open stores and sell through their platforms. This strategy resembles Ladies Night at clubs, where women are offered free drinks to indirectly lure men, who, more often than not, end up with a headache, alone and having burnt a hole in their pocket at the end of the night.

With aggressive promotions and subsidies from their hosts, brands often see quick short-term gains in online sales. The extreme example here is 11.11, a man-made online shopping festival during which retailers compete in the Discount Olympics. Obviously, brands benefit from spikes in sales but little do they know that they’re actually selling their souls in the long-term. It’s like crack, it makes you feel great for a while but sooner or later it’s hollowing out your body.

With the massive amounts of data generated on a day-to-day basis, these ecommerce platforms can easily identify consumer trends, such as best selling products and categories beyond what brands are able to see themselves. This data is then leveraged by retailers to develop and introduce their own private label brands to compete with the brands they partnered with in the first place.

Once launched, these platforms could favor their own white-label brands by giving them more visibility through favorable product placements as well as top rankings on internal search result pages.

The bigger picture

Players like Amazon and Alibaba’s Tmall aren’t really traditional ecommerce retailers. Their main objective is to use competitive pricing, often subsidized, on retail products to acquire more and more users, which they then monetize through other means such as Amazon Prime subscription fees for Amazon and onsite advertising and Alipay transaction fees for Tmall.

Amazon’s new CPG brands like Happy Belly and Mama Bear are only available to Prime members in a move to incentivize joining its $99-a-year unlimited shipping program that’s fueling Amazon’s retail growth behind the scenes.

In a post-Alibaba acquisition world, ecommerce power-players like Lazada could potentially increase awareness of their own private label brands through better placements on their marketplace, eventually forcing other brands to pay more for advertising to rank higher and get traffic.

With private labels, Amazon and the likes of Lazada also have more “room” to play in terms of pricing, allowing them to maintain sustainable low prices, keep driving more users and spinning the flywheel.

Strategies for brands

Brands like P&G, Unilever and Nestle should look at ecommerce marketplaces as a relatively easy way to test selling online but in the long-term, brands are arguably better off selling direct-to-consumer where they have full control of the brand image, customer experience and, most importantly, user data.

A case in point is Coach. The luxury brand was one of the first brands to set up shop on Tmall in China but recently closed down its official flagship store, leaving the brand with only a brand.com and WeChat presence. Many luxury brands have expressed concerns about the mass-market image of some of the bigger marketplaces.

Brands don’t have to pick between marketplace and brand.com only. Some brands like L’Oreal have adopted a multi-channel approach where their marketplace presence generates sales for their more mass and lower price point items whereas their brand.com site sustains long-tail and higher average order value sales.

At the end of the day, marketplaces are a great way for brands to jump into ecommerce. However, brands should be aware of the pros and cons and especially long-term implications of such a decision.

BY SHEJI HO

Before you dive into the Halloween candy craze, check out the headlines you should know for today.

 

1. Amazon says India investments showing results, but drain on global margins

Amazon’s finance chief also indicated that the company would continue to add resources to India. Over the past two months, Amazon has outsold Flipkart in terms of monthly sales, but Flipkart continues to be ahead of Amazon.

Read the rest of the story here.

 

2. Rumor mill: Lazada in talks to buy Southeast Asia grocery delivery startup Redmart?

Lazada, under Alibaba’s stewardship, is in advanced talks with Redmart, a Singapore-based grocery delivery service, to buy the company. Redmart is said to prefer an investment, but one source told us that an acquisition priced between $30-40 million could be agreed and announced as soon as this week.

Read the rest of the story here

 

3. The realistic future of AI for ecommerce

The days of negative revenue and buying market share in Southeast Asia are quickly coming to an end, and sustainable e-commerce is going to require a focus on user experience.

Read the rest of the story here

 

4. Amazon takes aim at Alibaba by bringing Prime to China

Amazon has launched a tailored version of its Prime service in China to tap consumer demand for overseas goods, putting the U.S. online retail firm in closer competition with local rivals Alibaba and JD.com.

Read the rest of the story here

 

Catch up on the latest ecommerce headlines here.

1. ‘World’s largest fintech hub’ to launch in Singapore in November

 Lattice80 will help fintech startups prototype, develop, and expand their business models overseas, support traditional companies in adopting innovation, and form tie-ups with the government for new fintech infrastructure. Read the rest of the story here.

 

2. Revenue-funded Hangrr aims to disrupt high-end suit tailoring business

Singapore figures prominently in Hangrr’s plans, and this is the beginning of an expansion that will continue through the year. “Having doorstep services in the country will allow us to communicate our brand value to a broader set of people, customers can call our measurement experts and can get measured at their convenience. Read the rest of the story here.

 

3. New roadmap issued for Singapore retail

Retailers can look to expand their markets locally and internationally through e-channels, which encourages retailers to adopt an omni-channel strategy to better reach out and support targeted end-to-end consumer needs across both online and offline channels. Read the rest of the story here.

 

4. Amazon makes non-Prime customers work harder to find the lowest price

An investigation by the nonprofit news organization ProPublica, published Tuesday, found that Amazon’s price comparison pages favored goods that were either sold by Amazon or through Amazon’s program for sellers who pay the company to warehouse and ship their products. Read the rest of the story here.

 

5. New Facebook dynamic retail ad shows in-store product availability, aims to push more sales

To help offline stores push more sales, and gain more ad budget, Facebook is introducing a new ad format that highlights available products at nearby stores, and targeting users who are most likely to go inside those stores. Read the rest of the story here.

Amazon has launched its prime membership program in India, reports Tech in Asia.

This is considered a well calculated move following a series of steps to solve the delivery conundrum in what is a very disorganized market. There is a 60 day trial period for Amazon Prime, twice of the one month trial period offered in other countries. The introductory annual subscription fee is set at $7.40.

Membership benefits include fast and free delivery in 100 cities, and early access to deals. Amazon has also announced Prime Video, giving members access to movies and TV shows, will be coming soon to India.

Amazon Prime’s delivery holds the key to winning the ecommerce battle against local rivals Flipkart and Snapdeal.

Amazon Prime’s guaranteed one day delivery will become an every day experience instead of an occasional indulgence, and with no minimum purchases. Prime will provide unlimited convenience.

For sellers, Fulfillment by Amazon is now an even more powerful opportunity to rapidly grow their business.

Steps taken to preparing for Prime

It invested heavily in warehouses across India as Amazon recognizes the difficulties of a centralized system which it uses in other countries. The localization of warehouses has not only helped in reducing the cost and time for deliveries, it has also encouraged sellers to use the ‘Fulfillment by Amazon” option. There’s even a facility for picking up goods from the vendor.

Amazon Prime came in once the infrastructure could provide support.

When Amazon came to India three years ago, it had to restrict itself to a marketplace model, rather than an inventory-based ecommerce. The reason for this is because India has restrictions on foreign direct investment (FDI) in B2C ecommerce. By acting as a marketplace, Amazon ostensibly just connects third party sellers with buyers, with fulfillment services as an additional offering.

The government’s FDI restrictions were meant to protect the millions of small shopkeepers in India. However, Amazon is partnering with the local shops to ease its delivery hassles. This is especially a game-changer in tier-2 and tier-3 towns and rural India.

Amazon Prime’s entry into India shares a similar timeline with local competitor Flipkart’s acquisition of Rocket Internet’s Jabong.

A version of this appeared in Tech In Asia on July 27. Read the full version here.