When we look back in history, Amazon will be known for its massive e-commerce platform with its huge marketplace that has changed retail forever. But, as Georg Richter, founder & CEO, OceanX, tells RetailTechNews, its financial success truly stems from three slightly underestimated main pillars: Amazon Web Services, Amazon Marketing Services, and, perhaps most important, its extensive selection of private-label and 'exclusive' products.

When it comes to Amazon’s creation of private-label brands, the move is a no-brainer and very connected to its core mission to be "the Earth's most customer-centric company". Benefits to the company include a broader selection of products for customers to choose from, better control over the supply chain and their own profit margins, and increased pressure on established brands to stay competitive with lower prices.

Amazon also prominently features its own products on its site and funnels customers towards purchasing them in search and via merchandising, forcing competitors to increase their advertising spend with Amazon in order to compete. Ultimately, Amazon brands threaten to force smaller brands and retailers – and, perhaps to a greater degree, many big brand names – out of the market, and they’re being created at an astonishing rate.

Increasing the Competition

Brands can still win in niche areas with high-quality products and good reviews, but it's getting harder, particularly for companies in the apparel, beauty, and CPG spaces. There, Amazon is imitating the products of competitors, even going so far as to mention in the product name the product being imitated and creating packaging and messages that are very similar. 

Why would customers buy Dawn dish soap when they've seen dozens of ads for a cheaper version called 'Mountain Falls Dish Soap, Compare to Dawn'? And because Mountain Falls is an Amazon brand, it received 90% of impressions in certain categories, making it an easy purchase.

As more and more customers place orders with Amazon Alexa devices, the situation will only become more lopsided. Purchases made by voice already give consumers fewer choices; but on top of that, Amazon can control the results even more than online because, by nature, Alexa won't list as many options as a webpage will. Batteries are another classic example where Amazon Basics delivers the same product as Duracell or Energizer, only cheaper. If you ask Alexa to order AA batteries, which brand do you think the voice assistant will ship?

Amazon dominates e-commerce in the United States, and when it comes to private-label brands, the company is playing with a stacked deck. It has good-quality products at the cheapest prices and, more importantly, it has all the customer data. It knows what customers want and how much they’ll pay for it, and it can display whatever products it wants. With Amazon having 100 million Prime members, and a knack for playing the long game, other brands are right to worry.

Entering a Brave New World

In order for smaller brands to survive the new era of Amazon, they’ll need to pull out all the creative stops and do something their much larger competitor isn’t – and spending money to advertise on TV or in stores isn’t the ticket to building a strong brand like it used to be. Instead, these companies will need to own the customer experience and create passionate fans and advocates. To engage customers, more and more companies are turning to a direct-to-consumer subscription or membership model where keeping customers means continuing to produce value.

Subscription programmes are effective because they establish an ongoing relationship between brand and member. Customers love when they get a personalised selection of products delivered to their doors; and subscription companies benefit from the wealth of data that these ongoing interactions provide. When a customer returns certain items, for instance, a subscription company knows more about that individual's tastes and preferences and can better home in on what types of products will delight them.

Offering exclusive products is another big draw for customers, and we’ve seen even large, established companies such as Nike take this route. Toward the end of 2017, Nike announced that certain products would be available only to the company’s NikePlus members. Amazon is already using the same tactic by offering a curated selection of products to only its Prime members. When you create something that not everyone can have, it becomes more desirable, and smaller companies would do well to adopt a similar method.

Just because Amazon has huge advantages doesn’t mean that other brands can’t compete; but to be successful, it’s best for newcomers to keep their distance from the e-commerce channel. In some cases, it might be wise to use Amazon to scale a company’s reach, but it shouldn’t rely on the platform for a large percentage of sales and business. The more reliant a company is on Amazon, the easier it will be for the giant to snuff that company out when it decides to produce an Amazon-branded product in the same space.

Amazon’s expansion into private-label products displays an ambition that will shake the U.S. retail market to its foundations. It’s a new world for smaller competitors, but that doesn’t mean it’s impossible for them to survive or even thrive. In order to claim highly sought-after consumer dollars, they’ll need to find ways to differentiate their offerings and minimise reliance on the e-commerce giant’s platform. Those who do will earn passionate customers and a loyal following.