Private labels have existed for decades as a way for retailers to add another stream of revenue to their business model. In the digital age, however, retailers like Amazon are taking advantage of private labels in a way that's crushing for smaller eCommerce businesses.
In this article, we'll explore the impact of Amazon's private labels and give you the tools you need to compete with the tech giant.
A private label is a brand created to sell products under a retailer's name that the retailer didn't manufacture themselves. This is what we often colloquially call "off-brand" products. A store like Target or Walmart makes a large order for a product, like green beans, and then places that product on their shelves under brands like "Good & Gather" or "Great Value".
Amazon's private labels are more or less the same thing. The most well-known label is Amazon Basics, though Amazon has other brands like Mama Bear (baby products) and Wag (dog food).
The genius behind Amazon's private labels lies in the company's algorithms. Amazon knows what you want before you buy it, what products are succeeding in every niche, what gets customers to click, and what leads them to make purchases. That means Amazon can pick successful private label products with almost complete certainty. From there, all that's left to do is mark the price down, and voíla, Amazon just created a new bestseller.
If you're a seller on Amazon's Marketplace, the answer is sure to be "Yes, it's a terrible thing!" But, why? Haven't retailers been using private labels for decades now? What makes Amazon Basics so much worse for the competition?
There are two reasons why Amazon's private labels are more concerning than traditional private labels. First, as already mentioned, Amazon has access to algorithms that allow them to make nearly flawless private label decisions.
Second, Amazon owns the greatest eCommerce marketing tool on the internet: Amazon itself. All they have to do is show their low-priced products at the top of every search, list them as suggested products on every product page, and back them with the Amazon Prime membership by default.
Compare this to Great Value products sitting on the same shelf as every other product, and it's easy to see why Amazon Basics products are hitting eCommerce businesses so much harder than traditional private labels.
After hearing all of this, you might have already started packing your products back in their boxes, canceling supplier orders, and asking your friends if they'd be interested in taking 1,000 bamboo toothbrushes off of your hands.
It's true that Amazon Basics is gouging the competition. In 2018, the brand only made up 5% of the private labels on Amazon but accounted for 57% of private label sales.
But is the fight against Amazon's private label truly a hopeless one?
We don't think so. In fact, we think that with the right strategy you can compete with Amazon on and off the Marketplace in a way that's sustainable and profitable. It's going to take some work, so take out your notepad and get ready to start brainstorming.
If you're an Amazon seller, you don't need to jump ship to compete with the retail giant. We actually agree with the old adage, "If you can't beat 'em, join 'em." Competing with Amazon on the Marketplace provides you many of the same advantages that Amazon has, giving you a leg up.
This is one of the most cliche pieces of advice for Amazon sellers, but it's a cliche for a reason. Unless you're Jeff Bezos himself, you aren't going to have the resources to compete with the entirety of Amazon. So don't.
Instead, pick something small that you can compete with Amazon in, a market that they haven't reached yet, that they don't control, that they aren't interested in, or that they simply can't replicate.
For example, if you make handmade or designer goods, you're in a pretty safe boat on Amazon, as they can't copy your product as easily as others. It also helps to use analytical tools for the Amazon website that can discover trending but untapped markets.
This one falls under the same umbrella as picking a niche and should be pretty obvious. If you can see that Amazon's scrunchies are the only scrunchies making any revenue on the platform, don't place an order for identical scrunchies thinking that you'll be able to get in on the action.
That's not to say that you can't compete with Amazon's scrunchies at all, just that you can't compete by offering an indistinguishable product. Rather, come up with a scrunchy that offers something Amazon doesn't. Maybe it's cuter, stronger, more environmentally friendly, etc. Whatever your edge is, find it and use it to your advantage.
This is possibly the most important tool at your disposal when competing with Amazon on the Marketplace, though it applies off of the Marketplace as well. Despite how massive and ubiquitous Amazon's brand is, what it doesn't have is a personal touch. No one orders from Amazon feeling like Jeff Bezos sealed their package with love.
However, you can give customers that feeling with the brand you build on and off Amazon. Having a personal brand with quality products will help you build a meaningful relationship with Amazon customers. Amazon Basics may always offer the cheapest version of a product, but that doesn't stop you from offering the best version.
This is something we've been hitting around. You can't compete with Amazon's margins. You simply can't. Its pockets are too deep, algorithms too clever, and connections too numerous. You can't price your product low enough to compete with Amazon without hurting your business.
We'd even argue that offering a product at the same price as Amazon's products may not be the way to go either. Offering a similar product as Amazon at a similar price point without the Amazon Basics label and marketing is only going to lead to customers choosing Amazon (the familiar) over your brand (the unfamiliar).
Instead of trying to beat Amazon's prices, create a product that is more valuable than theirs and price it accordingly. Offer a better scrunchy at a higher price point. This will give you a quality advantage over Amazon and more value per sale.
Finally, don't promote your website on your Amazon listings. This includes mentioning it in product descriptions, linking to it in customer replies, and emailing your customers about your website after they've made a purchase.
Experienced Amazon sellers likely already know this, but this is against Amazon's terms of service. When you violate this rule, you risk losing your ability to sell on the Marketplace completely, hurting your business in the long run.
Not only that, but it can leave a bad impression on would-be customers. Remember that while you may be competing with Amazon, consumers are using Amazon because they like the platform. Trying to undermine it can paint your business in a bad light.
Though many of these tips are interchangeable regardless of whether you're selling on or off of Amazon, the following tips are especially helpful for eCommerce businesses trying to compete with Amazon outside of the Amazon Marketplace.
This is a must. Everyone knows that the major selling point of Amazon (and one of the factors that led to its dominance) is its simplified shipping. Shipping on Amazon is often free, even for non-Prime members, and Amazon can ship products the same day that people order them.
So, if shipping through your website is expensive, slow, and lacks tracking, there's a good chance that would-be customers are going to leave your site with products sitting in their cart.
You may not be able to offer faster (or cheaper) shipping than Amazon, but that doesn't mean you have to have an archaic shipping system, either. There are apps and services that you can couple with your shipping process to make it smoother for customers. The closer you can get to Amazon's shipping standards, the better.
Another tool you have at your disposal is excellent customer support. Most of Amazon's customer support is handled by chatbots, adding to the impersonal nature of the company. You can compete with their customer support fairly easily, which will add value to your products and brand.
The one area of customer support where you'll need to match Amazon is with returns. Amazon offers a no-questions-asked return policy. Customers don't have to pay for shipping and are refunded automatically, which makes Amazon's private label products extremely low-risk purchases.
By offering a similarly simple customer service experience, you'll gain the trust of potential shoppers and stand out among your competitors, both of which greatly outweigh the risks of offering such a policy.
It may seem counterintuitive to start small when competing against such a large company, but it's the route to go if you want to minimize risks when tackling Amazon's private label.
Say you've found a new product that you think will perform well on the Amazon Marketplace. Rather than ordering that product by the thousands to get a quantity discount, start with 200-300. Though this is more expensive in the beginning, it will tell you if the product can actually compete with Amazon's label.
If it can, then you can always order more and make your money back in the long run. If it doesn't sell, however, and you've ordered 1,000 products, you're going to lose money on unsold products and storage fees. Start lean and expand strategically.
We should be clear that when we say broaden your niche, we don't mean outgrowing or abandoning your niche. On the contrary, you should look for ways to broaden your niche and the products you sell while still remaining within that niche.
As a simple example, let's say you sell hair brushes. You're doing well against Amazon Basics and are ready to throw another product into the mix. This is not a good time to start selling dog food. This will broaden your product base at the expense of the niche you've established.
Instead, look for products that fit within your niche that are also performing well. Hair ties might be a great addition to your hair brushes, and once those catch on, you can start throwing in combs and shampoos. Before you know it, you've got a line of products, loyal customers, and the beginnings of a brand.
Lastly, be proactive with your business. If you think you can compete against Amazon's private label by putting a product on the Marketplace and waiting for profits to roll in, you're going to be sorely disappointed. Competing with Amazon is a full-time job, and you'll need to treat it as such. Be obsessive about watching your data, learn how to spot and capitalize on trends, cut products that aren't selling, and focus on the ones that are.
Though Amazon's private label is a force to be reckoned with, there's no reason that strategic sellers can't remain competitive on the Marketplace. By finding your niche, keeping your business active and adaptable, and providing value that Amazon doesn't, smaller merchants can develop meaningful relationships with customers on the platform.