Amazon 2.0 : Private Labels!

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A recent report by Recode.net suggests that Amazon will soon start selling its own brand of snacks, diapers and detergents. And it is just a matter of time when Amazon Prime members will exclusively get the first taste of Amazon’s brands like Happy Belly and Mama Bear. And prima facie, this move by Amazon can not to be taken lightly by any of those companies who are going to turn into competitors of Amazon pretty soon.

Two factors which actually intensifies the situation are – a) The increasing penetration of online buying for daily needs across the globe; and b) The impressive reach of Amazon in the major markets, including more than 50% of US e-commerce market. This move is sure going to be a trend-changer, or a trend  maker.

While it might not be anything new for a company to adopt Private Label route to increase its effectiveness in the market, the timing of doing so is what makes the whole difference and brings the impact. In past, we have seen companies adopt this route to cut costs, or increase its profitability, or to eliminate their dependence on specific brands. But how many times have you seen a company adopt private label route to establish an increased ‘dominance’ in the market? Probably none so far. I have little or absolutely no doubt that this move by Amazon is certainly going to impact the revenues of several companies, including the ones who are selling on Amazon platform since years. And this also enables Amazon, at least theoretically, to expand its presence beyond the online arena and compete with these consumer brands on their home turf – the offline retail.

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Having shared my thoughts on the Amazon’s masterstroke, a question which remains in my mind – Is it an ethical move? As a platform whose primary goal was to enable retailers/manufacturers sell anything and everything from a single outlet, wasn’t neutrality (towards all its sellers) the founding pillar of the business? Will owning a brand and selling it on the same platform not translate to conflict of interest? To me, it certainly appears like overriding the very founding principles on which the whole company flourished. And some repercussions will soon appear from different segments with-in the market segments.

What is most interesting is that now, it is going to become de-facto strategy for most of the marketplaces across the world (including Indian e-commerce marketplaces) to adopt and promote private label items on their platform to meet the profitability and penetration targets. Like, I can imagine Flipkart racing towards its own line of Fashion & Accessories brands (apart from what it already owns at Myntra), or SnapDeal employing Chinese companies to manufacture SmartPhones for them. All this is bound to happen.

[As a side note, its not that Indian e-Commerce companies were not trying similar things earlier. They approached this problem by incubating suppliers like WS Retail, CloudTail etc. Which was another form of Private Label. However, the recent regulatory move by Government of India has restricted the role of such incubated private label sellers. However, now the chances are very high that private labels floated by these e-commerce biggies will open the floodgates.]

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But how will Amazon India benefit from it? Well, that depends on what Flipkart & SnapDeal (and others like ShopClues & Jabong) choose to do. Let’s say, all these home grown brands adopt the private label route and flood the market. In such a case, Amazon India will become a de-facto platform for selling those originally popular brands to Indian consumers, and hence making Amazon India attract a more price insensitive consumers, and hence lift the company towards profitability & dominance. [If they adopt private label route, Amazon India won’t take that route for sure.]

And what if the e-Commerce biggies of India do not take the the private label route and continue to operate as always? Amazon India will have to suppress its itch to adopt private labels in India, and continue playing its patient game while watching Flipkart & SnapDeal bleed every day.

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Is there anyone who remains unaffected by Amazon’s private label adoption strategy? Well yes, the Chinese e-Commerce companies. They were anyway playing the game behind the secured boundaries provided by the Chinese government. They will continue get ideas from Amazon to up their game in the domestic as well international markets, but remain absolutely unaffected when it comes to serving those 1.3 billion consumer at home.

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