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by user3359 2807 days ago
The problem with this is that it's built in the backs of brands who were at one point well recognized brands on Amazon. Amazon took their sales data, determined it was a good market to move into, created specifications and reached out to their hundreds of sellers for a "private label opportunity".

Cue making dozens of companies compete to supply Amazon with the manufacturing contract and constant downward pressure and you get a good product from Amazon at a good price. Not a problem right?

Until the private label brand forces 90% of those formerly quality-focused small brands to shut down and due to their "algorithms" detecting less competition, begins raising prices again. And now the expertise of small brands is gone and no competition springs up in the market.

I've seen this happen in a couple product lines over the year and is one reason we pulled off Amazon. Amazon customers are entitled pains in the ass, and the margin there isn't sustainable. The only way for small brands to make Amazon work is to aggressively sell a single SKU and put in remarketing/back-channel outreach to customers and make the conversions to the rest of your product line off Amazon.

This is explicitly against Amazon's policy, but their policy is in place to ensure they profit and you never gain traction so you remain reliant on them until they day they put you out of business with their own private label line.

12 comments

> The problem with this is that it's built in the backs of brands who were at one point well recognized brands on Amazon. Amazon took their sales data, determined it was a good market to move into, created specifications and reached out to their hundreds of sellers for a "private label opportunity".

Not sure I'm seeing the problem. On the surface it sounds pro-consumer. Plus, this is already common in brick & mortar stores, I think Costco is particularly well-known for doing this (and of course private-label/house/generic store brands are hardly uncommon elsewhere too). If it was that destructive, why do we still have brand names in regular stores as it is?

Until the second part of OP's story happens - which is the competitors die off and then Amazon jacks up the prices.

Most of these sellers are much smaller than the brand names you see in supermarkets, and also much newer. Spigen, Anker etc. don't have the same sentimental decades long attachment that Kellogs, or Pepsi have with consumers either.

> Until the second part of OP's story happens - which is the competitors die off and then Amazon jacks up the prices.

Whenever some disrupter comes into a market, you always see some people saying this "just you wait, they'll jack up the prices sky high any minute now!!" and it seems to happen rarely, if ever.

For example, there are plenty of small towns where Wal-mart was able to dominate and drive out small mom and pop retail shops. I've heard plenty of complaints about that, but I've never heard anyone say, "...and then after they drove out all the little shops, the prices went through the roof!!"

> Whenever some disrupter comes into a market, you always see some people saying this "just you wait, they'll jack up the prices sky high any minute now!!" and it seems to happen rarely, if ever.

It's happening at Amazon. When they started, their prices were often much cheaper than physical retail. Now they're about the same, and sometimes outrageously higher.

> For example, there are plenty of small towns where Wal-mart was able to dominate and drive out small mom and pop retail shops. I've heard plenty of complaints about that, but I've never heard anyone say, "...and then after they drove out all the little shops, the prices went through the roof!!"

I doubt Wal-Mart makes pricing decisions like that at the store level, so your example doesn't really hold up.

> It's happening at Amazon. When they started, their prices were often much cheaper than physical retail. Now they're about the same, and sometimes outrageously higher.

I'm curious if you have any examples. I have been very happy with Amazon. Even though every now and then I look up competitor's prices and selection Amazon is usually better at one or both. When they aren't it's not by a lot.

Many people in this thread have complaints about Amazon but my experience has been great so I'm wondering where the disconnect is coming from.

> I'm curious if you have any examples.

Different poster, but just this morning I was looking for a simple non-smart grounded switch with a physical on/off button in Canada.

Amazon has a couple I could find:

Belkin for $21: https://www.amazon.ca/Belkin-F7C016q-Conserve-Power-Switch/d...

Leviton for $14: https://www.amazon.ca/Leviton-1470-W-3-Wire-Grounded-Switch/...

Local Rona store has the Leviton for $5: https://www.rona.ca/en/plug-in-switch-125-v-white-01815677

> I'm curious if you have any examples. I have been very happy with Amazon. Even though every now and then I look up competitor's prices and selection Amazon is usually better at one or both. When they aren't it's not by a lot.

This is what did it for me:

https://www.amazon.com/Philips-Hue-Ambiance-Equivalent-Assis...

https://www.homedepot.com/p/Philips-Hue-White-Ambiance-A19-L...

https://www.bestbuy.com/site/philips-hue-white-ambiance-a19-...

All $29.99. A couple years ago I was buying a lot of these in ones and twos. I was also also having a lot of trouble with Amazon Logistics messing things up (and Amazon refusing to allow me to "deprioritize" them, so I could get my package through another carrier with fewer issues). That struggle lead me to take another look at local retail, and removed my illusions about Amazon's automatic superiority. The local stores have most of the same items, for the same price, and available more quickly without shipping delays. They also don't have the fake-review fueled counterfeit problems that Amazon has.

As I've learned more about shopping at local stores, my Amazon use has been reduced to items that are only available on it or that I don't know where to find elsewhere.

The troubles don't show themselves on the consumer side, they show up on the labor side. Monopsony makes it hard to find competing job offers when all the competing stores have been closed.
Oh, that's a good point. I've often thought that the reason unions are so important is that employers bargain collectively by default because, well, companies are groups of people, not individuals.

On the other hand, IIRC studies show that larger companies pay more than smaller ones, and I think there have even been suggestions that this explains some of the GDP per capita differences between developed nations, that some have more large companies that are then more productive due to economies of scale and specialization.

I can't speak to mom and pop shops in small towns. I think while the concept is the same, this would be more along the lines of the town opening it's own discount store and putting the mom and pops out of business.

But I can attest to 2 products I've ordered yearly for the past 3 years, increase in price about 10% each year. The diversity of competing products has decreased substantially.

I think the problem (for consumers) is usually the lower selection. Walmart focuses on the best sellers in any category, and the "long tail" that specialty stores can provide goes away.

(Well, that and the problem that Walmart sometimes drives out all the mom and pop shops and then closes the Walmart a few years later, leaving the town with nothing but the next closest Walmart 30 miles away.)

Redbox has done this. I mean, they're still cheaper than Blockbuster ever was for a "new release" movie. But they have just about doubled their price.
Instead, Walmart's quality went down the toilet.
I don't think this is accurate even for the brands you listed. spigen and anker are consistently the most recommended brand even by relatively tech illiterate youtubers. they've built up some trust with me and I've only owned one spigen phone case for my nexus 6P - if I see someone complaining about a generic powerbank/case I recommend anker/spigen respectively and tell them to check out whatever content creator(youtuber or tech site) they trust to see a review of it
I just have a hard time picturing the dystopian world where everyone walks around with figurative chains around their neck, working lifetimes of drudgery, because we let Amazon finally get monopoly power in all the stuff they sell and we have to pay double for our pens, notepads, backpacks and soap. And not a single company is popping up to reap the profits of selling a comparable item at a price that by construction of this scenario could be well below Amazon's but well above the cost of production.
The second part of the theory has been the hammer dropping for 15 years.

Amazon makes no money in retail to drive out competitors and when that day finally happens! Just you wait! The prices! I'm still waiting. The ride has been beneficial so far.

The stock market has priced in those future increases in the present day inflated stock price. That's a pretty decent indication.
The stock market isn't psychic. They believe all sorts of irrational things and are perfectly capable of being turkeys who vote for Thanksgiving. Price raising on commodities hasn't worked out all that well in general. While the network effect helps it isn't omnipotent. People are already returning to brick and mortar for better prices.
Companies don't jack up prices anymore. They lower their costs (ie reduce labor). It ends up inore profit and doesn't set off alarms at the FTC, which looks for harm to the consumer. Monopsony has been shown to reduce wages[1].

[1] http://journals.sagepub.com/doi/full/10.1177/000312241876244...

Sure, it's pro-consumer. But it's anti-producer. Why shouldn't we care about those externalities?
Nah, this is no different from what brick-and-mortar retailers have been doing for decades.

Buying private-label items in supermarkets over name brand has been recommendation #1 in personal finance circles for at least as long as I've been alive. Hell, some private label products are better than brand... I'll go out of my way to buy Kroger's private label ice cream and sodas.

And it's not just food. Half the stuff you see in Walmart is private label, including clothing and pharmacy products (and I've found that I actively prefer their private label sleepwear over name brand). And whenever I buy OTC meds at CVS, of course I always take the private-label bottle, which has the same ingredients yet is half the price.

> I've seen this happen in a couple product lines over the year and is one reason we pulled off Amazon

Oh, I see. You have a personal financial stake in spreading FUD against private-label brands because you operate a name-brand business.

> The problem with this is that it's built in the backs of brands who were at one point well recognized brands on Amazon. Amazon took their sales data, determined it was a good market to move into, created specifications and reached out to their hundreds of sellers for a "private label opportunity".

I believe Costco (Kirkland brand) and likely Amazon also contract with one of the major brands (e.g., Tide detergent) to make a store-label parallel product with perhaps slightly different formulation, but often the exact same formulation. The name brand saves on their marketing costs and sells at higher margin, Costco gets a great product they can sell to customers for less than the competition, and customers willing to trust the Costco "Kirkland" brand save a lot of money ... it's a three-way win.

From https://www.wideopeneats.com/store-brand-vs-name-brand-why-k... ...

    >> It’s a common misconception that the generic is made from a cheaper brand.
    >> Sometimes the generic is made overseas with inferior products, but a lot
    >> of Kirkland Signature products are actually the exact same product as the
    >> name brand product.  ...  Sometimes, they’re even manufactured in the
    >> same facility!
I've bought a few Amazon-brand products, e.g., USB cables, backpacks. The Amazon Basic backpack is quite good quality, seems very similar to the Targus brand backpack designs, and handles some decent abuse.

EDIT: backpack experience

The thing I suspect about Costco Kirkland brands is that even if the same maker makes the item, Costco often elects to upgrade the quality in some way. Especially in ways where the maker could do, but doesn't for market reasons on their general line of goods. In a similar way, a lot of supermarket generic goods have some sort of minor downgrade in the quality of ingredients to differentiate with the original makers product.
>The problem with this is that it's built in the backs of brands who were at one point well recognized brands on Amazon. Amazon took their sales data, determined it was a good market to move into, created specifications and reached out to their hundreds of sellers for a "private label opportunity".

It's different imo. They see what private label products sell on FBA (and the specs they need to fulfill), and then can just negotiate better deals from the same suppliers, because most FBA sellers ship straight from chinese factories to Amazon warehouses it's no secret where it's coming from. And for many product categories there aren't that many high quality factories anyway.

The important part are the specs and quality of the product, if you don't specify and interact with the factories, you'll get crap, if you spec by focusing on the wrong things you pay too much and still get crap. The FBA sellers are basically just testing the right mixture until Amazon steps in adopting their formula. A successfull low cost product is just that, a good enough quality at an as low as possible price.

that's how competitions work....in your second part, some other people who can make the stuff cheaper will just come onto amazon's platform, preventing the price from going up.

If you're looking from a supplier side, yeah this business is bleak. But keep in mind someone will always accept a lower margin, run the same business more efficiently, or can produce your goods at a lower cost.

Just because you guys can't stay in the game, doesn't mean the game is broken. You got beat by open competition.

There's definitely something to be said about economies of scale and efficiency.

But I'm talking about design and product expertise. People sourcing knockoffs can create a cheaper version 1 of a product, but only a brand connected to it's customers will use their feedback for version 2, 3, 4, n+1.

I'm a little insulated in the food niche because product quality and freshness and expiry dates are huge risk factors, but this applies to other industries as well.

You can buy a knock-off Amazon branded chain lubricant from China that lists the same ingredients if you want, and it may work well in low impact situations. But for my motorcycle, you bet your ass I'm spend 2-3x the lowest price I can find on Amazon for a well known brand with a reputation and uses quality inputs and filters and has no additives. When my health is on the line, brand expertise is essential.

Same with food. There's a floor for quality, and you can't escape the value trade-off. Something being cheaper doesn't mean it's quality is unaffected, but the short-term, inexperienced people at Amazon don't care about that.

I can buy and sell our "product" at half price by buying last year's crop or a lower grade, and I can sell that garbage exclusively through Amazon and "win" the completion, but nobody really wins in that case - me or the customer or our competitors - only Amazon.

How is that different from large supermarkets determining own-brand cereal and peanut butter are good markets to move into?

It's just capitalism at work. Yesterday's high-quality high-price item becomes today's low-priced low-quality commodity. Quality-focused small brands in every industry and every market need to be constantly improving, developing new product improvements, new niches, new products. (E.g. an even-higher quality version for the luxury niche.)

It's extremely unlikely that Amazon will be be able to raise prices long-term on an own-brand item with "no competition" simply because... well, capitalism. As soon as they do, manufacturers in China or whoever sells the equivalent product at Wal-Mart will list on Amazon for a lower price and make money... so Amazon lowers the price again... and as always, the invisible hand of capitalism keeps prices low for the consumer.

I think it's different because of intent. Supermarkets and large retailers (e.g. WMT) seek deals to relabel and sell products as "house brand" but it's generally done in such a way that they are selling to customers who would not have purchased the name brand in any case. That's the pitch anyway, and judging from the longevity of these arrangements it's likely that the "name brand" is seeing enough benefit to continue in that way. The two entities seem to find a way to balance their interests.

With Amazon, I don't think they are seeking that balance at all. I do not think it's a good long-term move for their retail side. The problem with stabbing all of your friends in the back is that you also have a back.

> they are selling to customers who would not have purchased the name brand

When I was a kid, the supermarket had an isle named "generic", and all the generic stuff was relegated to that isle and came in plain yellow packaging. Back then, I would have accepted that they're not selling to the same customers as the name brands.

Today, store brand stuff at the supermarket is sitting on the shelf right next to the name brand stuff, with intentionally similar packaging. They are absolutely competing with the name brand stuff. And thats true at Home Depot and Walmart and Costco and everywhere else I shop that has a mix of store-brand and third-party brand stuff.

Of all the places I shop, Amazon is the only one whose store-brand is plainly labeled as such, and I give them kudos for that. Some places like the grocery store and Costco have a single store-brand, so you don't have to work too hard to figure out whats name brand and what isn't. While yet other places have several store brands that aren't really marketed as such in an attempt to confuse you into thinking you're getting a name brand (plumbing and electrical fixtures at Home Depot and Lowes is where I've seen this most rampantly)

You are correct that more stores are mixing their house brand in with "national" brands (or whatever term you want), and that stores have discovered the good ROI that comes from upping their house brand game (which is the point of the linked article).

I want to add that there is a hidden benefit for name brands to having the house brands there, at a lower price point. There's plenty of fascinating reading on "price positioning" and how having a lower house brand right next to the national brand results in increased sale of the national brand.

My main point was that I don't think Amazon sees its relationship with vendors the same way that older retailers do. WMT has a deserved reputation for being very aggressive with their suppliers, but I believe that their culture still sees the relationship goal as win-win (they would argue that they are helping their suppliers achieve better efficiency, or often licensing the national brand's stock to make their house brand so more sales for all). I know nothing about Amazon's buyer culture, but their own brand activity does not seem to give much consideration to supplier health.

It's also interesting to note that their own brands are immune to the commingling problem, which gives them a perverse incentive to let that problem ride. That makes me very uncomfortable.

> ...they are selling to customers who would not have purchased the name brand in any case... it's likely that the "name brand" is seeing enough benefit to continue in that way. The two entities seem to find a way to balance their interests.

I'm sorry but I just can't buy that. Generics in the supermarket and drugstore (at least the ones I go to) are directly next to the name-brand and clearly compete directly. There's no "arrangement" or "balancing of interests" between the two, any more than Coca-Cola and Pepsi have an arrangement or balance of interests to appear on the shelf next to each other -- which they of course don't, but rather are in cutthroat competition with each other, the same way they have been for decades.

It's flat-out competition pure and simple, there's zero difference of intent from what Amazon is doing. And both survive, because some people prefer to pay a little extra for name-brand or quality, and some people prefer to save a little money and trust generics. The only balance is between pricing and demand.

> I'm sorry but I just can't buy that. Generics in the supermarket and drugstore (at least the ones I go to) are directly next to the name-brand and clearly compete directly.

Many store-brand generics are manufactured by the exact same company that manufactures the name brand. The arrangement works because the manufacturer know that some consumers are cost conscious, some are brand conscious and willing to pay more. If they lower the price of the name-brand to get the cost conscious consumers, they lose out on the name brand markup. The solution is often two slightly different brand from the same company at different price points. For this to work, it's important that the store brand packaging have zero connection to the name brand.

Costco is especially known for doing this. IIRC, Kirkland batteries are probably Duracells in different packaging.

tivert's reply is correct, and WMT does it on a surprising array of goods. The most visible example is "Great Value" frozen pizzas, which are produced by the same company that makes and sells Red Baron. Cost conscious consumers buy GV, brand conscious consumers by RB, both companies make money.
The invisible hand of capitalism works slowly. The fingers of the invisible hand are unhappy consumers communicating their demand; the thumb is holders of capital hearing it and building better products. This process requires time to communicate that information and time for new suppliers to enter the market, and in the meantime consumers are unhappy and existing suppliers aren't making as many sales as they could.

The invisible hand corrects mistakes, but that's no defense of making mistakes.

Well, maybe, if we judge that Amazon does not exercise monopolistic control over online retail. But a lot of people are going to never look anywhere besides Amazon (gotta take advantage of that Amazon Prime subscription, of course) and just buy the product and not know that a lower-price option is available.
If they start raising prices then others will be able to re-enter the market and compete.
The way this system works is not normal brand vs. brand competition, it's the sales channel (distributor) which starts to compete with the established supplier.

This is what creates the imbalance in the competition. The distributor uses a private-label to bundle the sales of a lucrative product-tier that is sold across multiple brands in his channel into a single in-house brand.

For the original-brand to enter this channel again after it has left, it would have to be _cheaper_ than the private-label (to exceed the profit the channel makes with its private-label product), or prove that it can sell MORE VOLUME than the private-label for whatever reason (=more profit for the channel).

Unfortunately for both cases the brand is entering at a steep disadvantage, because it would have to finance its own brand to overpower the brand of the private-label, market their product to push sales, yet sell-in at a lower price, and even rely on the very same brand it now competes with (100% of the channel customers are shopping there because of the channel-brand).

At this point in the game, creating consumer-value becomes a niche-topic, because the barrier is now to create more profit for the channel, otherwise he will not allow you to reach the consumer...

That's one of the reasons why we keep seeing an increase in own-brand stores of major companies. It's the lack of "brick and mortar net-neutrality"...

Why would anyone enter the market knowing that Amazon could put them out of business again quickly?
Because that's how capitalism works? Walmart still has plenty of competition despite their giant purchasing and pricing power.
Should own brands be banned to avoid monopolistic behaviours?
My understanding used to be that it's OK if one company has a natural monopoly, but it's not ok to leverage that monopoly to gain an unfair competitive advantage in a different area. That was the rationale for the antitrust suits against Microsoft in the 90s: being the natural OS monopoly was OK, but they couldn't leverage that position to be the natural browser monopoly, too (which they did anyway, but whether the sanctions against them worked is a separate topic).

So, I would think the same would apply here: it's ok that Amazon has won a monopoly as a retail channel, but starting to leverage that to sell their own goods should be against antitrust laws. However, it seems that in the last 2 decades the only thing that courts have considered is "is the price lower for the consumer", so most antitrust laws appear to have been eviscerated in any case.

That seems a bit all or nothing. It could be worth considering if someone has monopolistic power (or some oligopoly) in one area such as distribution of products, any product business must be run separately via Chinese walls or just not allowed.

People seem to forget a fundamental part of capitalism is that government should intervene to maintain a level playing field. Then...what defines a level playing field..

That's fair, but Amazon has only a small % of total retail sales (4% in 2017, according to a quick search). I'm not sure at what point it's commonly assumed that a company has monopoly or market power, but I'm pretty confident it's not 4% or even close to that.

edit: another quick googling says that US courts apparently almost never conclude a company has market power if they have less than 50% market share: https://www.repository.law.indiana.edu/cgi/viewcontent.cgi?r...

Amazon is still growing at a good clip but I'd be really surprised if they were able to pass even 20%, let alone 50%.

I'm not sure that's a super meaningful distinction for market power. It's a different method of selling, but ultimately you're selling largely the same things. You probably wouldn't separate out "Ford has this much market share in dealerships vs online sales" most of the time, for example.
Well, I suppose that's the key question. But I think that yuo might argue it is, because there's a huge "long tail" of goods that you can only really hope to sell online.
It is. Monopolies only exist within context. Zero to one has a good section on this.
Much of this strategy was developed by Wal-Mart.
That's an interesting take but I think there's a bigger problem. Because of how they handle inventory, buying the Amazon brand of something is the only way for me to know that the item I'm buying is the item that I ordered.
Netflix is doing the same thing with tv/movies.
“Star Trek abundance” is coming ever faster, but the transitional period will be painful for many. Let’s hope to make it brief.
Citation needed. As far as I can tell, post-scarcity is almost fundamentally unachievable; and, at best, achievable with technology that today's eyes would confuse for magic.
Seems like it's more an economics issue than technology. We're already most of the way there as seen by the sheer quantity of throwaway product - where it's cheaper to make another than allow repair and maintenance. (I'm ignoring DRM on repairs - that's a different issue).

We could probably have post-scarcity as Keynes envisaged right now if we hadn't created rampant throwaway consumerism along with increase in capability post WW2. The moment an issue is "solved" fake problems will be invented to sell a needless alternative. e.g. The creation and marketing of liquid soap that's worse in essentially all respects to bar soap, or the whole creation of body and looks insecurity to sell a cosmetic or cream.

So, surely in x years when technologically we're able to achieve post-scarcity it'll just spawn another fake solution to another fake problem? Another reason to keep working 40 hrs instead of dropping to 20.

Maybe it can truly appear after World War 3, the banking and finance wars.

You're thinking solely about materials, and thusly forgetting about energy. (So did Star Trek, I reckon, but I degress.)

Humans require a timely supply energy to live and act. Converting energy into human-usable form, requires energy. Recycling and remanufacturing require energy just like mining and "unsustainable" manufacturing do. And even renewable sources can collectively provide only a finite amount of energy per unit time.

> best achievable with technology that today's eyes would confuse for magic

That's a pretty low bar, isn't it? Show an iPhone's capabilities to, say, a WWII soldier or industrial revolution textile worker, and they'll deem it pretty magical.

The revolutionary war was 250 years ago which seems to reinforce the parent's point. That's several generations of human beings and outside of the lifetimes of ourselves, our children, almost all our grandchildren and many if not most of our great grandchildren.

Electronic computers were being built in WWII and television existed. I doubt many would see an iphone as magical.

Sure, but an iPhone isn't really a step towards a post-scarcity society. It's an entertainment device, for the most part.
Show it to the people who designed the PDP11 at the time they designed it, and chances are they won't.

The uneducated masses of soldiers and workers are much easier to dazzle and fool than technical personnel; and I apologize for not qualifying my previous comment enough to convey the idea that the Star Trek replicator, if it were to exist and be transported to the present day, would indeed be magic to any sane scientist or engineer.

To impress the people who designed the PDP11 at the time they designed it, you better just tell them we still use C and UNIX.
The uneducated masses of soldiers and workers are much easier to dazzle

Time Traveler: look at this iPhone!

WW2 soldier: that’s a flimsy looking walkie-talkie, wouldn’t last a day fighting the Waffen SS. Do you mind? I got work to do.

Superficial; after, at worst, a brief demonstration, a stereotypical Nokia would elicit a different response.
Maybe GP here's phrasing didn't communicate the idea well, but just because one item might be seen as magical to some particular people doesn't mean that anything we might see as magical is possible.