In 2018 Amazon started changing its algorithms for organic search results and the searches were designed to prioritize profitability. These changes reportedly came as a response to the demands made by the private label team and the retail division of the company.
In fact, Amazon was reported for aggressively pushing its private-label brands, which was estimated to generate $7.5 billion in sales in 2018. Amazon promoted its own products within searches.
Amazon denied this practice and, Amazon’s spokeswoman, Angie Newman stated that the company uses a large number of metrics to test out new features, and this includes profitability. The company looks at how new features affect customer experience, and the changes made on the search engine aren’t based on a single metric alone.
Amazon’s private brands quickly became a major threat to third-party sellers on its platform, increasing from about a dozen brands in 2016, when some of its products began taking the lead in key categories like batteries, speakers and baby wipes, to currently more than 135 private label brands and 330 brands exclusive to Amazon.
In a detailed BSR study at DataHawk, we saw how Amazon private label electronics brands have been dominating the ranking in the “electronics” category. With many devices that feature in the top-selling products list such as Fire Stick, Kindle, Echo, Amazon have become the third best-selling electronics in the U.S. in 2018 according to Euromonitor.
The most known products of Amazon are Amazon Echo and Kindle, however, the company has also invested a lot in developing new products and private label offerings. Today there are dozens of different products owned by Amazon, a few of which have seen success.
The changes in the algorithm were designed to help increase the sales of Amazon products. It is important to understand that Amazon is a large marketplace where other companies sell their products, but it’s also a store that sells its own products.
When checking out a product listing on Amazon, there are always multiple merchants that are directly competing to make sales. It has been previously reported that Amazon might have favored its private brands in suggestions and automatically chose them when someone would add the products to their basket.
So, to get products from other merchants, the buyer would have to scroll down to find the items they need. Also, private brands featured by Amazon were seen in search results through its “Top Rated From Our Brands” widget.
If you had also noticed, Amazon search results till very recently were overwhelmed with promotions for their private-label brands, like Amazon Basics, Mama Bear or Daily Ritual, which is in a phase of change. Previously, the companies were required to pay Amazon to feature their products in search results, but this was available in exclusive deals only with large companies. To many, this was a big issue from the very start. Amazon private label brands always had an advantage, as they had a dedicated widget of their own.
However, the company’s strategy wasn’t all that effective, and they didn’t get the increase in sales that they were hoping for.
Big brands started parting ways from the platform
For the reasons above and many other similar moves by the company, some big companies decided to move their products elsewhere. For example, in November of 2019, Nike decided to stop selling its products directly to Amazon. The two companies worked together for two years before this happened. A lot of companies feared that the marketplace would rather allow counterfeiters to sell their products and that would fill only Amazon’s pockets.
Amazon’s aggressive marketing of its own private brands, with ads that often appear in search results above listings for competing items from third-party sellers, had sparked debates about antitrust issues. The company thus started to remove more obvious promotions of its private-label brands, including banners.
Elizabeth Warren, a Democratic primary candidate from Massachusetts said that her goal is to stop the dominance of major tech giants in the US. Amazon clearly favored its own products, which is evident from the sheer number of products sold on the platform. This could lead to drift between Amazon Marketplace and Basics and eventually affect acquisitions including Whole Foods and Zappos.
Amazon’s plans for the future
Also, Amazon’s private label products accounted for approximately 1% of its total sales. Even though the company is no longer promoting its own products, Amazon is still looking to grow its offering. Many agree that the company is testing out different options.
Amazon has tried to take some serious measures to treat the antitrust scrutiny by getting rid of its price parity requirement for third-party sellers. However, it’s evident that Amazon can remain profitable and increase income through various other sources and that they have time to figure out what to do with their products.
Let’s wait and watch what happens in the future….
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