Amazon Private Label: Amazon-Owned Private Label Wants To Steal Your Business

Uber, the largest taxi service in the world, does not own a single vehicle. Netflix, the largest movie distributor in the world, does not own a single cinema. Airbnb, the largest real estate service in the world, does not own a single property. You can think about Amazon Private Label in a similar way: it allows store owners to develop a brand without owning the manufacturing and logistics.

Amazon is the largest ecommerce company in the world. They sell big-name brands along with private label products from small, growing businesses. However, they have also started to create their own private label products, which have begun to receive favored visibility for high-volume product search terms.

Merchants and store owners are growing worried Amazon will transition from a platform to sell their products into a competitor outselling their products. We’re going to show you the increased risk in selling Amazon private label products and why you should open your own ecommerce shop in order to diversify away from Amazon and grow your customer list—before you’re the next seller Amazon throws out to the dogs overnight.

What is a “Private Label Product” and what is “Amazon Private Label?”

The idea of a private label product is simple. You purchase generic products that are already selling well and remarket them under your own packaging and branding. For example: if yoga mats are trending, you can private label a yoga mat and put your brand's logo on it.

To create a private label product, all a merchant has to do is find an already existing product (ideally, one that's selling well) on Amazon and create a unique version of that product. Once a merchant contacts a manufacturer to create this product for them—preferably in bulk at a low cost—they can launch it on Amazon.

Amazon FBA saves shop owners from spending hours sourcing warehouse space, packing products, shipping products, processing returns, and more. They also allow owners to ship their inventory to an FBA warehouse, where Amazon will conveniently store their products. Amazon packages and ships those products. Although Amazon FBA is a helpful resource for offloading the logistics of your business, merchants have to invest a considerable amount of capital in purchasing their products from the manufacturer. For example, let's say you were trying to sell a women's facial moisturizer. You may have to invest anywhere between $10-$20 per unit to gather your initial inventory and send it to Amazon FBA to handle the fulfillment. If you’re curious about the costs of using Amazon FBA as your fulfillment source, this guide breaks down all of the costs you should anticipate.

A quick recap:

  • Private Label Products are generic goods sourced from a manufacturer under a new brand (or label).
  • Amazon Private Label is when you sell existing products of your choosing under your own private label brand.
  • “Private Label Products” and “Amazon Private Label” aren’t too dissimilar.
  • Amazon FBA is a program to help with fulfillment of Private Label products.
  • Merchants should expect a substantial investment cost with private labeling in order to manufacture and buy the initial inventory.

Why Amazon Private Label Can Be Bad For Your Brand

Amazon is the third-largest retailer in the U.S.—they control a large portion of online American retail, and are the only ecommerce platform on Business Insider's Top 20 list of the largest retailers across the country. Those rankings have not shifted much over the past several years—aside from Amazon's, which continues to climb the list. Competitors (like Walmart or Target) are starting to model their strategies after Amazon due to their ability to capture market share and grow at such a rapid pace.

Amazon has ramped up the search visibility of Amazon-owned private labels in the last few years. Their product lines are challenging big-name, established brands in every category, from diapers to mattresses.

One of Amazon’s key approaches in their private brand development has been to target heavily controlled niches by third-party sellers with little first-party presence. In 2009, when AmazonBasics launched, it focused on generic electric necessities like charging cables and batteries. At the time, those products were only available by third-party sellers (merchants). Amazon in essence squeezed out their third-party sellers in favor of selling their own private label products. The way they did this is by favoring the Amazon-owned brands in search results and using sales data to their advantage in early stage product development. If you think this feels like an unfair advantage for Amazon—as it favors the use of internal sales data and free advertising towards Amazon-owned private label brands—you’re right.

Amazon sells two types of house brands: private labels and exclusive brands. Private labels have "Amazon" or "Prime" in their brand name like AmazonBasics. They are owned by the retailer. Meanwhile, Amazon-exclusive brands are advertised as "Our Brands." Lately, Amazon has significantly increased the number of exclusive, private label brands on the site. There are currently over 120 Amazon private label brands and 150 Amazon exclusive brands, which is more than a ninefold increase since 2016. Brand names like Arabella, James & Erin, and Lark & Ro appear to be independent but are secretly members of the Amazon Basics brand under a different label to make them appear more premium.

These strategic moves and the increased growth of Amazon is leaving merchants who use only Amazon to sell their products worried that they are going to be competing directly with Amazon’s own private label products (in essence, directly competing with one of the world’s largest retailers).

To help combat these fears, Amazon launched an accelerator program for third-party sellers, which helps founders create private label brands to be sold exclusively on Amazon. But even with the accelerator program, there is still a feature that promotes Amazon’s brands at the bottom of competitor listings, which means that their own products are getting favored in terms of exposure across the site.

For example, these brands are listed higher in search results under a box called “Top Rated From Our Brands.” And more than two-thirds of product clicks happen on the first page of Amazon search results. One-third of sales occur within the first two recommended product rows displayed, in which Amazon favors their own brands.

Once Amazon decides to get serious about a certain category, they become a major competitor. This is why even large merchants who sell on Amazon are worried about the retailer entering their space and outselling their smaller, niche brands.

For Amazon, owning the private label brand benefits them by expanding their product selection and giving them better profit margins. Subsequently, they encourage big brands to cut their prices to stay competitive, which helps customers save money, but can be detrimental to the merchants who have additional expenses Amazon does not have, like a retail location. By 2022, SunTrust expects Amazon’s private label business to generate 7.5 billion dollars in sales.

One major category Amazon has been advancing towards is the evergreen CPG (Consumer Product Good) category. For example, recently they have been creating private label products in the health, wellness, and beauty industries. Amazon even launched their own beauty brand, Fast Beauty Company, which includes face masks, eye creams, false eyelashes, and makeup removing wipes.

Amazon also acquired PillPack for roughly $1 billion in 2018. PillPack is an internet pharmacy company that is licensed to ship in 49 states. It organizes and delivers packages with a specific amount of medication that patients are supposed to take at indicated times. This caters to customers with multiple chronic conditions who need help sorting their prescription medications. Amazon already sells over-the-counter drugs with Perrigo and has obtained pharmacy licenses in a few states. Their additional partnership with PillPack is another step into the OTC (over the counter) and potentially prescription drug marketplace.

Succeeding with Amazon Private Label can take a considerable amount of time and effort. And due to the risks new merchants (or merchants new to Amazon) are seeing with these Amazon-exclusive brands, they are wondering whether investing their time into becoming a successful Amazon Private Label business is worth it. The more private label products Amazon owns and advertises, the harder it will be for merchants to make a profit from their own private label products.

Amazon is the largest ecommerce marketplace, and judging by their performance numbers, one of the most trusted online retailers:

  • 47% of US internet product searches happen on Amazon. Only 35% of searches occur on Google now.
  • As of February 2018, the most popular method among digital shoppers in America is searching and buying on Amazon (41%). The second-most popular method is searching on Google and then buying on Amazon (28%).
  • Google had a 54% share of product searches in 2015 while Amazon had 46%. These figures were reversed by 2018.

Therefore, it's important to consider your product category niche and whether it's a product search that is Amazon- or Google-dominated.

Why consumers love buying on Amazon

Amazon makes it easy for customers to research and compare prices, add items to their cart, and check the delivery status of their purchases. Shoppers have a quick, easy time checking out because their credentials are conveniently stored under their account. They only have to type their home address and credit card information once. These features have accelerated the amount of purchases happening within Amazon versus other online retailers. A high percentage of Americans return to Amazon because they have an easy checkout and a brand name they already trust to deliver fast, high-quality products.

Amazon has a high degree of niche product competition. When customers search for a specific type of product, say “AA Batteries,” they will be met with hundreds or thousands of results. These results consist of various third-party merchants competing against each other.

This has caused Amazon to be used as a consumer product research resource, which means Amazon shoppers searching for products typically take longer to complete their purchases than shoppers on Google. This is because of the number of product and pricing options they have available to them. On average, it takes a customer 25.9 days to purchase on Amazon. Meanwhile, it takes customers 19.6 days to make a purchase on Google.

Understanding the Amazon A9 algorithm and SEO basics for Amazon

Customers need to be able to find your products before they can buy your products. Unfortunately, there are increasing levels of difficulty around Amazon Search Optimization. A9 is a subsidiary of Amazon that develops the company’s search engine relevance, ranking and advertising technology.

A9 operates on a “simple” keyword search method. This means it does not always pull up products that match closely to the search term. The program gets occasional updates, but without any announcements regarding the details of those updates, it makes it impossible to tell how often changes occur and what they will affect.

The A9 algorithm had previous functionality that would pull up exact results for common misspellings of product names. However, updates to the algorithm have allowed misspellings to produce related results. It includes variations of names, which means typing in "multivitamin" with or without a space will produce similar results.

Merchants who sell private label products need to be careful with the way they list their items because their titles will directly impact the algorithm. In fact, the product title is the part of the listing that will have the greatest impact on search performance. It should include a product line, key feature, color, and size along with additional target keywords. Keyword choice—and keyword order—can either positively or negatively influence Amazon product ranks and sales.

Organic results typically have between 115-144 characters in their Amazon product titles. Rail ads have 30-33 characters. Mobile ads have 55-63 characters. The most relevant keywords should appear first because the algorithm correlates higher relevance with keywords that appear earlier in the title—and because you want customers to know exactly what you are selling.

In the past, “keyword stuffing” titles was a common strategy for making a product appear in result pages more frequently. However, the same tactic could result in an adverse impact to sales now that both shoppers and Amazon are wise to the technique.

It is better to craft a title that reads naturally. Break up phrases with special characters. Whatever important keywords cannot fit into the title should be worked into bullet points presenting product features. These words will be indexed by the A9 algorithm to identify a product when customers use the search bar. This can influence conversation rate and product relevance.

Product descriptions are also indexed. Strong, well-written copy with a call to action will impact visibility and effect conversions. Keyword stuff any leftover descriptions in the backend search terms, which are invisible to customers but get indexed, like bullets and descriptions. You could also drop misspellings and words used in your niche into the backend search.

Until you have your own product data to learn what appeals to your customers and what drives them away, you should see what is currently working for your competitors and try to replicate their approach to keyword placement.

There's a significant investment of time required to succeed on Amazon’s platform. However, on an ecommerce site builder like Volusion, built-in SEO tools help grow sales and reach more customers through multiple organic search channels.

Here are a few tips to strengthen your SEO on Amazon:

  • Use fulfillment by Amazon. Their items rank higher than items fulfilled by a merchant.
  • Use brand names in your product listings. This can help increase Amazon search rankings.
  • Create product descriptions that tell a story (maximum character limit). Pair them with professional photography.
  • Do what you can to get honest and unbiased Amazon reviews as soon as possible so buyers know it’s safe to spend money on your product.
  • Create a clean, high-quality product and brand design.

Increasing your Amazon SEO efforts can take time and skill—and money. It can be difficult to sell a private label product without having money to invest upfront. Higher conversation rates have been correlated to products with professional photos of the product instead of stock photos or photos stolen from competitors. High-quality product packaging and design is also important, which merchants will need to pay to have designed and developed. Merchants will also need to test product samples in order to assure they are selling quality products their customers will be satisfied with.

When using Amazon private label, you may have great success if you do enough research and have enough insight—but you have to consider the above risks. Amazon’s exclusive brands are becoming preferred in product search. The A9 algorithm requires time to master and produces unreliable results. There's also a risk that Amazon’s own brands will take over the site and leave merchants with small profit margins, which seems to be the direction in which the retailer is heading.

How can sellers reduce vulnerabilities like what’s happening with Amazon and merchants?

Instead of only selling on Amazon, sellers can build their brand equity and product sales opportunities with a multi-channel marketing approach; for example, using print ads, promotional events, a dedicated website, an email chain, and word-of-mouth to increase engagement, retention, and revenue.

Open your own ecommerce store

Sellers do not have to rely on Amazon for their income. They can create their own independent ecommerce store and invest time into owning an independent brand that has less risk of competing directly with Amazon.

Here are some tips on moving traffic from Amazon to your own ecommerce store:

  • Provide customers with reliable, high-quality products. Once they trust you, they are likely to search for your brand on Google, where your ecommerce store will appear.
  • Place information about your brand and the location of your website in each of your product descriptions on Amazon.

Combine efforts of being a successful Amazon Private Label business along with your own ecommerce store. Market your store with traditional SEO on Google, along with paid advertising on Google, Facebook, and Instagram.

Instead of just using Amazon, try Google PPC

Google PPC (pay-per-click) is a model of internet marketing where advertisers pay a fee every time a potential customer clicks on an ad. It buys qualified visitors to a website instead of earning them organically. Search engine advertising allows advertisers to bid for high placement in a search engine’s sponsored links when someone searches a related keyword (for example, a product). This can result in a large profit margin when a merchant pays a few dollars for a click but makes a few hundred dollars in net profit on a sale.

Google Ads is the most popular PPC advertising system in the world. It allows businesses to create ads that appear on the Google search engine as well as other Google properties. Whenever a search is initiated, Google automatically looks through its advertisers and decides who receives the ad space based on the relevance of keywords, quality of keywords, and size of keyword bids. The two most important factors are the highest amount an advertiser is willing to spend (CPC bid) and the click-through rate and relevance of a store page (quality score).

With Google PPC, advertisers who optimize their campaigns for conversions are rewarded. They are charged less for ad clicks, which leads to even higher profits for their business.

Here are some tips for advertising with Google PPC:

  • Make sure your keywords are relevant. Research targeted keywords that will lead to a higher PPC click-through rate. Those keywords should be closely related to what your company is selling.
  • Split ad groups into smaller, more relevant groups. This will help create more targeted ad text,  improve click-through rate and allow you to test which ads are creating sales.
  • Make sure your landing page is persuasive with a strong call-to-action. Send different search queries to different product pages in order to boost or test conversion rates. Try not to send all of the traffic to the same page. Diversify your efforts.

Paid social media advertising is a way of boosting your website presence in third-party feeds and pages. Paid social media advertising can expand brand awareness, much like traditional online advertising with banner ads or mobile in-app ads. This broadens your potential audience pool, gives you a new avenue to reach new customers, and increases your engagement with calls-to-action that lead to your site.

With paid social media advertising, you can use demographic tools (like the ones located in Facebook's Ad Manager) to specify your audience by age, region, gender, and interests. This can help you target your ideal customer that you may have learned about through your Amazon selling efforts.

Which social media platform should you use to advertise?

  • Facebook (1.3 billion users). The main demographic is between the ages of 25-54. 60% are female. On Facebook, promoted posts are customizable. Advertisers can choose a target region by selecting a location, age range, gender, and identified interests. Once they determine budget and the maximum amount of time to run their ad, it will be promoted to a targeted audience.
  • Twitter (600 million users). The main demographic is between the ages of 18-29. Twitter allows advertisers to target their audience based on more than 350 interest categories. They can also target an audience based on who follows specific Twitter users or certain television programs. Like Facebook, they can also choose their daily and overall budget.
  • LinkedIn (600 million users). Its main demographic is between the ages of 30-49. LinkedIn allows advertisers to customize their target audience by industry, company, job title, or total employees. It allows advertisers to set budges from cost per click or cost per impression.
  • Pinterest (70 million users). Their main demographic is between the ages of 18-35, which are 80% female. Pinterest offers promoted pins for business accounts catering to a crafty, creative audience. They allow advertisers to pay for engagement or visits to their site.
  • Instagram (200 million users). Their main demographic is between the ages of 18-29. Instagram allows advertisers to create story ads, photo ads, video ads, collection ads, and carousel ads. They allow advertisers to choose an audience based on location, behaviors, lookalike audiences, and interests like apps they use, ads they click, and accounts they follow.
  • Reddit (542 million users). Their main demographic is between the ages of 18-29. Reddit works with companies of all sizes by running ads across their main site and official apps. They allow advertisers to target specific communities based on topics of interest instead of age or gender.

Multi-channel marketing tactics like the above should give you insight into transitioning part of your efforts away from Amazon. This can help you reduce the risk of your store being replaced or competing by Amazon’s own brands and potentially help you find access to more customers.

Key takeaways from this article

  • Being a seller only on Amazon is a risk because Amazon is becoming a competitor to its third-party merchants. There is a feature that promotes Amazon’s brands, in a preferred way, at the bottom of competitor listings. Not to mention, Amazon’s own private label products have generally more visibility across their site, taking over high traffic and high CTR real-estate. This means shop owners are competing directly against one of the largest retailers in the world and every sale is a customer Amazon owns, not you.
  • Amazon now has a high degree of niche product competition. Whenever a customer searches for a product, no matter how specific, thousands of results will appear.
  • Amazon encourages merchants to cut prices to stay competitive which is helpful for customers, but an issue for merchants who have additional expenses Amazon does not have. The more private label products Amazon owns and advertises, the harder it will be for merchants to make a profit from their own private label products.
  • On Amazon, the A9 algorithm will determine your relevance and ranking—but this algorithm is unclear to marketers. Sellers need to educate themselves on the keywords they should be using in titles and product descriptions because the wording will directly impact the algorithm.
  • Products with professional photos and higher quality packaging have higher conversion rates.
  • Increasing your Amazon SEO can take time, skill, and money. This means you may have to have more money to invest upfront than you may anticipate.
  • Instead of only using Amazon to get traffic to your products, shop owners can use Google PPC. Google Ads is the most popular PPC advertising system in the world. Pay-per-click marketing allows advertisers to pay a fee every time a potential customer clicks on an ad.
  • You can move traffic from Amazon to your own ecommence shop by placing information and links about your brand or website in each of your product descriptions on Amazon. You can also retarget existing Amazon customers on Facebook and Instagram using Facebook's Ad Manager. Each platform has its own specific audience you can target based on the audience who purchased from your Amazon store in the past.
  • Not investing your time towards developing your own independent brand and audience is a risk. Social media advertising can help you discover your ideal target audience. It can also help boost website presence in third-party feeds and pages.
  • Multi-channel marketing tactics will help shop owners transition away from Amazon. This can include print ads, promotional events, a dedicated website, an email chain, or word-of-mouth. These advertising techniques will reduce the risk of your store competing with Amazon—or being replaced by Amazon’s own brands.

Why spend all of this time being an Amazon FBA or private label business when you can spend the same amount of time developing your brand's direct audience? Create your own online store and take control of your success.