As Amazon Squeezes Brands, Could A Merchants' Revolt Against Be Brewing?
Amazon now appears to be exerting the kind of predatory monopoloist pricing power thatits detractors' have been warning against. Some merchants are exploring whether they would be better off without succumbing to Amazon's demands, despite its market dominance.
The question is whether defections could reach a tipping point that forces the ecommerce giant to change its behavior - or whether it will simply prevail by flooding the various product categories with its own, lower priced knockoffs. Either way, observers sense a class action lawsuit in the offing. JL
Jason Del Rey reports in Re/code:
Over the past few months, Amazon has applied pressure to consumer brands across product categories, seizing more control over what, where and how they can sell their goods
on the so-called store to take more control over the price of
goods on Amazon so the company can better compete with retailers. (And) Amazon is increasingly using the insights from the brands’ sales on
Amazon to create Amazon-owned product lines that get prime real estate on product search result pages. “I don’t think it’s a sustainable model. There’s a lot of great brands who can make that choice to leave.”
The next time you buy a PopSockets cellphone grip from
Amazon, be forewarned: It likely won’t come with a manufacturer’s
warranty — because it won’t be coming from PopSockets or one of its
authorized sellers.
That’s one of the trickle-down effects of a power move
that Amazon recently made against PopSockets and other brands that sell
their goods through the largest online store in the U.S. Amazon is
taking more control over where and how product manufacturers can hawk
their wares on Amazon.
It wasn’t always this way for PopSockets. For several
years, the company saw Amazon as an integral part of its business. The
startup, which makes popular circular contraptions that can be used as a
grip or a stand affixed to cellphones, sold its accessories at
wholesale prices to Amazon, which then sold them at retail prices to
Amazon.com shoppers.
But over time, the relationship with Amazon felt
increasingly one-sided, with Amazon often dressing up requests about
lowering prices or spending more on marketing as non-negotiable demands,
according to PopSockets CEO David Barnett.
“It often does not feel like human beings over there,”
said Barnett, who was careful to lay blame on the structure in which
employees on the Amazon retail team are forced to operate, and not on
the employees themselves. “It’s like a robot.”
Eugene Gologursky/Getty Images for Shorty Awards
Two months ago, the CEO had had enough: He decided that
his company was no longer going to sell its goods directly to Amazon.
PopSockets would still sell its gadgets on Amazon, but through a distributor called iServe, one of the largest product resellers on the platform.
Barnett’s thinking was that the arrangement with iServe
would provide PopSockets with a partner more amenable to terms that both
sides could live with.
But Amazon had other ideas. The e-commerce giant notified
Barnett that iServe would be barred from selling PopSockets devices on
Amazon, citing a new policy. If that wasn’t bad enough, it also became
clear to Barnett that unaffiliatedsellers of his
merchandise — merchants with whom PopSockets does not have any
relationship — would still be allowed to sell on Amazon.
Goods sold by these sellers do not come with a
manufacturer’s warranty, nor have they gone through PopSockets’ quality
assurance program, the CEO said.
But PopSockets did not flinch.
“We’re lucky [that] we’re not in a position where we can be strong-armed,” Barnett told Recode.
And so in early November, PopSockets’ more than two-year relationship with Amazon came to an end.
“Does Jeff Bezos really know what’s going on here?”
Barnett asked rhetorically. “I can’t imagine he believes this is a good
idea.”
The PopSockets situation at Amazon, for better or worse,
is not a unique one, according to interviews with executives inside
consumer brands, agencies that help brands sell their goods on Amazon
and industry analysts.
Over the past few months, Amazon has applied intense
pressure to consumer brands across different product categories —
seizing more control over what, where and how they can sell their goods
on the so-called everything store, these people say.
One apparent goal: To take more control over the price of
goods on Amazon so the company can better compete with retailers. The
power moves are also believed to be a prelude to a new internal system
that Amazon has yet to launch called One Vendor. The new initiative will
essentially funnel big brands and independent sellers alike through the
same back-end system in a supposed effort to improve the uniformity of
the shopping experience across Amazon on the public-facing side.
In the lead-up to that launch, this fall Amazon has been
notifying brands that sell products in categories ranging from household
consumables to fashion accessories that part of their business on
Amazon would be shut down — with just 30 days notice.
“Amazon obsesses over the customer experience and your
brand has opportunities for improvement that will be possible by
transitioning your full business to Vendor Central,” read one email from
Amazon to a brand. “As a result, we have made the decision to source
your products for sale by Amazon only and your existing Seller Central
account will be closed within 30 days of this email.”
Translation: Amazon is telling these brands that they can
no longer sell directly to customers as an independent seller on the
Amazon platform for third-party merchants known as the Amazon
Marketplace. The advantages to selling on the Marketplace include the
ability to control the sale price of the goods, run price promotions and
get more data about how products are performing and who’s buying them.
Instead, the email is telling brands that they can only
sell items to Amazon’s retail group at wholesale cost, and let Amazon
act as the seller and determine the retail cost.
This policy is not completely new. For years, Amazon has
had a policy that says if a brand sells its goods to retailers outside
of Amazon and wants to also sell on Amazon, the company “expects” the
brand “to give Amazon Retail the option to source those products at
competitive terms for sale as Retail items only.” But it was not
consistently followed — until now.
“The policy hasn’t changed but the enforcement is
changing,” said Justin Leigh, a former Amazon product manager who for
the last 10 years has run Ideoclick, a Seattle-based consultancy for
brands that want to sell and advertise on Amazon.
An Amazon spokeswoman said the policy is intended to help reduce customer confusion.
But in addition to increased enforcement, an even bigger deal is a recent addition to the policy.
The new language not only bars some manufacturers and
brands from selling their goods on the Amazon Marketplace if Amazon
wants to sell the product itself — but also “their agents, licensees,
and other representatives selling on their behalf.”
In the case of PopSockets, Barnett attempted to challenge
Amazon’s ruling that its distributor iServe could not sell PopSockets
goods on the Amazon marketplace. The CEO made the argument that since
PopSockets is selling its items wholesale to iServe, and then iServe is
setting the retail price, the distributor is acting independently.
Thus, the argument was that iServe should not be grouped
within the catch-all of “agents, licensees, and other representatives
selling on [PopSockets’] behalf,” as Amazon’s new brand policy states.
But the Amazon employee assigned to PopSockets looked
into the situation and came back with the same answer: PopSockets’
relationship with iServe is not allowed.
An Amazon spokeswoman declined to provide Recode
with a detailed explanation of why iServe is barred from selling
PopSockets goods even though it is acting independently of PopSockets by
buying items from the brand at wholesale prices. She said, however,
that Amazon’s policy does not apply to resellers, but only to brands and
those companies that brands hire to sell products on their behalf.
“Amazon obsesses over our customer experience and we have
policies for brands to ensure they are consistently meeting customer
expectations,” she said in a statement. “One way we have ensured a great
customer experience is by sourcing products directly from brands and
selling them to customers in our store ourselves.”
The statement ended by saying brands with questions should contact Amazon. PopSockets already did, but has not gotten answers.
“I think the power dynamic has been flipped,” said Chad
Rubin, founder and CEO of the e-commerce software startup Skubana. “If
you have eyeballs, you have the power. Many brands don’t have power
anymore.”
With what some perceive as another assault on brands, Amazon may be tempting fate.
“I don’t think Amazon understands how close they are to
blowing themselves up,” said Eamon Kelly, a senior research analyst who
tracks Amazon closely at Edgewater Research, where he is a partner.
Kelly cited brands like Birkenstock that have pulled
themselves off the platform in recent years, and said he has had
conversations with others that are ready to jump, too, if Amazon’s
behavior doesn’t change.
PopSockets’ Barnett agrees.
“I don’t think it’s a sustainable model,” he said. “Maybe
for controlling the small players whose business depends on Amazon. But
to endure this kind of treatment? There’s a lot of great brands out
there who can make that choice to leave.”
What’s worse, according to Barnett and others that do
business with Amazon, is that while a brand and related sellers are
getting kicked off the Marketplace, Amazon still allows other merchants
to sell those brands’ goods, even if they are not directly affiliated
with the brand.
“That set of double standards ... it’ll be interesting to
see if someone chooses to challenge that in a court of law,” said James
Thomson, a former Amazon employee who now runs Buy Box Experts, a
consultancy for brands. “It’s no longer an open marketplace then.”
To understand the deeper significance of the policies,
it’s helpful to understand how the Amazon retail platform evolved and
how it works.
In its early days, Amazon started out by sourcing
products at wholesale prices directly from manufacturers or suppliers,
and then selling them at retail prices to customers.
But in 2002, the company introduce the Amazon
Marketplace, a platform on which other merchants — whether big companies
or one-person shops — could sell goods to customers on Amazon. The goal
was to dramatically expand the product catalogue available on Amazon
while outsourcing the risk of buying inventory. It worked.
To the average Amazon shopper, it’s not always obvious
when a product is coming from Amazon or a merchant. And Amazon has
worked to make sure it doesn’t really matter; in 2006, Amazon introduced
a program for Marketplace merchants called Fulfillment by Amazon that
allowed these sellers to pay Amazon to handle the storage, order
fulfillment and customer service for the goods they sold on the
platform.
The key to the program: It made it possible for FBA goods
from Marketplace merchants to carry the Amazon Prime label — just like
the items Amazon sources itself — and to be delivered to Prime customers
within two days of ordering, for no extra shipping charge.
The numbers speak for themselves. Today, the Amazon
Marketplace accounts for 53 percent of all physical items sold on
Amazon, up from 41 percent in 2014.
But earlier this year, Amazon made moves to consolidate much of the decision-making for its retail platform
under a single leader, Senior Vice President Doug Herrington, who has
spent nearly 14 years at the company. Herrington comes from the Amazon
Retail side of the business, where Amazon sources products itself and
acts as a seller. That, brand leaders and consultants say, has
influenced recent moves.
“We’ve been working for some time on standardizing the
products, tools and services we offer to the brands and resellers that
sell on Amazon, and have made some organizational changes as a result,”
Amazon told CNBC in a statement at the time.
Analysts
and the heads of brand consultancies say that the increased policy
enforcement and new language mark a prelude to the eventual launch of an
internal system at Amazon: One Vendor. One Vendor is expected to
essentially treat the Amazon retail platform as a single online store
rather than one that is separated on the back end into Amazon Retail and
the Amazon Marketplace.
“The expectation is that creating one selling platform
will create a cleaner customer experience and eliminate a
sometimes-confusing layer of pricing/product ambiguity,” Edgewater
Research’s Kelly wrote to clients earlier this year. “Our work suggests
Amazon will take greater control over what platform — [Amazon Retail or
Amazon Marketplace] — products will be sold [on] and will have greater
influence on pricing for both channels.”
Amazon is now exerting that influence. It’s up to the brands to determine how to respond.
As a Partner and Co-Founder of Predictiv and PredictivAsia, Jon specializes in management performance and organizational effectiveness for both domestic and international clients. He is an editor and author whose works include Invisible Advantage: How Intangilbles are Driving Business Performance. Learn more...
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