Amazon is understood to be developing a private-label range, but the etail giant must listen to consumers to avoid repeating past mistakes.
Amazon is poised to extend its Elements premium private label range, according to reports. The online giant has already sought trademark protection for more than two dozen categories and approached some private-label food manufacturers as it seeks partners.
But before retailers and branded consumer goods companies begin cowering in fear, they need to remember the steep learning curve not only of private label but also the consumer packaged goods category online.
Amazon clearly hopes to drive improved margins. Despite its incredible price-optimisation capabilities – it is estimated that the etailer changes prices on its assortment 2.5 million times a day – Amazon continues to be challenged on the bottom line.
Anything that can mitigate overall margin pressures is worth investigating. And while price comparisons are unavoidable, the planned proposition of the Amazon Elements line – transparency, premium – lessens the potential of direct comparisons with other products online.
A bigger question, though, remains unanswered. Will consumers view Elements as a brand worth the premium? Private labels do make sense in ecommerce if they are sold through major players that already benefit from high traffic on their site.
Own brands sometimes do not have the power to attract new online shoppers if retailers do not or cannot invest heavily in marketing as shoppers in general usually opt for well-known brand names. Amazon does not have this problem.
However, the lessons learned from its experience in own-brand consumer electronic products - the hugely-successful Kindle, for example - are not entirely transferable.
Indeed, its previous venture into the health and wellness private label space constitutes a rare example of Amazon getting things spectacularly wrong. One of the first items Amazon sold as an Elements product were nappies - a line that has since been discontinued and which turned out to be anything but a threat for brand manufacturers.
For new additions to the premium range, Amazon should ensure that the items meet its much-vaunted standards. Shoppers will likely now be even more sceptical about quality after the nappy fiasco.
Trust is indispensable to the entire Elements concept. In that respect, it could be an ideal moment to add logos offering third-party quality control assurance or even to get customers involved in the production and quality test phases.
Amazon will need to boost marketing spend for the private brand. The shopper group it will target is likely to be the same that was - directly or indirectly - disappointed by the quality of the nappies.
- Kelly Tackett, US research director, Planet Retail