Is Offering Private Label Brands A Good Move For Amazon?

Is Offering Private Label Brands A Good Move For Amazon?
Is Offering Private Label Brands A Good Move For Amazon?
Image Credit:
Cliff Cooper

By now we all know Amazon as the gigantic online store that sells just about everything. However, what a lot of us may not realize is that, depending on where you live, Amazon has expanded their product development definition to sell food. Lots of food. The product managers over at Amazon are under pressure to make more money all the time and it turns out that selling food does not leave a lot of room for finding ways to make more money – milk costs what milk costs. However, they think that they may have found a way to be even more successful: private label brands.

What Are Private Label Brands?

Private label brands, or house brands as they are sometimes known, are products that the seller of the groceries creates. The advantage of these brands is that the seller controls all aspects of the brand and doesn’t have to pay another firm that owns the brand and supplies the product. Private label brands are generally not advertised – they just show up in the store. This keeps the cost of offering the brands low. This is the kind of thing that we’d all like to add to our product manager resume.

Private label brands are often popular among customers assuming that their level of quality is comparable to the advertised national brands. Since the middle man has been cut out of the process, the grocer is generally able to offer private label brands for a lower cost than the national brands. In the U.S. last year, private label brands rung up US$118.4B in sales. This was up $2.2B from the year before.

Private label brands turn out to be good business for both the manufactures and their marketers. These brands require little or no marketing or brand development. The Amazon product managers realize that in the case of Amazon, creating their own private label brands may hold even more benefits. Since Amazon ships so many of their goods to their customers, if they control all aspects of their own private label brands then they may be able to design packaging that reduces their shipping costs and thus provides them with better control over their profit margins.

Amazon’s Private Label Brand Strategy

Amazon has started to offer whole bean and ground coffee under its Happy Belly private label brand. At the same time they have rolled out bottled Mama Bear baby food in two different flavors. Over the past year, Amazon has also introduced two lines of private label brand clothing. It has been reported that Amazon plans on offering four different private label brands including foods, diapers, clothes, and cleaning supplies. The brands will be sold exclusively to members of Amazon’s Prime service.

The Amazon product managers are in the process of developing their private label brand strategy. It appears as though they want them to be more than just discount alternatives to national brands. They have priced their coffee product in between two competing coffee products from Starbucks. At the same time the coffee has been priced to be cheaper than some small batch coffees.

At this point in time the Amazon product managers are downplaying their private label brands. They have made sure that that none of the product description pages for their private label products identifies Amazon. The customer service phone number is for a firm called AFS Brands Inc. Clearly Amazon is trying to avoid causing a big splash in the market as they introduce their new private label brands perhaps in order to win market share before doing any sort of major marketing push.

What All Of This Means For You

As product managers, one of the things that is on our product manager job description is that we have to find ways to make our product be more profitable. Over at Amazon, they have started selling groceries. The Amazon product managers would like to make their grocery offerings be more profitable. In order to make this happen, they are going to have to introduce some private label brands.

Private label brands allow Amazon to control all aspects of a product and they don’t have to pay another firm for all of the marketing and promotion that they have done. This keeps costs low. Private label brands are good business with higher profit margins. Amazon is planning on offering four different private label brands in different areas. Their pricing appears to be targeted at being in the middle of other brands. They are not publicizing their private label brand offerings at this point in time.

The Amazon product managers have a real challenge on their hands: grocery items are very difficult to make money on. The Amazon product managers have decided to introduce private label brands in order to allow them to control their product’s price and packaging. We’ll have to see how these house brands stack up to the competition over time!

– Dr. Jim Anderson
Blue Elephant Consulting –
Your Source For Real World Product Management Skills™

Question For You: Do you think that Amazon should focus on only a few private label brands or should they try to introduce such brands in every market in which they compete?

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What We’ll Be Talking About Next Time

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