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  • Writer's pictureCoats Bateman III

How a strong brand continues to drive sustained profitability

Updated: Apr 4

YES, Amazon wants to sell everything, ever made to anyone looking for it, in any country in the world. They've structured the platform to make it easy to sell products and have seen an astronomical rise in market share and profits, in the process drastically changing the retail landscape from what it looked like 30 years ago when Amazon was founded.

There is no question competition is good! It fuels the economy, our hearts and minds, while draining our wallets. Amazon's mantra of starting with the consumer and working backwards has raised the bar for everyone. Merchants had to adapt, several were not up for the challenge, unable to adapt, they closed their doors, some improved their own relationship with their customers, while several adapted to the retail landscape shift by adding to Amazon's assortment with their own inventory as a 3P seller. The question we need to ask now is, over the last 30 years has the marketplace got away from the consumer? And if so, what will it take to get it back?

Holding a white ATM card
Computer usually has to be on to buy something.

Amazon's strategic decision to invite third-party (3P) sellers onto its platform has been nothing short of brilliant, showcasing the company's innovative approach to retail and e-commerce. By opening its doors to a multitude of sellers, Amazon has effectively maximized its product assortment, creating an unparalleled online marketplace that caters to diverse consumer needs. This move not only broadens the range of products available to customers but also fosters "healthy" competition among sellers, driving innovation and competitive pricing. The 3P model enables Amazon to focus on its strengths in logistics, customer experience, and technological advancements, while simultaneously providing a vast array of products without the burden of maintaining extensive inventory. This approach has transformed Amazon into a one-stop-shop for consumers, reinforcing its position as a global e-commerce giant and exemplifying the power of collaboration in the digital marketplace.

.......Blah, blah, blah, I didn't realize "healthy," was that subjective of a word. Healthy competition used to be based on so much more than price, which is now minimized as the transactional relationship between 3P Sellers and consumers on Amazon almost completely removes the sellers knowledge of the product and their ability to interact with the consumer and service the sale. Amazon has taken on that responsibility through detail pages and reviews.

The result is a multitude of outlets who have seen a significant amount of their demand shift to the marketplace and everyone competing for the same sales on the same detail pages. Their unique position to the consumer minimized and the opportunity to sell products is largely based on a low price and efficient fulfillment methods. If it stopped there, it's not great for the retailers, but the solution still had the consumer in mind, through selection and price. But, did it stop there? (Rhetorical Question) NO, IT MOST CERTAINLY DID NOT STOP THERE!

All of this created a devastating blow to the product values of brands, who have built up their brand equity over time through innovation and consistency. With the consumer experience being standardized, as mentioned above, successful sellers on Amazon shifted from product knowledge and a connection to different industries, to an understanding of what it takes to win the buy box. Many of these new sellers not having an existing relationship with the brands whose products they were selling. The retail shift made a lot of these products available at discounted prices, falling into the hands of sellers where brands could not enforce the sales policies that were written to protect the value of their brand (which Amazon still needs to be relevant to this day, by the way).

Here's where it gets fun, and by fun, I mean ridiculously absurd for the consumer journey. Marketplaces by definition are going to put pressure on product values. This pressure over time will and has destroyed product values and brand health. The deterioration of product values dilutes the importance of brands and opens the door for private label offerings, of which Amazon has over 100 private label brands. There was a time when Amazon private label brands noticeably owned the top of the search results, and now Amazon is reportedly cutting back on some of their private label brands in response to their competitive practices and as a response to FTC attention. This move on the surface paints Amazon as a spoiled teenager testing the boundaries of what they could get away with. The endless shelf is powerful, but learning from Bed, Bath and Beyond's recent downfall emphasizes the perils of putting too much emphasis on private labels, and begs the question, did the FTC save Amazon from itself? Bed, Bath and Beyond wasn't the first retailer that went out of business by not having an assortment that resonated with consumers. Hubris exists with brands and retailers alike, with each putting more importance on what they bring to the table.

I don't think Amazon is doing enough to protect the consumer experience on their marketplace, but they are at least trying to put some guardrails in place, to continue to be the go to source for everything. The seller code of conduct is intended to provide some direction for what sellers could and couldn't do, protecting the consumer experience, and when coupled with additional policies like the Fair Pricing Policy and the Unauthorized Drop Shipping Policy, Amazon thought they had figured out how to truly be the everything store. Maximum assortment, lowest prices.

I don't like where it is now, but it's hard to say that it didn't work. Amazon is so big that it's created a cottage industry around it of entities either damaging or protecting brand health, through millions of transactions everyday. From the sellers, to the sellers teaching other people how to be sellers, to agencies helping brands succeed on Amazon, tracking companies monitoring brand listings, law firms ready to pounce on sellers violating laws or policies, Counter Diversion itself exists because of Amazon (and eBay, but mostly Amazon). At the end of the day, retailers and brands are trying to connect with the consumer, but it's gotten messy. Direct to Consumer business and Private label offerings have created a weird conflict that nobody can seem to solve.

Aside from Apple, retailers are always going to have a difficult time owning consumer mind share, and aside from Apple, brands are going to have a hard time connecting to consumers by creating a consistently amazing consumer experience. Not even Nike could sustain the DTC strategy that they put in place in 2017, a strategy that was called out in a December 2023 article for "Modern Retail," as adding "complexity and inefficiency." Tom Nikic, senior vice president of equity research at Wedbush Securities, offered up in the same article that, Nike’s DTC focus may have been slightly misguided. "Having a bigger direct-to-consumer business is a positive,” he said. “I do think that having a closer connection with the consumer is important. But I think where they may have kind of misjudged the marketplace was that the consumer wants choice… [and] will still go to the multi-brand retailers.” Brands and retailers who can truly work together to do what each do best will come out on top.

Have we reached the point where we are coming full circle, where truly focusing on the consumer is going to take precedent? Where that long term relationship will trump the idea of bloated margins of owning the product and retail experience. A lot still needs to happen to create and solidify a total retail landscape, inclusive of Amazon, while distancing itself from a TEMU type of global invasion where everyone loses.

The original title of this post was "Imagine if you will.....a reality where Amazon enforced it's fair pricing policy and brands controlled their distribution." Amazon owes it to the consumer to cut out all of the bullshit creating uncertainty on the marketplace. Clean it up, there's no reason why they need to list products that are $100 over the MSRP (Manufacturer Suggested Retail Price) of the product, or allow sellers with 50 two star reviews to have offers for products on their platform. Stop letting knock off brands bid on ad words for the products your consumers really want. If starting at the consumer and working backwards still meant anything, this wouldn't make sense, right? And Brands need to control their distribution. Protect your product values and enable the retailers that are connecting with your consumers to drive your brand health (if your DTC strategy catches apple in a bottle, great, but stop forcing it), Amazon sales will respond to market demand as it has for years.

While so much has changed in 30 years, Strong Brand Health still solves everything! When prioritized, sustained profitability follows.

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