Amazon’s New Competitive Advantage: Putting Its Own Products First

by Renee Dudley     |   June 6, 2020

This story was originally published by ProPublica

Brands have long been able to bid for the premier slot at the top left of Amazon’s listings, but during the pandemic the online retailer has begun using this position for its private-label items, raising antitrust concerns.

Until recently, when Amazon customers typed “melatonin” into the site’s search bar, a variety of sleep supplements would appear in the most coveted real estate on the listings results — top left on the first page.

One of consultant Jason Boyce’s clients, a seller of natural supplements, often sought to outbid competitors for the best spots by promising Amazon about $6 each time someone clicked on the product. While the brand never attained the top left slot, it regularly landed in the top row. But in late March, Boyce noticed that Amazon’s own brand, Solimo, had taken over the top left, while his client’s product had been bumped to a lower row. Then Boyce typed “ground coffee” in the search bar, only to find AmazonFresh Colombia ground coffee in the top left, pushing down another client.

“This is madness,” Boyce said. “They’re putting their own product right in the front of the line.”

He said the clients, whom he declined to name because they feared retaliation from Amazon, were outraged. “They were thinking, ‘What is Amazon going to do next?’” he said.

Although customers don’t necessarily realize it, brands have for years been able to bid on search terms to secure the most visible listing positions at the top of Amazon’s product search results pages, where their products carry a “sponsored” tag above the description. Now, they still bid for top-row placements, but the best spot — the top left on the first page — is unavailable across dozens of product search terms, according to consultants and ProPublica’s own review. During the pandemic, Amazon has begun to use that position for its own private-label products, without bidding, under the heading “featured from our brands.”

The domino effect of Amazon’s new strategy has demoted competitors’ listings for products including diapers, copy paper, kids’ pajamas, mattresses, trail mix and lightbulbs. By putting its own private brands in some of the most valuable slots, Amazon is sacrificing short-term ad revenue to build up sales of its private brands over time, consultants said.

The new approach violates Amazon’s mantra that every decision must put the customer first, said Tim Hughes, a consultant who used to work in product management at Amazon. “Why would their brand be a better option for consumers?” said Hughes, chief operating officer of a firm that helps brands manage Amazon accounts. “It doesn’t necessarily have to be cheaper, or better, or anything. So then what’s their justification to say, ‘We’re just going to put this up in front of everybody else’? This is just another example of Amazon being able to manipulate the platform for its own good use.”

While Amazon has promoted its own private-label products in various prominent spots on its site over the years, consultants and legal experts said this latest iteration takes advantage of the surge in online buying during the pandemic and may accentuate antitrust concerns for a company already juggling domestic and global probes. Amazon’s share price has increased more than 30% this year, although the company missed earnings estimates for the most recent quarter because of higher costs.

Amazon’s dedicating of prime positions to its own brands could be viewed under U.S. law as “exclusionary conduct” — which, along with proving a company has substantial market power, is a key element of antitrust cases, said Christopher Sagers, a professor of antitrust law at Cleveland State University in Ohio.

“If I were their lawyer, this would definitely make me nervous,” Sagers said. “It’s hard to explain the search results finagling as anything besides a nasty, anticompetitive move.”

Amazon acknowledged that it recently introduced this “featured from our brands” strategy, which the company described as “merchandising placement” rather than advertising. “Like all retailers, Amazon regularly makes decisions about how to use the space in our stores based on a variety of factors, centered on what customers will find most helpful,” a spokesperson said. “That’s a normal part of retail that’s happened for decades.” There is no real estate reserved for Amazon brands, and they may be placed anywhere, Amazon said.

The spokesperson said that Amazon did not adopt this strategy to take advantage of the pandemic. "The change in labeling of this merchandising feature had been planned for many months," he said.

Amazon highlights its private-label brands because customers prefer them, the spokesperson added. “Amazon’s private brand products have on average higher customer review ratings, lower return rates and higher repeat purchase rates than other comparable brands in the Amazon store,” he said. “As a result, like other retailers, Amazon highlights its private brands in promotions and marketing.” Most private-label sales are for staples such as paper towels, baby wipes and batteries, Amazon said.

Absent favored treatment by Amazon, though, its private-label brands sometimes don’t have enough sales under the algorithm’s criteria to justify a listing on the first page of search results, said consultant James Thomson, the former business head of an Amazon team that recruits third-party sellers. Amazon Essentials regular and slim-fit short-sleeve pocket Oxford shirts, both listed on the first page of results for “men’s shirts,” had about $4,400 and $1,600, respectively, in sales over a recent 30-day period, far less than the surrounding unpaid listings. Their sales should have put the Oxford shirts at best at the bottom of the second page, according to Thomson and Jungle Scout, a service that analyzes Amazon sales rank data.

Amazon “confuses consumers into thinking these products are more popular than they really are,” Thomson said. Amazon said its shopping results don’t favor private brands, and sales is only one of many factors considered by its algorithm.

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