Last week, Reuters reported that Amazon India copied products from sellers on its platform and then rigged search results to promote Amazon’s in-house brands. Today, we dive into this story.
Before we get to the heart of the story, let’s see how copycats are made.
Suppose you love pets and want to open a pet store. You decide to stock products from a bunch of manufacturers — food, treats, toys, grooming items etc. Everything that your pet needs. It’s a brick-and-mortar store on a busy stretch of road. So you know you’re going to get a lot of footfall. And that means more data for you as a store owner.
Soon, you’ve built up some brand loyalty. People like visiting your store. One day you decide that it’s time to put that loyalty to the test. So you go back to the data you have onboard — about customers and product preferences. And boom! You start manufacturing your own pet food, treats, toys, grooming products. Everything.
Actually, you don’t even need to set up your own manufacturing facility. You could get somebody to do this on a contractual basis or buy these products from someone who’ll let you stamp your own label.
Put simply, you now have your own private-label brand.
You display merchandise in such a way that your own brand stands out. And you could start shunting the other manufacturers to the background if you so wish.
To sum it up, this is what you did:
- You opened a pet store and got other sellers or manufacturers on board
- You used data about what customers preferred and built your own suite of products
- You banked on customer loyalty and started promoting your own brands
- You now earn much more because you get better margins
- And you did all that with just a brick and mortar store
Now that this concept is out of the way, let’s turn to Amazon.
The pet-store playbook is exactly what Amazon has been following for many years now. Just that it’s on a much larger scale. Thanks to its dominant e-commerce presence, it can create private-label brands in every category you can think of — furniture, clothing, batteries, refrigerators. It’s quite “the everything store”.
But the company says that while it has private labels, it doesn’t use its treasure trove of data for the benefit of its private labels. In short, there’s a Chinese wall between those departments.
However, that’s a bit hard to believe.
And in 2020, Wall Street Journal published a report claiming what many people had already known. Its employees had easy access to data about sellers. And they used the data to work on Amazon’s private labels.
And now, a Reuters investigation shows that Amazon used the same playbook in India. And that top executives were well aware of what the company was doing.
The internal documents also show that Amazon employees studied proprietary data about other brands on Amazon.in, including detailed information about customer returns. The aim: to identify and target goods — described as “reference” or “benchmark” products — and “replicate” them. As part of that effort, the 2016 internal report laid out Amazon’s strategy for a brand the company originally created for the Indian market called “Solimo.” The Solimo strategy, it said, was simple: “use information from Amazon.in to develop products and then leverage the Amazon.in platform to market these products to our customers.”
But wait, is this illegal?
Well, not really. In fact, it’s a practice that’s quite common in the retail industry. And Amazon wasn’t the pioneer either. In the US, big retailers like Target and Walmart have used store level data, to launch private label brands. For Target, 30% of its revenues come from its own brands.
But why is Amazon receiving all the flak, you ask?
Well, let’s go back to your imaginary pet store for a moment. What if you built a monopoly in the pet-product industry by nudging out the competition in this manner? It won’t sit well with any ethics committee.
That’s the problem for Amazon. It accounts for nearly 40% of all e-commerce in the US. And its presence in India is growing too. So when an existing monopoly that already dictates terms to its sellers jumps in on the private label party, things can get even more monopolistic. With all the data they have on board, they can easily distort the market. And that’s not a good thing for all the smaller sellers on the platform.
Also, governments are unlikely to treat them just like any other pet store. In fact, it’s why Amazon assured everybody that they never used their sellers' data to create private labels. They knew it was going to haunt them and this new Reuters investigation will likely have a lot of executives at Amazon scrambling.
PS: If you use apps of companies like BigBasket, you’ll see that promoting in-house brands isn’t uniquely Amazonian. If you have the BigBasket app on your phone, fire it up. And run a quick search for “cereal”. What do you see? Write to us and let us know!