Not just China clones products, Amazon does too! Bloomberg recently published a great article on how Amazon has quietly rolled out its own product lines. Completely under the radar, Amazon has slowly begun developing its own products and sold them on its platform.
Now this wouldn’t be unusual, were it not for the fact that these products are very similar to the best selling products on Amazon. Amazon is taking well-performing products from its platform and has begun manufacturing them itself, at which point these copycat products are sold over its own platform.
Basically, Amazon utilizes itself as a massive testing ground. And instead of testing own products, Amazon is letting other business take the lead. Once something seems to be a customer hit, Amazon can then go ahead and try to sell a similar product in its own name.
Now suppose Amazon has launched a copied product, but contrary to the data it has gathered from the original product, Amazon’s copied product has not performed as well as expected. Amazon has the means to cut its losses, take that product off its site and try again with a different one. Amazon can engage in trial-and-error on a massive scheme.
And it seems to be doing so, according to Bloomberg – “about 96 percent of AmazonBasics products had a rating of 3.5 stars or more”. Unless all AmazonBasics products really are doing well, Amazon is pulling the non-performers.
In theory Amazon could promote its own products above others. There are a number of reasons for and against manipulating product rankings in Amazon’s favor.
Increase in Revenue
First and foremost, the question is how much of Amazon’s revenue comes from own products. Once it becomes realistic for Amazon to achieve higher earnings by promoting its own products compared to the revenues of the current model (letting its own algorithm decide the product rankings), Amazon may well be inclined to push its own products above competition.
All things considered, Amazon Products are probably the best choice anyway
What also speaks for Amazon products, is that Amazon is able to produce and sell these products for a lower price than the competition, without compromises in quality. So in the end, the consumer benefits from lower prices, increasing customer satisfaction – which is definitely in Amazon’s interest. So manipulating product rankings in Amazon’s favor is actually beneficial to consumers, who, under rational decision-making, should opt for Amazon’s product anyway.
New Revenue Stream
Amazon is, without question, dominating the eCommerce market. There is no other company that comes close to Amazon in terms of online shopping in the western hemisphere. And that is a problem, because Amazon needs to satisfy its stockholders. Growth into new segments is very important, not just to keep its dominance but to extend it to other markets. Selling own products can be a great new revenue stream Amazon can use to grow.
It seems like many things tip the scale in favor of Amazon ranking own products above competition then. There are factors that speak against doing so, though.
Manipulating the ranking algorithm would distort the great dataset Amazon has access to and is utilizing to decide which products to produce in the first place. So Amazon may fare best by letting its algorithm do its thing without bias.
Negative Effect on New Markets
Amazon is a great place for companies to sell their products. If companies are seeing their sales drop due to competition from a copied product, the companies are not happy. Knowing that Amazon could copy your product will deter many companies from listing their products at Amazon. Although not such a big problem for existing markets (since many companies already rely on Amazon as a sales outlet), Amazon will face issues when entering a new market, because it won’t find anyone who wants to advertise own products on Amazon. At the same time, this paves the way for an Amazon competitor in that new market to acquire new companies to sell on his platform.
So which way should Amazon go?
What would be a great compromise for Amazon would be listing its own products under “Sponsored Products Related To This Item” or “Customers Who Bought This Item Also Bought”. Promoting next to other sponsored products would be the sensible choice, however the word “sponsored” may put customers off. That should not be an issue though, because If the copied product really is a substitute to the original product, then the copied product will show up in the “customers also bought” section anyway.
Either of those choices would not jeopardize the Amazon algorithm and integrity, and would still boost sales.