Private Label and the Future of Marketplaces

The unique idea powering marketplaces is the hiding of complexity in picking a retailer. Instead of a customer spending time to find the best deal, and the best shipping option, a marketplace like Amazon suggest the best one. But we think this can be taken even further - a marketplace which hides the complexity of picking a product.

A marketplace is the perfect model for customers. It makes retailers compete on price; the customer only has to click buy. But it is not ideal for retailers as it makes competition very easy, eventually eroding any possibility of having an upper-hand. If anyone can sell a box of LEGOS, then everyone will, yet the wholesale cost of it is fixed so the final price will go down to the lowest margin one retailer is able to afford.

As competition on Amazon grew in size, it became harder than ever before to avoid it. Over the last few years this has forced most retailers to explore entering into exclusive distribution deals, private labeling or making their own products. Amazon wants competition, customers benefit from it, but retailers face high risk because of it. So an obvious solution was to avoid competition all together.

But the rise of competition-less products has brought new problems. The key one being saturation of marketplaces with very similar, but just-a-bit different products. Most private label products are almost identical to competition. Thus the competition moved to SEO optimization, keyword ranking, product reviews buying, etc. All in an attempt to rank the product higher.

Yet for customers this is confusing, because they went from being able to get the best deal for a particular product, to now having to find the best product first. In many ways this is breaking the core idea of a marketplace. Amazon catalog continues to grow, but a big part of it is thousands of copies of the same product.

Private labeling has become the silver-arrow of selling on marketplaces. Instead of having to compete with other sellers, or having to invent a unique product, it “only” requires great marketing skills and ability to out-rank products on Amazon. This is a great opportunity which has allowed many sellers to grow their revenues, but it’s not going to last forever. More brands launching means more noise in the catalog. Eventually it will become as hard to out-compete as it is now reselling others’ products.

This is why we think that in the future, likely lead by Amazon, the concept of a marketplace is going to change. Especially when considering buying flows on mobile and voice devices like Amazon Echo. There is a lot to be gained if similar products could be grouped to one. And while they are obviously different products, both in terms of functionality, but also in a brand, the key is that those might not matter.

If you think this is far fetched, think about the buying experience on Alexa-enabled device like Amazon Echo. There a customer asks for a product and gets offered a few choices to pick from. There is no mention of brands or sellers. Voice technology is aspiring to kill brands - it puts the focus on a particular product, and ignores everything else.

Current Amazon concept of a buy box is the best deal for a product selected from a list of sellers. The future buy box would be selecting the best product from a list of similar products offered from a list of sellers. It takes the abstraction one step higher.

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Juozas Kaziuk─Śnas

Founder of Marketplace Pulse, Juozas wears multiple hats in the management of Marketplace Pulse, including writing most of the articles. Based in New York City. Advisor to other startups and entrepreneurs. Occasional speaker at conferences.

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