“One of the things that we don't do very well at Amazon is do a me-too product offering...The question we would always ask before we would embark on such a thing is: what's the idea? What would we do that would be different? How would it be better?” – Jeff Bezos
I often use this quote to bring Amazon's strategy to its roots whenever it is rumored to be doing something out of its core offer area – such as last week when earth’s most customer-centric retailer finally entered the private label consumables market.
Amazon is no stranger to private label. Over the years it has launched house brands in furniture, housewares, and consumer electronics to name a few categories. This strategy has been clearly entrenched in the introductory phase of private label strategy -- creating me-too reflective own-label brands to help lower prices for the shopper and bolster the profits of margin thin categories.
This is different, this is Amazon going after a highly emotional category. This is Amazon looking at the category and identifying areas of unfulfilled demand (transparency) that are potentially unmet by existing suppliers. True premium private label innovation is the mark of a sophisticated traditional retailer; Amazon’s influx of ex-retailers and strong CPG talent is starting to pay dividends.
Amazon is building ecosystems around Prime to drive ever increasing value to their most loyal shoppers. This started first of course with the fulfillment ecosystem; removing the mental barrier of slow shipping by offering free 2-day shipping with a paid Prime membership. Then this moved on to the content ecosystem with free Amazon Instant Video, eBooks, cloud services, and unlimited Music streaming options all layered on top to increase the stickiness of Prime.
Amazon is now creating its third ecosystem -- the exclusive assortment ecosystem where bespoke ranges exist explicitly to create value for their best(and most profitable) shoppers.
Sound familiar? It should…..because that’s a page right out of Costco’s playbook. The goal of the rotational merchandise inside of a Costco is to entice, delight, and provide sufficient enough value to their shoppers that they renew their membership at the end of the year. Costco is ruthless about protecting and elevating the value of the Costco Membership.
Amazon is doing the exact same thing with Prime. First with moving Amazon Mom’s discounts to now require Prime, then with Prime Pantry’s bespoke assortment earlier this year, and now with the Elements range. We’re moving to a world where The Everything Store only means everything if you pay to join the party.
So what's next?
- This is one of the very few times I have seen Amazon behave like a traditional grocery retailer in a tailored approach to a category. Amazon is taking robust shopper insights and layering it into holistic total category approach to ranging. As Amazon continues to bring in retailer and supplier talent into their organisation, expect them to be more open to a category narrative approach to planning.
- We’re also going to be keeping a close eye on how Amazon’s Media Group (AMG) treats the Elements range. Any indication of preferential placement or elevation of search results could lead to large implications for the relatively new relationship between AMG and branded manufacturers.
- It is doubtful the floodgates will immediately open to new categories as Amazon has historically been quite cautious about disrupting their large offer debuts. Expect a holding pattern for the first few months of 2015 before we see new products enter the Elements range or an export to Europe in the back half of 2015.