Amazon Answers House Committee: Private Brand Takes Center Stage.

Last week the 69 pages that https://www.amazon.com/Amazon prepared as a response to Questions for the Record following July 16, 2019, Hearing of the Subcommittee on Antitrust, Commercial, and Administrative Law, Committee on the Judiciary, Entitled “Online Platforms and Market Power, Part 2: Innovation and Entrepreneurship were released to the public. The more than 2400-word response includes far-reaching and invasive questions that any business in America would consider proprietary. What comes out of the lengthy response is that Amazon behaves like every other retailer, they sell private brands, market private brands, manage their categories with their data and their private brands are only available on Amazon. This may surprise legislators looking for the tech monster, but it is the everyday business for retailers.

Read the entire set of questions.

I would strongly recommend that the members of the House committee do a deep dive into retail and private brand, or at the very least walk a store and read distribution clauses. I am happy to take them on store walks and discuss private label.

  • Chair: David N. Cicilline, Rhode Island
  • Vice-Chair: Joe Neguse, Colorado
  • Henry C. “Hank” Johnson, Georgia
  • Jamie Raskin, Maryland
  • Pramila Jayapal, Washington
  • Val Butler Demings, Florida
  • Mary Gay Scanlon, Pennsylvania
  • Lucy McBath, Georgia
  • Ranking Member: F. James Sensenbrenner, Wisconsin
  • Matt Gaetz, Florida
  • Ken Buck, Colorado
  • Kelly Armstrong, North Dakota
  • W. Gregory Steube, Florida

Below are private brand relevant questions and answers.

Does Amazon’s algorithm take into account any of the following factors:

Whether a merchant is enrolled in Fulfillment-by-Amazon;
Whether a merchant has purchased ads on Amazon; or
Whether a product is private label sold by Amazon?

Amazon designs its shopping and discovery experience to feature the items customers will want to purchase, regardless of whether they are offered by Amazon or one of its selling partners.

Amazon’s algorithms do not take into account the factors described in a, b, and c above when ranking shopping results.

Please identify the number of private label products offered by Amazon in total and broken down by product category.

Amazon currently offers approximately 158,000 private brand products (some of which have additional variations, such as color and size) across 45 brands in the Amazon store in addition to some private brand products sold by Amazon Fresh, its online grocery store available in select metro areas.

At the time that Amazon first started selling each of its private label products, identify the number of sellers offering that product, defined as any product sharing the same product category, on Amazon Marketplace.

Amazon offers customers a broad selection of private brand products in highly competitive categories with many national and other brands. Amazon does not compile data on the number of sellers offering a product in the same category as its private brand products.

Please identify all the ways that Amazon’s platform treats Amazon’s private label products differently from third-party products that are in the same product category and explain all the reasons for treating them differently.

Private label products are a common retail practice, frequently recognized by economists and shoppers alike to offer great value to customers because of their strong value proposition and low price, as evidenced by the popularity of these products in many retailers’ stores. Amazon generally does not distinguish the treatment of brands based on the selling model or brand owner in Amazon’s store. Consistent with the value proposition for private brands generally, Amazon knows from experience that 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. As a result, like other retailers, Amazon highlights its private brands in promotions and marketing in the Amazon store when Amazon thinks they will be of interest to customers. Of course, Amazon is the only seller of Amazon private brands in the Amazon store.

Amazon states that its private label sales account for approximately 1% of its total sales. What percentage of sales do Amazon’s private label products capture in each of the product categories where Amazon offers a private label product?

Amazon offers private brand products in highly competitive categories and Amazon’s total sales are small as compared to national and other branded and generic products in Amazon’s store, lagging far behind the percentage of sales that rival private brand retailers have achieved.

Across Amazon’s business lines, the percentage of sales in Amazon’s stores that its private brand products account for are in the low single digits in North America.

What percentage of Amazon’s private label products are sold at-cost and what percentage of Amazon’s private label products are sold below-cost? Please provide this information overall and broken down by product category.

Amazon does not offer its private brand products at a regular price below the cost of goods that Amazon pays to its manufacturers. Like other retailers, Amazon occasionally marks down private brand products and other products for a variety of reasons, including when Amazon has excessive inventory.

Please identify the revenues, costs, and profit margins for Amazon’s private label business for each of the past five years, overall and broken down by product category.

Amazon’s audited financial reports do not separately identify private brand-specific revenues, costs, and profit margins. However, private brands are accounted for under Amazon’s online stores, physical stores, and retail products revenue categories. Amazon reported $140.2 billion

in net sales in Amazon’s stores worldwide in 2018,1 $114.2 billion in 2017,2 $91.4 billion in 2016,3 $76.9 billion in 2015,4 and $68.5 billion in 2014.5

Please identify all types of data that Amazon compiles, maintains, and uses to inform its development of Amazon’s private label products and explain how each is used.

Amazon uses a variety of information commonly employed across the retail industry to inform its private brand strategy. For example, Amazon uses fashion and shopping trends highlighted in the press and on social media, suggestions from its manufacturers for new or complementary product lines, and gaps in the Amazon store’s product assortment relative to its competitors.

Just like other stores, Amazon uses public and aggregated data from its stores to identify categories and products with high customer demand over a given time period. “Aggregated data” is data that is aggregated across all third party sellers and Amazon’s first party sales and is therefore not specific to an individual seller. It includes data such as aggregate sales reports at a product category level. The public data Amazon uses includes, for example, offer data displayed on the public-facing portions of its website. Amazon is transparent about product popularity in its store. Anyone can visit Amazon’s product detail pages to learn a product’s best seller ranking, in addition to its product reviews and star ratings, and make a determination on all of those bases about whether a product is selling well. As previously noted in Amazon’s July 26, 2019 letter to Chairman Cicilline, Amazon prohibits the use of non-public seller-specific data to inform development of private brand products.

Please identify all types of data that Amazon compiles, maintains, and uses to inform its marketing of Amazon’s private label products and explain how each is used.

Amazon uses several types of information to determine its marketing strategy for private brand products. This includes, for example, seasonality of the product (marketing swimsuits and sunscreen in the summer and holiday sweaters in December); inventory on hand (for example, running promotions where Amazon has excess inventory); past sales; age of the brand and product (marketing new products or brands more heavily than older ones); and customer ratings and the number of customer reviews on specific products (to ensure Amazon is marketing products customers rate highly).

Please identify all types of data that Amazon compiles, maintains, and uses to inform its pricing of Amazon’s private label products and explain how each is used, including how it uses consumer data that Amazon collects from third-party products.

Amazon’s pricing philosophy is to ensure that customers can find competitive prices in the Amazon store. For private brands, Amazon aims to offer incremental selection at a better price/value ratio than leading brands. Pricing of Amazon’s private brand products is informed by a variety of factors, including, for example, the cost of the product and the price of similar, popular products offered in Amazon’s store and by competitors.

Please identify which categories or teams of Amazon employees have access to data or information that Amazon collects on aggregate searches and transactions on Amazon, specify the types of data or information to which each has access, and describe where in Amazon’s organization chart the teams or employees are located.

Like any other store owner, Amazon uses the aggregate data that it collects from sales in Amazon’s store to improve customers’ experiences and the store’s performance. Employees may use aggregated data about activities in Amazon’s store consistent with their responsibilities. “Aggregated data” is not specific to an individual seller, such as offer data displayed on the public-facing portions of Amazon’s website, or aggregate sales reports at a product category level. Numerous Amazon teams have access to such aggregated data, including Amazon’s retail team, private brand team, and the teams that build tools and services to help Amazon’s selling partners succeed and to help prevent fraud and abuse in Amazon’s store. As noted previously, anyone can visit Amazon’s product detail pages to learn a product’s best seller ranking, in addition to its product reviews and star ratings, and make a determination on all of those bases about whether a product is selling well in its store.

Please identify which categories or teams of Amazon employees have access to sales data and other information about a Marketplace merchant’s account and describe where in Amazon’s organization chart the teams or employees are located.

Amazon recognizes that third party selling partners trust Amazon with information about their businesses. As a result, Amazon prohibits the use of individual sellers’ non-public data to compete with them through Amazon’s first party offerings, including through Amazon’s private brand product development, or retail sourcing, pricing, or inventory decisions. Amazon employees are permitted to use seller-specific data only to support that seller (e.g., providing data driven pricing recommendations in Selling Coach); protect Amazon’s customers (e.g., detecting fraud and abuse); or run Amazon’s store (e.g., deciding how to allocate inventory space among sellers within a fulfillment center). This policy is based on the purpose for which data is used, rather than the individuals to whom an employee reports. Amazon trains employees on these policies and regularly audits its systems and processes for compliance.

Amazon is also continually improving its technical controls to automatically enforce this policy, and many tools in use today are already configured to omit seller data or have strict permissioning requirements.

Do the catalog listing rules and product ingredient rules that Amazon applies to Marketplace sellers also apply to Amazon’s private label products? If no, please describe any differences and explain all the reasons for each difference.

Because Amazon seeks to offer its customers the best quality products under its own brands, Amazon generally holds its private brand products to even higher standards for customer experience.

Has Amazon ever prevented reviews from being posted to a seller’s account because that seller’s product was competing with an Amazon product? If yes, please describe the relevant circumstances.

Amazon is not aware of any instance in which a review has been prevented from being posted to a seller account because that seller’s product was competing with an Amazon product. There are many reasons why a review may not be posted, including failure to comply with Amazon’s review guidelines such as when the review is submitted by, or paid for by, the seller.

Please describe all steps Amazon takes to generate product reviews for its private label products.

Amazon generally relies on customers who purchase products to leave reviews for private brand products as they do for any other products in Amazon’s stores. In addition, for private brand fashion items, Amazon at times includes a hang tag that invites customers to leave a review, without specifically requesting the review be positive or negative. The hang tag says “We’d love to hear from you! Please leave us a review.” As with numerous other products, Amazon’s private brand products also participate in its broader Vine and Early Reviewer programs.

Please identify how Amazon’s efforts to generate product reviews for its private label products differ from the processes and practices that Amazon requires third-party sellers to abide by when seeking to generate product reviews for their products and explain all the reasons for each difference.

Amazon solicits product reviews for private brand products using Amazon’s Early Reviewer and Vine programs. Amazon’s Early Reviewer program is available to third party sellers, and its Vine program is available to vendors and will also be available to third party sellers by 2020.

For each month since July 2018, please identify the percentage of all “editorial recommendations” on Amazon that recommend Amazon’s private label products

Editorial Recommendations brings product-related content onto Amazon to help customers research and discover products they might be interested in. For each month since July 2018, the number of Amazon private brand products featured within Editorial Recommendations has been less than 2.5%.

For each month since July 2018, please identify the percentage of all space eligible for advertising on Amazon that has been devoted to Amazon’s private label products.

There is no advertising space reserved for Amazon’s private brand products. The type and amount of ads or merchandising shown to a customer depends on many factors, including the customer’s query, the product the customer is shopping for, and whether the customer is shopping on desktop, mobile, or in Amazon’s app.

In each month since July 2018, only 2–3% of space eligible for Sponsored Products and Sponsored Brands impressions has highlighted Amazon’s private brand products. Amazon’s display and video programs only show merchandising for private brand products on Amazon when no third party ad is available.

How does Amazon determine when to make any ad space unavailable for non-Amazon products in order to allow Amazon to promote its private label products?

There is no advertising space reserved for Amazon’s private brand products. Like all retailers, Amazon regularly makes decisions about how to use the space in Amazon stores based on a variety of factors, centered on what customers will find most helpful. Whether to show ads or merchandising placements, and how many, depends on many variables, including, for example, the customer’s query, what type of product the customer is shopping for, and whether the customer is shopping on desktop, mobile, or in Amazon’s app.

Given that Amazon’s decision to use ad space to promote its private label products reduces the available inventory of ad space on Amazon for other products, by how much does the cost of advertising increase for brands who are competing with Amazon for ad space for products in the same product category?

There is no advertising space reserved for Amazon’s private brand products. Like all retailers, Amazon regularly makes decisions about how to use the space in Amazon stores based on a variety of factors, centered on what customers will find most helpful. Whether to show ads from third parties or merchandising placements highlighting Amazon’s private brand products, and how many, depends on many variables, including, for example, the customer’s query, what type of product the customer is shopping for, and whether the customer is shopping on desktop, mobile, or in Amazon’s app.

In categories where Amazon has a private label product, what portion of ad inventory is not available for first-party or third-party sellers because of ads for Amazon’s private label products?

Amazon Advertising does not restrict vendors or third party sellers from accessing ad inventory in categories where Amazon has a private brand product.

When Amazon lists Sponsored Ads for its private label products does Amazon’s private label business pay for the ads or does Amazon allocate free ad space to its private label products?

Like all retailers, Amazon makes decisions about how to use the space in its stores based on a variety of factors, centered on what customers will find most helpful. Of course, when the company chooses not to use space for advertising by third parties, Amazon foregoes the advertising fees it could have earned from that space. Deciding whether Amazon should use its store space to show ads from third parties or for merchandising placements highlighting Amazon’s private brand products depends on many variables, including, for example, the customer’s query, what type of product the customer is shopping for, and whether the customer is shopping on desktop, mobile, or in Amazon’s app.

What types of ads and ad space does Amazon reserve exclusively for Amazon’s private label products?

There is no advertising space reserved for Amazon’s private brand products. Like all retailers, Amazon regularly makes decisions about how to use the space in its stores based on a variety of factors, centered on what customers will find most helpful. Whether to show ads or merchandising placements, and how many, depends on many variables, including, for example, the customer’s query, what type of product the customer is shopping for, and whether the customer is shopping on desktop, mobile, or in Amazon’s app.

In some instances, Amazon promotes its private label products on the listings of third-party party brands (see below). Does Amazon make the space above the Buy Box that lists “Similar items to consider” available for non-Amazon brands, or can only Amazon list ads in that space?

This merchandising placement displays both Amazon and non-Amazon brands.

Please identify any protections that Amazon’s private label products receive that are not available to brands participating in Amazon Brand Registry and explain all the reasons each is not made available to those brands.

Amazon is the only seller of Amazon private brand products. Amazon may extend similar limitations to brands (including brands in Brand Registry) when necessary to ensure the safety or authenticity of their products or obtain additional selection for Amazon’s customers. Amazon is not aware of any other limitations that are not available to brands participating in Amazon Brand Registry.

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Christopher Durham
Christopher Durham is the president of My Private Brand and the co-founder of The Vertex Awards. He is a strategist, author, consultant and retailer who built brands at Delhaize-owned Food Lion, and lead strategy and brand development for Lowe’s Home Improvement. He has consulted with retailers around the world on their private brand portfolios including: Family Dollar, Petco, Staples, Office Depot, Best Buy, Metro (Canada), TLW (Taiwan) and Hola (Taiwan). Durham has published five definitive books on private brands, including his first book, Fifty2: The My Private Brand Project. In 2017, he will debut his newest book, Vanguard: Vintage Originals, a visual tour of innovation and disruption in private brand going back to the mid-1800’s. Dynamic in his presentation while down to earth and frank in his opinions, he has presented at numerous conferences, including FUSE, The Dieline Conference, Packaging that Sells, Omnishopper and PLMA’a annual trade show in Chicago. Durham lives in Charlotte, NC with his wife, Laraine, and two daughters, Olivia and Sarah.