Amazon's private-label business is on a tear and rival marketers are racing to stay a step ahead of its tactics

jeff bezos

Amazon is building up its own brands, requiring rival marketers to navigate a slew of Amazon brands that it's heavily promoting on its platforms.
Established brands now have to compete with Amazon's private label lines and contend with its creative limitations with ads.
Marketers are fighting back by using highly specific search terms on Amazon.
Some say established brands still have a leg up over Amazon's private labels, which make up roughly 1% of sales.
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Amazon is aggressively growing its private label business, but at the same time, it's trying to compete with Facebook and Google for advertising. Those two goals can conflict — causing headaches for some advertisers.

Over the past couple of years, Amazon has pushed into its own brands in areas like packaged goods, fashion and electronics and has used splashy ad formats on its own site to promote the products. That makes some advertisers uneasy and frustrated that Amazon gets preferential treatment in its own advertising network.

"Amazon is a huge threat to CPGs because any time Amazon decides to look at a category, they're going to own it," said Jon Reily, VP and global commerce strategy lead at Publicis Sapient. "It's difficult to have a conversation about those products when the main avenue for selling things is also your main competitor."

In fact, Amazon is under growing scrutiny from regulators for selling its own items in a marketplace that it manages. In March, Sen. Elizabeth Warren proposed splitting up Amazon for competitive reasons.

Amazon says about 1% of its sales come from private labels. Private label brands represent 25% or more of sales for other retailers, Amazon said in April.

Amazon's savviest advertiser is Amazon

Amazon routinely uses prominent ad formats on Amazon.com to advertise its private label and exclusive brands.

One is sponsored brands, a large display ad that appears at the top of search results. Another is called hero quick promo that shows a product image and how many review stars it has next to it on product pages where consumers read reviews and add items to the shopping carts. Occasionally Amazon's retail team will take over prominent placements and they'll be unavailable to other advertisers, said Joshua Kreitzer, founder and CEO of Channel Bakers, an agency that helps marketers advertise on Amazon.

Earlier this year, Amazon tested a feature that promoted its own products as pop-up windows when consumers clicked on search listings for a competitor. Amazon said at the time that the test was not an advertisement but a way to show browsers cheaper product options.

"When they're [advertising] on the actual detail page where the consumer is ready to buy, they're closer to the bottom of the funnel and making purchase decisions," Kreitzer said.

An Amazon spokesperson pushed back on the idea that it gets first dibs on advertising on its platform.

"Our ad policies work back from customers to provide them the best experiences in our store," the spokesperson told Business Insider. "Both our selling partners and private brands can bid on sponsored ads. Our advertising algorithms optimize for the best possible customer experience, starting with relevance to the shopping query, and treat all bids equally when determining which ad to show."

Amazon vets ad creative for competitors

Advertisers also have run into creative and messaging challenges on Amazon.

Most of Amazon's ad revenue comes from ads that run on its own properties, but the company also programmatically places ads on publishers' sites. The catch is that these programmatic ads can appear on Amazon's own site, making them subject to vetting by Amazon's policy team, said a manager who buys Amazon ads at a large programmatic agency.

The policy team also analyzes the copy and color schemes on ads to determine if an advertiser's message looks too similar to Amazon's own ads and products, and if it does, Amazon can stop campaigns from running, said the same agency executive.

Asked about the policy team's role in vetting ads, the Amazon spokesperson said its ad policies are geared towards giving customers the best experience.

Amazon's own advertising policy states that advertisers must include borders around ads with a white or off-white background to show the placement was paid for by an advertiser, for example. And if an ad campaign includes the names of both an advertiser and Amazon, "your brand name or logo must be the largest and most prominent," the policy reads.

"Amazon wants any display creative that appears on Amazon.com to conform to its brand guidelines and not be a disruptive user experience," said the agency exec.

When asked what a disruptive ad campaign looks like, the agency exec said that based on his understanding of Amazon's policy, an ad with bright colors and a neon box on it because the colors could be considered distracting. Amazon also doesn't allow advertisers to use rich media ads that use animated graphics to show a product or expand across the page when clicked on, according to its policy.

As Amazon expands into new business lines like delivery, it can be difficult to keep up with which advertisers Amazon deems competitors, the person said.

The same agency exec worked with a fast-food chain on a campaign that promoted a delivery service. While the fast-food chain itself was not a competitor to Amazon, the delivery service was a competitor to Amazon's same-day delivery service, Prime Now. The agency had to tweak the creative to focus on the fast-food chain. The campaign ultimately ran, but the exec was unclear on what change ultimately led Amazon to run the campaign.

In another example, coupon sites — which could lead to non-Amazon websites — are not allowed to advertise on Amazon's properties, according to the company's policy.

"Because Amazon has so many business units, there's not a hard and fast rule or a pre-existing list [of banned advertisers,]" the agency exec said. "It's really difficult for us to know beforehand which advertisers will be competitive."

Brands are creating their own keywords to get around Amazon's brands

Amazon is known for buying up its own search ads targeted at generic keywords like "coffee" or "batteries." Roughly 70% of Amazon searches are for these types of generic words.

One way advertisers are responding is by bidding on highly specific keywords that match people's searches, like "dark-roast coffee" or "long-lasting batteries," said multiple agencies.

These more niche keywords convert better, are cheaper, and less competitive, said John Ghiorso, CEO of Amazon-focused ad agency OrcaPacific. But brands need to bid against thousands of niche keywords to get the same scale as a generic keyword, he said.

Established brands may not have that much to fear from Amazon

Amazon's move into private label and exclusive brands is similar to the practices of physical retailers like Walmart, Target and Kroger.

The difference with Amazon's private labels is that competitors don't have to fight for shelf space as they do with physical stores and have multiple digital tactics they can reach the exact customer they want, said OrcaPacific's Ghiorso.

"If anything, there's more ability to go after the customer segments that you want to capture," he said.

It's unclear how successful Amazon's private labels have been outside of a few brands like AmazonBasics. Amazon also has a quick turnover strategy with private label and exclusive brands. If a product racks up negative reviews or doesn't sell, Amazon swiftly pulls the product.

Eric Heller, EVP of marketplace services at Wunderman Thompson Commerce, said Amazon's products don't have the same name recognition and brand loyalty as established advertisers do.

"A lot of their weak spots are that they don't know how to build what traditional brands already have: Brand love, loyalty, and trust," he said. "Amazon's generics are opening more people to be willing to buy and test product online; as long as you're not selling a commodity, then there's still room for brands to win plenty of business on the periphery."

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