Should Major CPG Manufacturers Create Amazon Exclusive Brands?

With private label only accounting for 1% of Amazon’s total U.S. CPG sales, the company is lightyears behind major competitors such as Walmart, Target and Kroger. When it publicly launched its Amazon Accelerator Program in early October of 2018, however, the leading online retailer took “one small step for exclusive products, one giant leap for increased private label revenue.” According to TJI Research, the number of Amazon exclusive brands has grown from 150 in September 2018 to 640 today. This is in addition to Amazon’s 146 private label brands.

This article examines several pros and cons of creating Amazon exclusive brands and ultimately answers the questions of whether the investment is worth it and what types of products are best suited for the program.

Amazon Exclusive vs. Private Label Brands

Many CPG professionals are still a bit confused about the difference between Amazon exclusive brands and Amazon private label brands. For clarity, here’s a brief overview of each:

  • Amazon exclusive brands: These brands are exclusively sold on Amazon and are operated and owned by the manufacturer.
  • Amazon private label brands: These brands are exclusively sold on Amazon and are operated and owned by Amazon. Products from these brands typically have “Amazon Brand” in the title and/or bullet points.

Amazon exclusive and private label brands are both part of the “Our Brands” program.

Pros of Amazon Exclusive Brands

Marketing Extras

Accelerator Program participants have access to a toolset of products to fast-track their brands’ growth on the marketplace. In addition to basic analytics, brands receive a suite of marketing services that are cost-prohibitive for most vendors and sellers, including premium product page content and access to the Amazon Vine review program at no cost. Products with high ratings and reviews may receive special high-visibility placements across, such as homepage real estate on sale days or promotions on competitor listings. Accelerator participants can also take advantage of free social media and email marketing executed by the Amazon merchandising team.

Improved Price Economics

In an online retail world where some CPG manufacturers are potentially facing delisting because of the dreaded CRaP list, Amazon Accelerator brands get some much needed improvements compared to traditional marketplace unit price economics. At the heart of the Accelerator Program, Amazon wants the approved manufacturers launching exclusive products to thrive, so they eliminate some of the variable fees that can hurt profitability. These variable fees include those associated with returns, damages and freight-in. Additionally, Amazon does not charge the Accelerator participants their normal categorical co-op fees.

Instead, Amazon negotiates with the brand manufacturer to create an all-in pricing model that takes into account Amazon’s costs noted above, but also provides a reasonable profit margin that would be needed to effectively grow the business. While this might seem very kind of Amazon, it is in the company’s benefit to grow these Accelerator brands to the point at which they trigger the “purchase clause,” moving them into Amazon-owned private label brands.

Retain Ownership of Intellectual Property

Arguably the most newsworthy storyline about the Amazon Accelerator Program is the $10,000 contractual “purchase clause,” which is used to migrate successful Accelerator brands into Amazon-owned private labels. You’re probably wondering how a successful brand, likely selling millions of dollars annually, can be worth less than a used late-model Honda Civic. Any reasonable businessperson should be asking that question and more importantly questioning me for considering this a “pro.” Hear me out though…

While Amazon can purchase any brand in the Accelerator Program with just 60 days’ notice, the manufacturer retains all intellectual property such as patents, designs and trade secrets. This means the vendor can still sell the same products – it just has to use a different brand name. If Amazon does end up purchasing your exclusive brand, you can easily replicate those winning products under new brand names and sell them on Amazon or to other retailers such as Walmart and Target. All you have to do is develop the elements for a new brand. If you consider the fact that most searches on Amazon are needs-based rather than brand-driven, this could give manufacturers a bit of an upper-hand over Amazon in the long run.

Cons of Amazon Exclusive Brands

Costs of Extra Creative and Digital Talent

It’s important for manufacturers to understand the difference between the Amazon Accelerator Program and traditional private label agreements with retailers. While Amazon has seemingly boundless resources, it also has equally endless aspirations. To be more efficient with its private label creation, Amazon essentially flipped the normal process on its head. Instead of coming up with ideas for its own brands and products and managing operations throughout the entire brand building phase, Amazon invites manufacturers to take over this process in exchange for some of the valuable “pros” discussed in the previous section. This new partnership model allows Amazon to create exclusive and private label brands at a much faster and more dynamic pace than other retailers.

While this new model is great for Amazon, it leaves brand manufacturers picking up the slack. Depending on a brand’s business model, it may need to hire digital talent that understands how to effectively grow a new brand on Amazon. This talent could be in-house or from a third-party agency. Creative talent and production of creative assets will also be necessary to build an Amazon exclusive brand. Brand manufacturers need to remember that it is expensive to create exclusive products for Amazon, and these operating costs need to be accounted for when assessing the potential ROI of the program.

Distraction from Core Business

The relentless competition in the CPG industry is continuously getting stronger, which is likely one of the main reasons you are even considering the Amazon Accelerator Program – you think it could offer a competitive advantage for your portfolio. That might be true, but creating an Amazon exclusive brand could also distract you from the strong competition within your core business. While shiny objects can be attractive, that lack of focus could end up affecting you more than any potential benefits from the program.

Lack of Customer Data

One of the biggest complaints from Amazon sellers and vendors is the lack of accessible customer data. While Amazon recently started to loosen its grip on certain demographic data, Accelerator Program participants unfortunately don’t have access to any more advanced customer data than regular sellers and vendors – even though it could help them build more effective Amazon marketing strategies. The people buying your Accelerator products are ultimately Amazon’s customers, and at the end of the day the retailer wants these products to succeed on Amazon. This means it must be careful about giving away coveted customer data that brands could use to create copycat businesses on other platforms.

Should You, or Shouldn’t You?

The decision of whether or not to launch an Amazon exclusive brand is dependent on the particular variables inside the four walls of your business. However, if we consider this decision inside a vacuum, the Accelerator Program does provide a unique opportunity to test new products and learn what resonates with customers on the increasingly powerful Amazon marketplace. This could lead to a richer relationship with the leading e-commerce retailer, which doesn’t seem to be showing any signs of slowing down.

Brand manufacturers looking to maximize their value from this program should align themselves with Amazon’s current aspirations in grocery. While the Amazon Accelerator Program currently is not available for fresh or perishable food categories that are only available via Amazon Fresh and/or Prime Now, center-aisle non-perishable grocery is one of the best categories for the program, as well as Beauty and Personal Care and Health and Household. These categories all have a big presence on Amazon but lower private label penetration.

Related Content

Are you ready to dominate the digital shelf?

Get Started