Private Labeling Is Dead. Long Live Private Labeling!

Private Labeling is Dead

This post is by Danny McMillan, a survivor of the music industry and serial startup entrepreneur. For the last couple of years Danny has focused on Amazon, and joined forces with Anthony Vaughan last year to co-host the The Amazon Seller Meetup events and Webinars.

As news broke yesterday it seems the internet has gone into meltdown. In case you’ve been hiding under a rock, yesterday Amazon banned incentivized reviews in the US (no UK announcement yet). These are the reviews written in return for giving products away (or at a heavy discount) and they have been the lifeblood for so many Amazon private label sellers.

At this precise moment in time no one truly knows how it will shake out. Sometimes stepping back and looking at the bigger picture and observing the lay of the land can produce dividends. We must remember getting reviews are only part of the equation and not the sole factor for success.

But if you are following the trend of, “product fits in a shoe box, pick it up for for cheap in China, stick a badge on it, do loads of giveaways, turn on PPC, collect cash on the way out”, then you are going to have it tough, especially if you are banking on high volumes.

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When they start trying to sell, it feels like they’ve taken a knife to a gun fight.

You have to realize that this is just one strategy. A very popular one, but still only one. Amazon is a feast of different strategies. But a lot of people do follow it, and things soon fall apart. They think they’ve got a great product but when they start trying to sell, it feels like they’ve taken a knife to a gun fight.

Many private label sellers (in competitive niches) find that once their product arrives they have to spend a fortune on PPC. You hear a lot of war stories where people place an order, and by the time it arrives 10-20 people have launched in the same niche. They have to deal with listing hijacking and woefully underestimate PPC costs, as the entrants have already set the pace by bidding extremely high. Then come the giveaways, sometimes in the hundreds of units.

Remember: this is just a single strategy. For one moment let’s turn it on its head. Let’s say you don’t buy “low-hanging fruit” from China with no pain points (fits in a box, lightweight, no manual etc) for a dollar and some change. Instead you pick an oversized product that costs more to manufacture – sent via sea, rather than air.

Almost instantly you cut out a huge amount of competition (the low-hanging fruit chasers). You find that PPC costs are (generally) far lower, and you tend to require fewer reviews. When you break it down, there is not much difference in cost. Instead of spending a fortune to rank via PPC and review services, you are taking a great risk at the product stage to have a chance of greater rewards.

The last seduction

If you are seduced by massive margins and low costs, then the banning of incentivized reviews could present a problem. If you are playing it long and looking to build a great business then it could be a massive advantage.

If you are playing it long then the banning of incentivized reviews could be a massive advantage.

The review announcement could pan out in many different ways. In theory it should level the playing field. But what about all the incentivized reviews already out there? For big established sellers all those reviews look like they’ll get grandfathered in – with no retrospective removal.

What does that mean? It may mean you won’t be able to get a sniff of the market. It will now be much harder to get hundreds of reviews within Amazon’s TOS, to visually look like you are even in the same ballpark.

Going against the grain

This is where different strategies come into play. Rather than chasing money in Supplements, Pets, Home & Kitchen or Baby, how about heading into less sexy categories such as Scientific and Automotive?

Or pick up some pain points and sell in Clothing or Grocery. Get the latter right and you are looking at reoccurring customers, as you are selling consumables . Get clothing right (with managing returns) and you could clean up, if you pick products that do not require lots of color and size variations.

As an exercise take a look at Clothing and count how many tell-tale over-optimized listings you see. Not a lot. Then visit Pets and Supplements. It’s swamped. Then count the PPC ads on the first 3 pages and compare. It’s a world of difference.

People tend to forgot that when you chase low-hanging fruit, others will follow suit. No one wants to put the hard work in. Who can blame them? Why work harder then necessary? So what seems really easy (ching ching!) turns out not to be the golden goose.

Creativity

Maybe the real winners will be the ones that think outside the box, go against the grain. Probably also those with more capital that the next man (or woman).

Here is another scenario that could be considered – if you are starting out you could approach small offline businesses that do not sell on Amazon. You could arrange good payment terms and start wholesaling, effectively.

You would agree to sell pretty much exclusively and set up the listings and invest in the necessary visibility budget. Whilst this is not a private label it can be a platform for reducing your risk via learning. You also have less capital costs and of course a much shorter lead-time from production to Amazon.

Wrapping up

At this stage we do not understand the full impact of the incentivized reviews ban.

Despite all the scaremongering, this could actually be the greatest time to be on Amazon.

Some people will be rejoicing whilst others have containers full of products, and were about to deploy a giveaway strategy based on hundreds of units. These guys will need to put their thinking caps on and get creative.

Other sellers will see it as a way of leveling the playing field. Some of the greatest companies were built in downtimes when other people were fearful of taking risks. The true entrepreneurs took advantage as the competition hid in their beds.

Despite all the scaremongering spreading across the web, this could actually be the greatest time to be on Amazon. But it’s also very much dependent on how creative you are, and if your glass is half empty or half full.

Some food for thought.

10 comments on “Private Labeling Is Dead. Long Live Private Labeling!

  1. Amazon has a program they call “vine” which is supposed to encourage reviews of new products but how does one register for it?

  2. “As an exercise take a look at Clothing and count how many tell-tale over-optimized listings you see”

    Can anybody extrapolate on this?

    I sell in clothing, and I would love to know how to over-optimise!

    Gurpreet

  3. It’s good to see Amazon is now getting to grips with something that has been spiraling out of control for a while now. There’s nothing wrong with asking for a review but giving products away to simply game Amazon with a mediocre private label product is wrong.

    1. This is still developing. It “seems” you cannot ask for a review but you can still run promotions. What this will mean, (if this is true) is that the reviewer no longer leaves a disclaimer. So people can do giveaways, but will not be able to ask for the review, but try and scope them up in the mail sequence on the backend. So the mails to Amazon’s customers could get “more” spammy and if the phone number is available. Also, an up shoot in sellers calling customers (which from my understanding is against TOS).

  4. What’s going to be real interesting is the effects this has on PPC. As you remove some of the review mechanism (besides the good ole fashioned way), I see this as a cost shift for people where they’ll more engaged and spend more money on the PPC elements in order to boost rank and exposure. Would love to get others’ perspective on this.

    1. This is why I mentioned heading into oversized as quite often PPC is pretty cheap with little competition. This is not always the case of course but it is worth counting the Sponsored Ads when conducting product research to get an indicator.

  5. Hi Danny,

    Great post, thank you for the insight. I am going to be launching in the Health and Beauty market on Amazon, targeting women’s skincare. I’m looking at sourcing in the US going for organic. Margins will not be great as the items you mention as some products, therefore would I be correct in thinking less competition for me????

    1. Good question but too broad to answer. I would say it is a sexy niche so could be quite competitive. I have never worked in that category so maybe best someone else chimes in to help. I would say if you are doing this for the first time then try something simple to get going. I think otherwise, you are going to need a killer sales proposition, amazing images, great packaging and a decent budget for ad spend. If you can, select something that is a high cost item (if budget permits) to help reduce competition with less cash on hand. It is important to create as maybe points of advantage as possible. Good luck 🙂

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