5 Ways Amazon Private Label Selling is Under Attack

Private labeling has long been seen as the golden child of business models for Amazon sellers. It allows you to create your own brand and a unique listing, then use some simple marketing methods to push it to success.

For a long time private labelers have had an open playing field to take advantage of the Amazon marketplace. However, a number of changes and challenges are making it increasingly difficult to prosper.

Competition is higher than ever, the market is oversaturated in many product categories, and it is becoming harder than ever to find new products. This has forced prices down and caused profit margins to shrink. Dirty tricks from some sellers are rampant and, overall, the marketplace today is far more aggressive and hostile than it once was.

In this article we discuss the changes which have most affected the Amazon private label business model. So much has changed, is it still possible to succeed as a private label seller?

Private labeling on Amazon

The principle of private labeling is simple. At the low end of the market, sellers buy cheap, easily manufactured, generic products which are in high demand. Then they slap their logo on the packaging to make it their own and start selling.

More sophisticated sellers have always been around, investing a lot more in developing their own unique products and brand, but the mainstream of private label selling is all about generic products and the bare minimum of branding effort.

The majority of private label products are manufactured in China. Sellers often export their inventory straight from the Chinese factory to an Amazon FBA facility in the US or Europe. They don’t have to worry about packing or shipping products and, with FBA, customer service is also provided by Amazon.

Theoretically, it’s a business you can run from your kitchen table. But a number of developments are making it more difficult than ever to run a private label business as a low-investment, low-maintenance cash generator.

1. Chinese sellers and market saturation

One of the greatest challenges private labelers face is the increase in Chinese sellers entering the market. A few years ago this wasn’t a concern – sellers would order products from China and the factories would act purely as a supplier. They weren’t too interested in where their products were being sold.

However, in recent years Chinese manufacturers have become wise to how easily Western businesses are profiting from their production capabilities. So they have started creating their own private label brands and aggressively competing on Amazon.

Five years ago it was a gold rush period where sellers had it very easy. Everybody had a hot opportunity with very few barriers to success. Now competitors have progressed. Five years ago we didn’t have a single mainland Chinese supplier as a competitor, whereas now they are our primary competitors in every product category.
Bernie Thomson, Founder, Plugable Technologies and CEO, PPC Ninja

These Chinese entrepreneurs are known for being very analytical, highly competitive and profit-driven. Chinese sellers have grown to become more sophisticated and dominant in the last couple of years, shaping the marketplace and setting prices.

As Chinese sellers are often the factory owners, they can produce items in volume with short lead times and rock bottom costs. This has driven prices down and caused profit margins to collapse. Western sellers have little chance to compete, when the owner of the factory that makes their product is selling their own private label brand on Amazon.

Because of this, and the popularity of the private label model overall, the marketplace has become oversaturated. Some product categories are swamped with near-identical private label products both from local sellers and Chinese factories. Kitchen and home products are particularly competitive, and it has become difficult to profit from these products like sellers once could. Many other categories are heading in the same direction.

But it’s not all doom and gloom. There are some things sellers can do to stand apart from the competition, although they might be beyond the reach of ordinary private label sellers.

Danny McMillan encourages business owners to sell products that are produced locally. Appealing to a sense of patriotism could give your products an edge.

If you can ensure your products are made in the US or UK for instance, this could become an integral part of its USP and marketing. Look for domestic suppliers and try to sell products that can’t be shipped globally but appeal locally.
Danny McMillan, Host, Seller Sessions and Founder, DATAbrill

The more your product is relevant to a national market the easier it will be to build this into your brand.

Another way to counter the threat of Chinese sellers is to leverage the assets of your business which they might not be as strong at naturally. If you can find a product that Chinese sellers aren’t interested in selling, or cater to a market that they don’t yet understand, that could also give you an advantage. Just be aware that the advantage might not last for long.

Also think about quality. Typically, Chinese manufacturers deal with items that are in the low-to-mid quality range, cheap to produce and cheap to buy. Many Western sellers go after the same segment, so this is where the market is oversaturated and highly competitive. High-end products which are more expensive to produce may have wider profit margins in the long run and allow you to exploit the end of the market that gets less attention.

But it is important not to underestimate Chinese sellers. Western businesses sometimes assume that Chinese manufacturers only produce low quality products, and they don’t know how to deliver high-end products. That just isn’t true. For many categories of consumer goods, factories in China make products across the entire quality range, and they do it far better than Western producers.

So, keep in mind that the competition from Chinese manufacturers is present across the board. You need to keep one step ahead and think creatively to find ideas that set you apart.

Part of my company’s success has been due to improving our technical support and product descriptions, where Chinese sellers don’t excel. It is crucial to leverage any assets which set you apart from your competition.
Bernie Thomson, Founder, Plugable Technologies and CEO, PPC Ninja

2. More investment needed to get off the ground

Most private label sellers can no longer succeed by simply printing their logo on a generic product from China. A lot more time, energy and investment is required just to identify a good product opportunity and find a factory to make it for you.

So, the private label model has become a lot more like other businesses. One area, for example, is the increasing importance of trademarks. Five years ago, private label sellers rarely talked about applying for trademarks or registering their brand with Amazon.

Now, a trademark is required to apply for Amazon’s Brand Registry 2.0. Among other benefits, Brand Registry allows sellers to access A+ Content (formerly EBC), which really helps showcase products and distinguish them from competitors. Trademarks also provide much-needed protection against sellers who copy your products – another tactic that has been on the rise.

Applying for a trademark is a relatively complex, costly and time-consuming process. It’s exactly the kind of thing which people went into the private label business to avoid. The simple and painless, anyone-can-do-it ethos of private labeling used to be the most appealing aspect of the business model.

Still, one person’s barrier is another’s opportunity. Not everybody will make the effort to register a trademark, apply for Brand Registry and set up an EBC listing. If you are one of the few who are willing to jump through the hoops in your product category, it could lift your brand above a lot of competitors.

3. PPC ads need to be hyper-relevant

PPC ads and incentivized reviews used to be the key for Amazon product launches. Historically they were the methods of marketing that sellers could rely on to boost their search ranking and visibility.

With incentivized reviews now prohibited by Amazon, the popularity of PPC ads has soared. This has made the market far more competitive and expensive, with typical keyword bids increasing by 20% in the first six months of 2016 alone.

But it’s not just a case of paying more to get the same results. Sellers can no longer rely on PPC ads to boost visibility and increase sales.

You need to be relevant from the very beginning. If you throw a lot of money into advertising but your product has no reviews or sales it won’t affect how the Amazon algorithm looks on you.
Danny McMillan, Host, Seller Sessions and Founder, DATAbrill

Bidding more than your competitors is no longer a shortcut to success. If your listings are not highly relevant, the PPC ads just won’t make a difference.

It’s a chicken-and-egg situation, because you can’t get sales unless people can find your product, but they can’t find your product without it first having some sales. This is one reason why Amazon has become so competitive, with a lot more dirty tricks being played, because there are no legitimate shortcuts left.

Money can no longer buy visibility outright, so sellers must optimize their listings wherever possible. Highly relevant keywords need to be present in the product title, description and back-end keywords. PPC ads need to be purchased with a great deal of precision, using highly relevant keywords.

Don’t try to force your way in with high bids. Every product you put on the market will take time to accrue reviews and sales, and this may mean you have to play the long game. There are no short-term hacks to take advantage of. But over time as your relevance grows, the PPC ads will become more effective and integral to your sales velocity.

4. Reviews have become a minefield

Reviews are crucial on Amazon and getting reviews can be difficult, to say the least.

Reviews are so important, because they play two highly influential roles on the Amazon marketplace. They let the customer evaluate the quality of products, of course, but they also play a part in the search algorithm. Products with a better review profile will rank higher than products with poor reviews, or no reviews at all.

Amazon take the authenticity of reviews very seriously. They want to ensure that all reviews are genuine, authentic and verified. So they have acted by banning all kinds of incentives for reviews, and by suing sellers and service providers who have manipulated the reviews system.

Amazon are cracking down on fake reviews. They now pay close attention to what happens in the news and react directly to media scandals, especially when it comes to review manipulation.
Danny McMillan, Host, Seller Sessions and Founder, DATAbrill

So how does this impact you?

As a private label seller trying to launch a new product it leaves you with very few options. Amazon have their own review schemes, the Early Reviewer Program and Amazon Vine, but these are limited and expensive. It’s still allowed to ask for reviews in emails to buyers, but you have to be very careful about how you do it to stay on the right side of the rules.

It requires creativity, strategy and leveraging all your resources to be successful. You will have to give more attention to advertising budgets, optimizing your product listings and generating word-of-mouth interest in your product.

It’s back to traditional marketing when it comes to getting reviews. Although it will make things more difficult, businesses will be forced to conduct themselves morally without relying on black-hat strategies to get ahead. That can’t be a bad thing.
Bernie Thomson, Founder, Plugable Technologies and CEO, PPC Ninja

Unfortunately, right now, prohibited activity such as incentivized reviews, or just paying for reviews outright, is still rife on Amazon. Tougher policies have forced this activity underground, so now most fake reviews are solicited on closed Facebook groups and other forums, outside of Amazon’s view.

The black-hat actors have adapted and are getting more creative and ruthless in finding new ways to further themselves and discredit their competition. Which brings us to our last point.

5. Dirty tricks are mutating and growing

With the increase in competition, product saturation in many categories, and prohibition of tactics that have been relied upon in the past, sellers who are willing to break the rules are showing no signs of letting up. There are more dirty tricks being pulled than ever before.

Trying to detect and fight back against these tactics is a daily task for some sellers. New and more innovative ways that your business can be targeted are appearing all the time, each more sophisticated than the last.

These attacks often result in warnings, listing suspensions and account suspensions. Getting your account suspended takes you completely out of the game and halts your cash flow. Some sellers never recover. Those who do may find that by the time their account is active again, competitors have jumped ahead of them or their listings have been hijacked.

The biggest risk for any business selling on Amazon is having your account suspended. It is a risk that every seller takes. I hope Amazon gets to a better place with regard to suspension, one which is more deterministic and fair. But right now the risk of suspension is tough on everybody, even if you’re doing all the right things.
Bernie Thomson, Founder, Plugable Technologies and CEO, PPC Ninja

Some of the most common dirty tricks experienced by sellers include:

1. Listing hijacking, where a competitor changes crucial details of your listing. This could be to direct customers to their own products, or to take advantage of existing reviews.
2. Review manipulation, such as paying black hat agencies to post negative reviews of your products, or submit negative seller feedback. This is getting harder to detect, as they will use the identities of real people and actually buy the product, before leaving a review.
3. False infringement claims, false safety claims, high quantity returns and other techniques can also damage your standing with Amazon, and cause your account to be suspended.

You can’t do much to prevent these attacks, but you can stay vigilant and act quickly against them. Keep a close eye on your listings, orders and returns, and respond to any suspicious activity you detect.

You can no longer sit back and let everything run itself, like the private label gurus promised, just because you’re using FBA.

What is the future of private labeling?

Things are changing constantly for private label sellers and it is getting a lot harder to find success.

Sellers are getting squeezed from multiple directions:

1. Prices are being pushed down by competitors with much lower costs
2. More time, energy and money is needed to launch products
3. The old marketing tactics no longer work, or have been banned outright
4. Competitors are playing dirty, and often seem to get away with it

It’s not a pretty picture.

The overall landscape of private labeling is changing. People who went into the business on a wave of anyone-can-do-it, rough-and-ready, four-hour-work-week enthusiasm are being forced to legitimize themselves, and adhere to processes that go against that whole ethos.

To compete effectively, you need to be thinking like the bigger, more established brands. You need to do a lot more to get products launched, and employ a more traditional approach to advertising, marketing, budgeting, and so on.

The best way to succeed is to build a real brand, without relying on shortcuts, but by raising your standards, leveraging your assets and providing a unique and undeniable product.

But is that still private labeling?