Amazon Changes A9 to Favor their own Brands
The Wall Street Journal recently reported Amazon adjusted its A9 algorithm to give preferential placements to listings that are more profitable for the company – likely their own brands. This is the first massive change to their platform that doesn’t align with their Leadership Principle, “Customer Obsession.”
While brands are (understandably) concerned about what this means for their sales, there are additional elements that need a spotlight.
Envision Horizons has always operated with the knowledge Amazon plays favorites. The retail giant has historically given preference to products that customers proved they liked. Examples of this are the Best Seller tags, Amazon’s Choice tags, and top sellers receiving premium placements in organic and paid search results.
What Amazon did was distributive to their marketplace. However, this isn’t a new concept. For years, classic brick-and-mortar stores have prioritized selling their own generic or branded items. Whether that was being featured on end caps or their catalog. They have the homefield advantage.
Amazon’s Leadership Principles
Amazon has 14 Leadership Principles with number one being, “Customer Obsession: Leaders start with the customer and work backward. They work vigorously to earn and keep customer trust.” Despite being under the magnifying glass for years, this is the first time the retail giant put the competition before the customer.
However, with that being said, they know they need to make money off their advertising. There are only so many searches and clicks a day, and they need to implement a strategy that helps increase their bottom line. So, what’s the next best way to make money off your advertising? Advertise products you’re going to make the most profit on.
Amazon Specialty Programs with Fees
Our team will be keeping a very close eye on metrics for our clients’ who are in the luxury beauty programs. As Amazon makes moves to be more profitable, I believe we’ll start to see interesting patterns emerge specifically in impressions.
When selling on Amazon, there are certain fees associated with specific programs. All brands selling on Amazon have a 15% referral fee when a sale is made, plus fulfillment fees. When a brand is part of the Luxury Beauty program there is an incremental 15% fee on top of the standard 15%.
My theory is that brands in the Luxury Beauty program will begin to see an increase in their impressions because of preferential treatment they’ll begin to receive from their advertisements. If a consumer purchases a product for $100, Amazon would be more inclined to show a product where they can make $30 instead of $15.
If proven to be true, this would incentivize brands to join the Luxury Beauty program. The caveat, however, is brands need to either be invited or approved. Which, in turn, creates a much more competitive marketplace.
Vendor Central vs. Seller Central
I’m expecting this to put products on Vendor Central in a pinch. Especially when Amazon is negotiating cost price. We know they already block unprofitable ASINs from advertising, but now this could come as a negotiation tactic.
Depending on price-point and logistics, larger items especially, won’t be profitable. If Amazon is paying for a full inventory order of 50-pound bag dog food, what they sell that for on the marketplace probably covers the cost of shipping and partial COGS. But it’s not covering everything. This would result in either 1.) Amazon raising the prices on the products losing repurchase rates or 2.) Cutting back on wholesale from their Vendor brands.
On the other side of the spectrum, Seller brands will likely gain exposure because of the way Amazon profits on their advertising sales. You have to remember, Amazon advertising differs from Google and Facebook in that they make money off the advertisement and the sale. So, some could argue it’s a conflict of interest.
Key Metrics to Look For
In anticipation of the change, e-commerce teams need to put a heavy emphasis on data insights. While you’ll need all key metrics to get the full picture, impressions will serve to be highly insightful.
If you’re a brand competing in the same category as “Amazon Basics” or Amazon’s skincare line Belei, a week over week decrease in impressions is a good indicator you’re losing preferential placements to Amazon brands or brands who are more profitable for Amazon.
This isn’t to say if you have a week-over-week decrease in impressions this is the only logical explanation. It’s important to do your due diligence, deep-dive the data, and when you’ve ruled out all other possibilities (optimization issues, suppressed listings, etc), then you can dub the A9 change as the culprit.
What Brand’s Can Do
Brands need to understand the playing field that their in and that Amazon has the home-field advantage. The sooner you accept it, the more easily you can adapt.
Secondly, invest in elements that move the needle. High-quality imagery and story-telling products are one of the most important pillars to a high converting product-detail page. For example, Lady Gaga’s Haus Laboratories launched this week and that same day, they had the ‘Best Seller’ tag for a handful of products. While it’s easy to write this off as a “celebrity influencer effect,” her story sells.
For our clients, we’ll continue to double-down on tactics we know to work. As most brands who have sold on the platform may know, Amazon isn’t a one-size-fits-all experience. It’s customizable. We help them stay relevant by developing cutting-edge products and staying updated on the constant changes.
Amazon’s Bottom Line
At the end of the day, I don’t think Amazon is a bully. They are a smart company and if they start losing brands on their platform, and brands stop advertising completely, they’ll recognize they shot themselves in the foot. If they really mess things up, they’ll be quick to revert back.