How did Amazon squeeze distributors in its ecosystem?

Tram Ho

In mid-2020, Jeff Bezos was accused by the US Congressional Commission in connection with violating competition laws and pinching his own suppliers. This committee then asked the Amazon founder to explain the “allegations of using data by 3rd parties to create competitive products”.

Amazon’s consumer merchandising and buying platform since 2018 has captured a 50% share of all e-commerce in the United States. Beginning in 2009, Amazon entered this market as a seller, competing directly with third-party suppliers for goods that were almost identical in design to their popular merchandise. users through their private label (AmazonBasics). Since then, their offering has expanded to more than 1500 items and is joined by 100 other brands also owned by Amazon, selling first-party products, along with more than 2,000,000 party sellers. third on the Amazon platform.

In this case, Amazon is considered to have squeezed third parties because: using the owner of the e-commerce platform and the advantage of having 50% market share to create similar products that compete directly. with third parties.

In essence, Amazon doesn’t seem to be breaking any rules. But for third parties, this is still an “invisible” squeeze in the inevitable market. Take a look at how Amazon can push sellers to the bottom line:

1. Amazon “duplicates” third-party products

Amazon đã “chèn ép” các nhà phân phối trong hệ sinh thái của mình như thế nào? - Ảnh 1.

As a market operator, Amazon has a special advantage in the use of information. Not only do they cut costs per transaction, they also hold data, about which products are sold at what price between buyer and seller, by individual and aggregate transactions. This gives them exclusive advantages to exploit customer behavior.

Try putting yourself in Jeff Bezos’ shoes. In order to reliably provide your service, in a number of areas including day shipping, Amazon will act as itself responsible for third parties for product delivery. On the Amazon platform, these providers also include 3rd parties. If something happens to these parties, Amazon customers will not feel satisfied with the service. The negative impact of this product shortage affects not only vendors, but Amazon itself.

To solve the problem, Amazon decided to take the initiative and directly produce its own. So for production, which products should be chosen as the first priority? Definitely best-selling products.

2. Amazon cuts the cost of the original product

After deciding what types of products to sell, Amazon’s next step is to set the manufacturer’s standard pricing. So what price will be suitable for customers?

The price that Amazon sets will lead to a lot of discontent. They are the 28th largest company globally and have the ability to sell optimally profitable products for a while. So they did it for decades. They inevitably value first-party products at or below third-party sellers’ prices, in part because first-party products are considered to be of less value than third-party brands. father.

“Although Amazon is a publicly held company, their investors have endured extremely low returns, part of the game is selling Amazon products at no profit or even at an unprofitable level ”- James Thomson.

3. Amazon “assimilates” the original

Using the same confidential information about how to sell and how to set prices to increase profits, Amazon continues to increase the number of its “scoop products”. Certainly, Amazon will use third-party names to name their similar products (to achieve search SEO), using similar images. This tactic is extremely popular by nature and offers customers alternatives when the original supply is short of stock. Not only that, but Amazon does so to reduce the cost of switching products for consumers.

In essence, this is how to compete fairly. However, the way they present their own products as their first choice is considered unreasonable. Especially when the original products have many better reviews and the same price.

Amazon đã “chèn ép” các nhà phân phối trong hệ sinh thái của mình như thế nào? - Ảnh 2.

4. Amazon steals customers from the original product itself

The next step in their strategy is judged unfair. Take the typical case for lunch box product. A 3rd party product has a good number of reviews, a high number of purchases, and a real number of shoppers.

In order to increase sales, Amazon is willing to “step on” others in a number of ways to use its platform ownership advantage. They put their product directly in the highlights, suggestions for similar product searches, similarly naming the original products … to outdo third parties. Even Amazon products. The price is more expensive, the evaluation is lower, the quality is not guaranteed.

5. Third parties accepted to give up the game

At this point, Amazon has completely won. As a result, shoppers replace old products with new ones from Amazon itself. On the position of 3rd parties, they are forced to give up the game in a dilemma:

– Stay and continue to fight helplessly with the boss or;

Leaving away, increasing customer conversion costs and their own customer acquisition costs, limiting your market efficiency to less than 50%;

Amazon đã “chèn ép” các nhà phân phối trong hệ sinh thái của mình như thế nào? - Ảnh 3.

The bottom line for Amazon’s tactics

Amazon uses the same exclusive advantage as countless other tycoons such as Microsoft (Windows), Apple (iOS) and Google (Android), in terms of intermediate economic platforms in two-sided markets. They provide services that help a group of sellers interact and transact with consumers. As a result, they retain the information advantages they can exploit to increase the quality of their services, at the expense of one side of their platform (the manufacturer) for the advantage of the other. (consumers). The appeal of their service is simple and natural, the consequences of the connection effect.

Amazon plays a dual role in its market. As the platform operator, Amazon has access to unique, nearly complete information about which products are more successful and why. As such, they – with a 50% share of all e-commerce in the US – possess a competitive advantage they can exploit to make a better profit for themselves. They do so by taking on a dual role of both platform operator and seller with privileged, private information;

The monopoly nature of the market will make Amazon successful. If there is a viable alternative to the Amazon market in the US (like Uber, in Lyft), manufacturers (sellers / drivers) may choose not to trade with platform operators in competition with people sell by themselves. If Uber starts rolling out autonomous cars in certain areas, drivers in those regions may choose not to compete with Uber and instead drive only for Lyft. For now, third-party sellers on the Amazon marketplace don’t have a viable option. There is simply no Lyft in e-commerce that would minimize customer acquisition costs in the way Amazon could.

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Source : Genk