Why Direct to Consumer brands are ditching marketplaces

In 2017 Amazon launched its Brand Registry, where over 200,000 brand owners registered their content and IP with Amazon to help the marketplace provider weed out fakes. The program worked so well, that Amazon has since seemingly gone against that program to now make it easier for non-brand owners to sell.

Why would it undermine a program it created to prevent fakes?

The answer is because marketplaces like Amazon depend on volume and by making it harder for non-brand owners to list products, volume numbers dipped.

“Counterfeiting is a problem considered a necessary evil when you’re going to be selling at this volume,” said Chris McCabe, a former Amazon investigator who now consults for sellers on the site. — source

This is just one reason why D2C brands like Allbirds don’t list their products on Amazon, but it’s not the main reason. That would be the the fact that brands like Allbirds don’t own valuable customer information and behavior (e.g purchase intent).This lack of control gives details that could be copied by the marketplace as some have claimed Amazon has done.

To put it simply — Amazon uses the data that is created by customers buying products from sellers on its platform to create and improve their own private labels. –source

Another reason for Allbirds, like many D2C brands, they favor quality and sustainability over price. When Amazon copied their brand with the 206 collection, the Allbirds CEO wrote out against Amazon which resulted in a gain in social media mentions for the brand, perhaps proving that consumers are also siding with brands.

Sustainability often run counter to marketplaces private label brands which are mass produced to provide a lower quality but cheaper version of the original.

So how come D2C brands like Casper still list on Amazon ?

It would be misleading to say that D2C brands should never list on a marketplace or that none of them are doing it. This article lists 15 D2C brands including Casper that are on Amazon.

This might be surprising, considering Amazon has a blatant copycat of Casper called Rivet.

However, Casper makes it pretty clear that while they are happy to have a partnership with Amazon, it’s always better to buy direct, as customers can expect prices to be cheaper (with promos), receive better support, and obtain easier returns.

Apparently not all Amazon buyers of Casper took head to their warning as this one reviewer talked about his frustration with the returns policy and lack of warranty on Amazon.

Here’s 3 possible reasons despite the above, that Casper continues to partner with Amazon.

  1. It’s promoting Sleep as a category (like Nike for sports/fitness) and to own the category it needs to be everywhere just like Nike is.

If you have a strong enough community, then marketplaces might be worth it, but it’s still a risk

If D2C brands already have as strong community, they can avoid the downward slope due to private label competition, but for many why take the risk? — source

It’s pretty telling that Casper only decided to partner with Amazon after it had already reached a significant community. Therefore, one takeaway is that for newer brands like Allbirds, especially those that are easily faked, its very dangerous to rely upon marketplaces as a partner. A new brand that has not yet fully invested in growing their community, will have an uphill battle in negotiations with the marketplace that doesn’t believe in their values or have their interests at heart.

D2C brands like Casper therefore realizing that, have an omnichannel strategy, treat Amazon not as its main point of sales, but just another touch point to increase reach and lower or maintain overall ad spend.

As D2C brands evolve, they don’t need to be dependent on Amazon, thanks to increases in D2C infrastructure and community growth.

It’s not just Amazon, many Asian marketplaces are adopting private label brands.

The Direct to Consumer Boom, may be upon us and as such many brands are launching and evaluating their marketplace strategy. In Asia though,that boom hasn’t materialized…yet.

Some like Love Bonito, have already invested 10 years growing a community out of Singapore and expanding in the region. However, just like Casper they also can be found on marketplaces such as Zalora . So are Asian counterparts like Zalora better for D2C brands compared to Amazon or do the same issues that Allbirds flagged persist?

Historically Asia has been behind the US when it comes to private label adoption. However some Asian marketplaces have already tried this strategy dating back to 2013 including Zalora and later Lazada.

Here’s a look at some of the Asian Marketplaces and their private label strategy.

Alibaba- Taobao Xinxuan is a direct attempt to build Private Label brands in China

Alibaba- Lazada- Lazmall is owned by Alibaba and the author believes will follow a similar approach to Taobao Xinxuan.

Tokopedia- not owned by Alibaba, but has raised $1.1B USD from Alibaba , hasn’t made public its private label strategy but its pure play marketplace model and Alibaba backing would suggest it evolves to create their own brands.

Shopee- backed by Tencent, is another prime candidate to go down the Taobao Xinxuan path.

What’s so alarming for Asian D2C brands?

For starters, the issues flagged by US D2C brands against Amazon such as, using brands data for its own advantages, the plague of fake products and reviews, are potentially a much larger problem when there is less scrutiny and Government oversight on the China backed players.

Perhaps Asian Marketplaces will be more D2C friendly, but that’s a big if. One thing we know for sure is that Asian marketplaces are moving into a more Amazon like model, with the rush to acquire more sellers and promoting more marketing and infrastructure services to brands. Private label brand creation seems like a real if not inevitable threat if not properly balanced with the interests of the marketplaces D2C partners.

D2C brands in Asia will need to make sure they are diversified enough and have a strong community if they do want to partner, and with learnings from Amazon they know what to expect in the future.