Why Brands Are Not Excited To Sell On Online Marketplaces

Many third-party brands have raised objections to the way private labels are finding growth

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According to a KPMG analysis, between 2019 and 2022, private labels were expected to grow 1.3-1.6 times more quickly than e-commerce platforms in India and, compared to external brands, would generate 1.8-2.0 times higher margins. In the third quarter of 2020, private label companies grew by 31 per cent in India. As compared to larger manufacturers, private labels show significant growth, while other manufacturers experienced declines of up to -20 per cent in Q3 2020.

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Many e-commerce platforms have been betting heavily on private labels. Flipkart launched its first private label, Smart Buy, in 2016. Today it has Perfect Homes, Cara Mia, MarQ, Billion, Ann Springs, Miss & Chief, among many others. It has private label brands across more than 300 product categories. Amazon too has successful private label brands like Echo, AmazonBasics, Myx and others. Myntra, BigBasket, Blinkit (earlier Grofers) are some of the other players focusing on private labels.

"If you look at any successful retailer globally, they have a pretty large and sustainable business of private brands across categories. Somewhere in the middle of 2016, as a leadership team, we sat down and looked at our business over the next 3-5 years. One of the many things that came out as an area of opportunity was the lack of a private brand business," said Adarsh K. Menon, vice-president and head of private brands, electronics and furniture at Flipkart.

The launch of private labels, by e-commerce players is nothing new. However, while it is highly beneficial to these players, many third-party brands have raised objections to the way private labels are finding growth. This is one of the reasons for the rise of Direct-to-Consumer (D2C) brands in India and the world over. Most brands stay on marketplaces for two reasons. One is to be omnichannel and be available for consumers wherever they look for the brand. Two, staying in marketplaces helps in brand discovery. Even if a huge percentage of sales happens through online marketplaces, when it comes to marketing, most D2C brands focus on promoting and driving the traffic to their own website. Here are some of the reasons for doing so.

Leveraging Consumer Data

Online marketplaces have been accused of leveraging the consumer data gathered over the years to fill in demand-supply gaps in the product portfolio of external brands through their private labels. "A conflict of interest situation is said to exist since e-commerce players have consumer data and shopping trends and thus have the ability to push their private labels to a specific user base. Globally, there have been several complaints against Amazon about the preferential treatment towards "own brands' over other independent sellers on the platform," said Sumir Verma, founder and managing director, Merisis Advisors.

"Amazon has always said that when it makes and sells its "own' products, it does not use the data or information collected from individual third-party sellers, but news reports say otherwise. There have been claims that private labels of these marketplaces are enjoying better ratings and visibility over other brands," he added. Despite many such allegations, the focus on private labels continues.

Creating Competing Products

Not only in India, in the United States too, Amazon has also been repeatedly accused of copying product designs. Williams-Sonoma Inc, a home decor brand, filed a federal lawsuit against Amazon, accusing it of copying its proprietary designs for chairs, lamps and other products for a private label of the e-commerce giant Rivet, in 2018. This practice of using data of independent sellers on its platform clashes with the company's policies as well. However, the company has often denied any such allegation.

SEO Preference

According to a news report, thousands of pages of internal Amazon documents including emails, strategy papers and business plans reveal that it ran a systematic campaign of creating knockoffs and manipulating search results to boost its own product lines in India, one of the company's largest growth markets.

It has also revealed that Amazon's private-brands team in India exploited internal data from the marketplace, copied products of other companies and sold the same. It also accused that the employees stoked sales of Amazon private label products by rigging Amazon's search results so that the company's products would appear in the first two or three search results when customers shop on the marketplace.