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How To Navigate The Amazon


1. Trends

Retail equilibrium

What was your shopping experience like this holiday season? No doubt you spent some time researching products online, but as a wise shopper, you know that online reviews cannot be trusted. How do you know which of these 64 bit handbrakes is the good one?

The traditional ways to identify quality products are branding and local stores. A brand can only be built and maintained with products that people like, while the proprietor of a small store has to select quality products to display on their limited shelf space.

It has been theorised that reliable online reviews will kill brands and local stores, but we are evidently not there yet.

Will AI help online marketplaces to get there so that they capture 100% of sales, or is there an alternative equilibrium?

In categories such as fresh food, the limit for online sales is much less than 100%, as there will always be a significant number of people who want to select their own watermelon.

Supermarket brands should therefore be relatively safe from online competitors.

In other categories, we see different responses from different brands.

For example, if you search for 'Electric can opener' you are greeted with many recognizable brands.

Evidently can openers is a category where the brands chose to work with Amazon. The one with the best reviews takes the spoils, though interestingly, does not appear to be sold in stores (at least I couldn't find it). Other brands which do not sell as well online are available in stores. These brands may have sold off excess inventory cheaply to retail chains. This suggests that working with Amazon is risky for a brand.

The key to success is to have a product that is hard to copy.

Source: Yahoo

While the stock of Hamilton Beach (HBB) has struggled, Breville (BRG.AX), best known for expensive Espresso Machines, appears to do just fine selling on Amazon.

The handbrake is a relatively simple product to copy, so on Amazon there are lots of Chinese clones. In this particular example I believe they are clones of a Chinese brand, but in most cases you'll be looking at clones of Western products that moved manufacturing to China. It is possible to find a Western brand if you know what you are looking for, but this is an old product shipping from the UK. The brand is now selling elsewhere.

The same is true of shoe brands such as Nike, Puma and Adidas. You can find Nike running shoes on Amazon, but they aren't the newest models.

For these brands then, the strategy is to use Amazon to clear unwanted inventory. To judge by the long term stock performance of NKE and other brands where you can only find old products such as Hermès, this strategy of not selling on Amazon works better.

Will other brands catch on to the idea and leave Amazon selling only commoditized products?

This seems to be the likely equilibrium, though it isn't necessarily bad for AMZN as they will still be shifting volume in the unbranded products.

It also isn't necessarily good for traditional retailers. Nike might not sell on Amazon, but that doesn't mean that they aren't selling online; they just sell from their own website.

The companies that will benefit from the migration of brands away from Amazon are likely to be those that help brands to establish their own online sales presence. This means SHOP on the technology end and UPS on the logistics end.

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If you are logged into Amazon then a product page will display an AI generated summary of the reviews. If you are not logged in then you get a summary score on different variables such as value, durability, and ease of use. Evidently running the AI costs too much money to display to someone who is not in a position to buy anything yet.

A friend returned from the Beijing Olympics with an umbrella with the games logo on it. I was struck at the quality engineering in the umbrella, which showed that being made in China didn't mean a product was junk. Being made cheaply is what makes a product junk.

I think the answer to the handbrake question is Aikeec. Aikeec appears to be a focused Sim Racing company making quality products. CXCESNS and RASTP among others have many more product lines and appear to have cheaply copied the Aikeec handbrake enabling them to sell it at a lower price.

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