Amazon and CPGs: Friends or Foes?

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Amazon and CPGs: Friends or Foes?

By Mihir Kittur, Ugam - 08/08/2017
Mihir Kittur, Ugam
Mihir Kittur

Many brands and retailers have aligned with the times and fully embraced e-commerce. But some CPG companies have yet to do so, even though the potential is there.

Certain categories like batteries and baby wipes have made progress, signaling that we have reached an inflection point for consumer packaged goods online. But many manufacturers are still just dipping their toe in the water, always mindful of Amazon looming in the background.

CPG companies are still struggling to figure out the retail giant. Amazon is the dominant player in the market, and many companies are still confused on whether to treat the retailer as a friend or a foe. Amazon appears to have made a move in the “foe” direction with its recent Whole Foods acquisition, but there’s still not necessarily a clear answer.

The fear has always been that selling on Amazon could lead to brand dilution, extreme price discounting and, at some point, the risk of an Amazon private label. Another point of concern is the conflicts that arise with existing channels when sellers begin to carry their products on the Amazon marketplace.

There are also existing relationships with retailers to consider. Overall, CPG brands seem to have good relationships in place for in-store, but their e-commerce relationships are not nearly as mature. As the CPG industry adopts e-commerce, they are more or less running blind, as they have no clear idea on transaction and shopper metrics. Adding to the challenge is that CPG firms are soon likely to be caught in a pricing dog fight between Walmart and Amazon.

To come out victorious in the battle, Amazon could afford to improve its trust with CPG companies. Pricing violations have led to a loss of trust of sorts. Amazon can gain some of that back by more aggressively flagging those violations to brands. In some instances, Amazon has taken action against sellers and it needs to continue to demonstrate this in a more widespread manner. It also needs to work with brands on specific propositions for certain customer segments like Amazon Business or on exclusive Amazon-only products to help them drive growth.

Amazon has already had success vocalizing the potential e-commerce momentum they could drum up for CPGs. Recently, Amazon met with manufacturers to discuss the benefits of bypassing brick-and-mortar chains and shipping products directly to consumers. The goal of this conversation was to prompt CPGs to consider creating products that are easy to ship to consumers, as opposed to products that just look appealing on shelves.

If CPG brands decide to take them up on the offer, it’ll be essential for them to closely manage their Amazon product pages so that reviews, photos and videos are all correct and up to date. Additionally, Amazon has an abundance of shopper data that can help CPGs connect with consumers looking to buy now, or to target new shoppers aiming to make a purchase down the road.

CPGs could also be facing a new horizon when it comes to Amazon in 2017, with the retailer's plans to move into the brick-and-mortar space through Amazon Go. Provided Amazon Go isn’t completely oriented around Whole Foods, this could provide CPGs with a new channel to sell their products — however, it could also cause increased competition with private-label brands.

Given that Amazon is extremely shopper-focused and has shown tremendous resilience in placing big bets, consumer goods manufacturers don’t have a choice. They will need to embrace Amazon to continue to be relevant to today’s shoppers.

Mihir Kittur is co-founder and chief commercial officer at Ugam, a provider of data and analytics for retailers, brands and market research firms.