Everyone wants a deal when shopping, particularly when shopping for basic products that are consumed frequently. That’s a good time to look at private label brands offered by different retailers. Unlike the big branded product (which are usually priced at a premium to consumers) store brands are sold only by that retailer and are priced lower. Private brands have a lower advertising costs; the advertising costs are minimum as the product is associated with the stronger brand name of the retailer.
Walmart, Target, Costco, Amazon, and other retailers all have popular store brands, sold exclusively by the retailer and at a lower price than national brands. One of Amazon’s big advantages though is its own data about how, and for what, its customers shop.
Amazon started into private label brands in 2009 with a number of products sold under the “AmazonBasics” brand. The company has steadily been expanded its offerings and has had good success. Case in point: The AmazonBasics battery line, priced nearly 30% lower than national big brands, now accounts for close to one-third of Amazon’s online battery sales.
Amazon has expanded its efforts and now has roughly 100 private label brands. As another incentive to shop the Amazon labels, certain of the products can only be purchased by Prime members.
A few Amazon brand examples:
- Spotted Zebra – kids clothing
- Good Brief – men’s underwear
- Wag – dog food
- Rivet – home furnishings
- Lark & Ro – dresses
- Goodthreads – clothing
Go ahead – do a generic product search and see what shows up. See if you prefer private brands.
Group Activities and Discussion Questions:
- Discuss the importance of branding in marketing, and the expense of branding.
- Discuss the advantages of private, store brands.
- Poll students: How many store brands can they name?
- Have students open laptops and phones. Go to Amazon.com and type “batteries.”
- What are the results? (Note sponsored content and advertising.)
- How should the private brands be marketed?
Source: Creswell, J. (23 June, 2018). How Amazon steers shoppers to its own products. New York Times.
Pricing is a very strategic part of marketing. And, yes, we know that price is one of the four P’s and is usually referred to as a tactic. However, when an organization is setting strategic objectives, price is a critical factor to meeting the objectives. However, it is relatively rare for companies to increase prices. Consumers tend to balk at paying more for a product or service that they have had for years. Except it appears, when the company is Amazon, then customers go along with the increase.
Beginning in May, new subscribers to Amazon Prime will pay $119 per year for shipping and entertainment membership programs; existing subscribers will pay the new fee when renewing after mid-June. This is an increase of $20 per year (20%), but it is only the second time that the company has raised the price for Prime. In 2014, Prime cost subscribers $99 per year, and in 2005 when it launched, the price was $79 per year. (What may be more surprising about the move though is that the company announced that is has more than 100 million Prime members worldwide. Amazon had never previously reported the level of members.)
Why the price increase? Prime is expensive for Amazon to fund. Since 2014, the number of products available for free two-day shipping has increased from 20 million to more than 100 million. The company has a significant investment in its logistics network and costs of shipping continue to rise. In addition, Amazon has spent lavishly to acquire, and create, an extensive library of movies and TV shows that are included in the benefits of Prime memberships. Prime delivers value to subscribers beyond the two-day free shipping option.
Is Prime still worth the price?
Group Activities and Discussion Questions:
- Pricing is a complex topic. Discuss the six steps for pricing (determining objectives, estimating demand, determining cost/profit relationships, select price level, set list price, and make adjustments).
- Discuss the various pricing models in class: demand-oriented, cost-oriented, profit-oriented, and competition-oriented.
- For Amazon Prime, divide students into groups and have each group work on any/all of the six steps.
- When setting the price level, assign each team a different model to use (demand-oriented, cost- oriented, etc.).
- Debrief the exercise. Compare the various pricing models and discuss advantages/disadvantages of each.
Source: CNN Money, Recode, Washington Post, other news sources