Is Amazon Prioritizing Profitability Over Popularity?
Here’s the sum of all fears for product manufacturers . . . imagine if the world’s largest online marketplace (aka Amazon) changed its Search algorithm to prioritize products based on how much profit they can clear instead of the products’ own attributes like popularity or positive reviews. That’s exactly what’s been uncovered in this extensive investigation by WSJ.
Allegedly in late 2018 Amazon’s A9 engineering group began massaging their primary Search algo to organically prioritize up product SKUs which were most profitable for the company. The metric they began using is called a “contribution profit”, which factors in non-fixed expenses such as shipping and advertising. In simplest terms, which product could Amazon sell that would generate the highest profit margin once operational costs are factored in.
While the idea of prioritizing up high contribution profit items sounds bad enough, that’s not even the punchline. The real problem for manufacturers is that Amazon’s own private label products are the higher profit margin performers, so they’re prioritized up more often than name brand equivalents. This makes so much sense it hurts . . . why would Amazon bother paying Duracell for higher costs batteries it sells on the platform when it could make more by pushing its white label Amazon Basics batteries? Welcome to the bottom of the search page, Duracell. 🙁
Until now there was an underlying unease that Amazon could someday start prioritizing up its own product line and leave blue blood brands in the dust. Unfortunately it looks like that day is already here.