Amazon doles out freebies to juice sales of its brands

Bloomberg

Amazon.com Inc. cracked down on fake reviews two years ago by prohibiting shoppers from getting free products directly from merchants in exchange for writing reviews. It was a major turning point for the world’s largest online retailer, which had previously seen “incentivised reviews” as a key way for consumers to discover new products. Amazon changed course because it realised some merchants were using such reviews to game its search algorithm, undermining faith in the customer feedback that helps drive e-commerce.
Amazon instead used its “Vine” program, in which Amazon serves as a middleman between prolific Amazon reviewers and vendors eager for exposure. Amazon would still allow freebies in exchange for feedback so long as there was no direct contact between its retail partners and reviewers, theoretically lessening the chance of quid-pro-quo. Amazon would select shoppers eligible for the program, and Amazon vendors would pay a fee and provide free products to participate. But there was an important group excluded from the Vine program: independent merchants who supply about half the goods sold on the site.
Now those excluded merchants and review watchdogs are alleging Amazon is guilty of the review manipulation the company said it was trying to prevent. Amazon uses Vine extensively to promote a fast-growing assortment of its own private-label products, distributing free samples to quickly accumulate the reviews needed to rise in search results and boost shopper faith in making a purchase. It gives Amazon a big advantage when introducing its own brands over third-party merchants who are more vulnerable to Amazon’s private-label competition than prominent brands already in stores.
The merchants’ complaints have taken on heightened importance amid a European Union antitrust probe into whether Amazon advantages its own merchandise over rival products on the site. The explosion of Amazon’s private-label brands is a key focus of inquiry, according to questionnaires regulators sent to Amazon merchants and reviewed by Bloomberg. Amazon didn’t specifically address merchant concerns about its use of the Vine program being unfair. In an emailed statement, the company said shoppers selected for the Vine program “can select from any eligible product, whether it’s an Amazon private-label product or a product from one of our vendors. The same guardrails that are in place for vendors are in place for our private-label brands.” The company could open the Vine program to marketplace merchants in the future, according to a person familiar with executives’ thinking.
Marketplace merchants introducing new products can use Amazon’s “early reviewer program” to get reviews. This program prohibits the distribution of free products, is far more restrictive than Vine program and gives reviewers fewer rewards. An Amazon shopper writing a review for the “Early Reviewer Program” can get Amazon gift card worth up to $3 as a thank you. Those selected for the Vine program can accumulate thousands of dollars in free merchandise.
Private-label brands aren’t unique to Amazon, of course. Big-box retailers and grocery stores use their own brands to appeal to price-conscious customers and keep brand names from raising prices too high. But Amazon is in a unique position given the vast consumer data it has collected covering a broad range of categories. A typical big-box store carries about 100,000 products while Amazon sells hundreds of millions. Amazon’s private-label products include batteries, diapers, phone chargers, tortilla chips, and even microwave ovens. Its own brands will grow to sales of $25 billion in 2022, according to SunTrust, Robinson Humphrey Inc.