Amazon Private Label 101: Understanding Product Life Cycle

As the Amazon marketplace becomes more and more crowded, reselling is becoming more and more competitive and the Buy Box is becoming increasingly harder to hold. One of the tactics Amazon sellers are turning to to help them get an edge is to develop their own private labels or brands.

I’ve seen several versions of this:

1. Pick a top-selling product, find a private label manufacturer to create a competing product, slap your brand on it.
2. Find an up-and-coming product niche and create your own version of the product with your own design, features and brand.
3. Create a totally new product that solves a problem in a unique way and create a whole brand message with a distinctive selling proposition.

These three methods have all worked for sellers to one degree or another. The easiest to execute obviously being the first method, the hardest the third. Your return on investment will also vary by method and the quality of execution. Which is right for you depends on your resources, talents and interests, as well as which product niche you are focusing on and your existing competition. Over the next few months I will discuss these three approaches, how to approach your own branding and getting launched on Amazon. This month I’ll review researching the opportunity for creating your own brand.

Do Your Homework

When it comes to choosing your opportunity for an Amazon private label product, don’t fall into the trap of “everyone is selling product x, I should too!” While you can get lucky with this approach, without proper research you may be setting yourself up for thin margins, high competition, and slow-moving inventory. Instead, do your homework and ensure you are getting in early on the product life cycle, that demand is increasing and that there is room for more competition. Even better, determine if you can offer something unique that customers will like more than what is currently on the market.

So, how do you best size up the opportunity? Start with the data Amazon provides you. There are a number of software platforms that will aggregate this for you, or you can do a manual search yourself on Amazon.com. Enter in the main search term for whatever product idea you have. Use the most common term you think customers would use to search for this product. Now take a look at the first page of search results. Since only about 30% of shoppers go past this page, you want to see what it will take to compete on this page for your main term.

What to Evaluate Before Creating a Private Label Product

Take a look at the following information:

• Price
• Product reviews
• Sales rank

Let's take a look at each of these in detail.

Price

How is the competition priced on the first page? Is this a price you can compete with and still maintain strong margins? Even better, will you be able to enter the market at a lower price than the competition? Use the FBA calculator with an ASIN for a similar product to determine what your FBA fees may be and factor these costs into your margin analysis. After all fees and cost of goods, do you have enough margin to cover overhead and turn a profit for your Amazon private label product?

Also, look up historical pricing using software that tracks Amazon pricing. Find out if pricing has been stable or if there has been volatility or a steady decrease indicating price wars or slowing demand.

Sales Rank

Amazon’s best seller rank is an indication of recent sales velocity. The lower the rank, the more products have sold in recent days. What constitutes a “good” sales rank will vary by category. There are tools that will help you determine how the ranking translates into daily sales. Ranking can change daily, sometimes dramatically if they had a particularly good sales day, so again it’s good to look at the ranking history for trends.

Using Amazon sales rank to estimate daily and monthly sales, you can now size up your opportunity. If all the sellers on the first page of search results have estimated sales of 5 units per day each, is that enough volume to support your costs? Is demand expected to increase? Can you do something different that will create more demand for your private label product? Conversely, if they are each selling 100 units per day, keep in mind that in order to get ranked alongside these sellers on the first page, you will need to somehow start generating comparable sales first.

Another point to consider: are all sellers ranking about the same, or is one dominating the category? What are they doing that is setting them apart from the competition? Can you do something similar or better to set you apart?

Product Reviews

How many product reviews do the first page products have? A low number may indicate either low sales volume or that the product is new to market. A very high number may indicate high sales velocity or that it has been on the market for some time. You will know which by cross-checking against sales rank. If there are few reviews (less than 200-300) and you are seeing an increase in demand (sales velocity) this may be a younger niche that will be easier to enter with an opportunity to grow. Too many reviews (1,000+) indicate that these are very established sellers with products further into the product life cycle and the niche will be harder to break into. Demand may also be due to start decreasing.

Take a look at how many stars the average review has. Three and a half stars or less indicates a general dissatisfaction with the existing products. Take a look at what customers are saying. Can you make a better product that will solve their problem? This could be a good opportunity if you can.

Gauge Product Life Cycle Stage

One non-Amazon tool I use to help determine where a product idea is in the product life cycle is the Google Trends tool. This tool can be a good indicator of changes in interest and demand over time. You simply type in a search term and it will show you the relative volume of searches performed for that term over time. For example, a query for “fidget spinners” looks like this:

One year ago interest was virtually non-existent, dramatically increased this spring, and peaked in early May. It has since dropped off dramatically, indicating that this product’s life cycle was quite short and may not be a good niche to get into.

A product with a longer life cycle that is just getting started would be Amazon’s devices using the Alexa feature. In this 2 year chart, you can see the peak at holiday and more recently, Prime Day, with a sustained interest in between, this will likely be a product that will continue to grow:

This is just a sampling of some of the data you can pull to help you size the market for your next big idea. The two things you really want to be concerned with are:

• Where are we in the trend or product life cycle?
• Is there room for another offering?

If you have determined that demand will continue to increase and there is still little competition, the next step will be to get to work to get your brand and private label product produced and onto Amazon. I’ll cover more of how to do this over the next couple of months.