The Hidden Player Spurring a Wave of Cheap Consumer Devices: Amazon

The Hidden Player Spurring a Wave of Cheap Consumer Devices: Amazon


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Consumer brands owned by Sunvalley include VAVA and RAVPower.

Credit
Jason Henry for The New York Times

But knockoffs get a bad rap because they are of indeterminate quality: Even if it’s selling at a good price, who wants to risk buying a no-name portable smartphone charger if it might blow up in your face? Allen Fung, the general manager of Sunvalley’s American division, said that what was unique about Amazon was that its store encouraged low prices while heavily penalizing companies that made shoddy products.

“It’s not a race to the bottom,” Mr. Fung said. “Sellers are forced to create better products at lower pricing, and sellers who aren’t able to do that just get weeded out.”

Mr. Fung recently spent a couple of hours providing an in-depth look at how he manages his company’s brands on Amazon. To win a certain product category — portable chargers, say, or children’s night lights — the company is obsessive about monitoring customer feedback, including the rate at which its products are returned. Sunvalley recently hired a team of customer service agents to respond to complaints. It has also hired industrial designers to improve the look of its devices — which also helps it stand out from other commodity devices on Amazon’s results page.

Sunvalley also spends heavily on Amazon ads (these show up as “sponsored” results on Amazon’s search page), and sometimes it will sell products at a loss during one of Amazon’s daily or seasonal deals to get a boost that lifts all of its products in the website’s search rankings.

All of these investments are costly and time-consuming, and competition on Amazon is intense. Mr. Fung said Sunvalley’s gross margins were under 25 percent, which is quite low for consumer electronics.

“It’s really tough,” he said. “There’s a real process of natural selection there.”

This process is not going to affect just the consumer electronics business. Mr. Fung said his teams regularly looked to Amazon as a kind of product road map — they look for categories dominated by high-priced items from well-known brands, and then try to create better, cheaper versions. Sunvalley has expanded into home appliances like lamps and humidifiers, as well as into cosmetics.

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The Sunvalley repair center in Fremont. The competition on Amazon is “really tough,” Mr. Fung said. “There’s a real process of natural selection there.”

Credit
Jason Henry for The New York Times

Amazon, which charges a fee for third-party companies to sell through its platform, is not a passive actor in this trend. It has long encouraged businesses to set up shop on its site. The company said that half of its products came from small businesses, and that in 2016, more than 100,000 businesses exceeded $100,000 in sales through its system. It also started a lending program to allow those businesses to scale up; last year, its loans exceeded $3 billion.

“As this takes off, it really makes you start to question, you know, what is a brand in the Amazon age?” said Scot Wingo, executive chairman of ChannelAdvisor, an e-commerce consulting firm.

It’s an intriguing question, and one that raises fears of Amazon’s rise. While the growth of high-quality, low-priced brands on Amazon seems unquestionably good for consumers, the trend does produce economic losers.

The classic worry about Amazon is that it puts local retailers out of business. Now another worry is that by exposing global brands to the harsh reality of low-priced competitors, it may put them out of business, too. Mr. Wingo said global brands across a variety of categories — electronics, apparel, home improvement — regularly approached his company looking for a way to compete with low-priced rivals on Amazon.

He has had to let them know there’s no easy solution, he said.

“There is this erosion of what it means to be a traditional consumer product brand,” Mr. Wingo said. “In a way, Amazon is providing all this information that replaces what you’d normally get from a brand, like reputation and trust. Amazon is becoming something like the umbrella brand, the only brand that matters.”



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