There was a time when manufacturers made products, then sold them to retailers, who sold them to consumers. Consumers might want something different, but they basically had to choose from among the available products or do without.
You could have a Model T in any color, as long as it was black.
Retailers gradually gained the power. Walmart set the prices and then influenced packaging and features, and finally made demands for environmental responsibility and labor concessions. Now Amazon is changing the game for manufacturers, and some are saying they have too much power.
What Amazon wants…
Amazon, like Walmart, can demand lower prices or insist that suppliers provide support for freight and marketing.
They also step into the factory. With their Vendor Flex program, Walmart has literally moved into the Proctor & Gamble’s warehouse, accomplishing fulfilment on P&G’s premises. The Vendor Flex program gives Amazon more scope, providing something closer to Walmart’s physical presence.
Since Amazon has relationships with shoppers — and one of the highest levels of consumer satisfaction around — they have control over customer data. That means they can produce their own versions of best-selling products, using the information they’ve gathered to focus on the most profitable options. Amazon can make diapers and batteries cheaper than the name brands, and their house brands outsell the established brands.
Essentially, Amazon is a manufacturer who gets to look at other manufacturers’ inside knowledge.
Amazon has also come to dominate markets with Kindle and Alexa, both of which are sold below cost. This, government antitrust examiners say, stifles competition and allows Amazon to control pricing, shipping speeds, and other factors affecting sales of books.
Their transportation network has grown into such a robust logistical system that they are competing directly — and successfully — with UPS and the post office. This creates a barrier to entry for any would-be rival.
Consumers want an Amazon experience wherever they shop now, and the “Amazon effect” is pushing manufacturers to streamline their operations. While some experts say that Industry 4.0 and the Internet of Industrial Things makes this a realistic goal, others say that Amazon is just too big for its britches.