Recently, it was reported that Nike was close to signing a wholesale agreement with Amazon, which reportedly would lead to an additional $500m in sales for the sportswear manufacturer.
It all sounds well and good, but the additional sales will be a short-term gain at best. According to Elaine Kwon, a former employee in Amazon Fashion, several premium brands have seen their brand equity spiralling downwards as Amazon’s pricing algorithms starts undercutting competitors’, and set a new ‘industry-low’ price, which, indeed, is a suboptimal price positioning strategy for high-end brands. The main issue with Amazon’s wholesale is that the objectives of the two parties are not aligned when it comes to pricing. Amazon will set a price that optimizes profits in the short term -- simple as that. Even though Nike is a great customer, Amazon’s pricing is entirely based on short-term profit maximization. On the other hand, the seller, e.g. Nike, should have a long-term strategy for its pricing (although, they don’t always live up to this); Nike needs to consider how its pricing will affect its brand equity in the long run, how the price aids its long-run brand positioning, and how the price supports other portfolio products. Amazon don’t care one bit about this, which is why many retailers are still reluctant to enter the wholesale partnership.
Read the full interview with former Amazon employee, Elaine Kwon, on how brand equity is tarnished by the ecommerce giant here: https://www.racked.com/2017/6/28/15881994/amazon-nike-partnership-elaine-kwon