Why Amazon can Establish new Platforms Like the Dash Button Easier Than Others

dashbuttons

The Wall Street Journal is reporting that a dozen new brands are coming to the Dash button (paywall). But that is not the interesting part of this story. This is:

“It may not be the most intuitive feature,” said Ken McFarland, director of e-commerce for Seventh Generation Inc., which has Dash buttons for its cleaning products and diapers. “But Amazon is trying so many things and you don’t want to miss out on the ones that work. You want to be out there if it does happen to be a hit.”

Companies pay Amazon $15 for each button sold and 15% of each Dash product sale, atop the normal commission, which typically ranges from 8% to 15%, the people familiar with the matter said.

For their part, consumers pay $5 per button, though Amazon sweetens the deal by offering a $5 rebate for every button. The rebate is good toward the first purchase using that button. Only members of Amazon’s $99-per-year Prime membership are eligible to use the Dash buttons.

There are two aspects that stand out here.

First, consumer packaged goods (CPG) companies in the U.S. seem to be all in with Amazon by this point. With the manufacturers being almost per default on board with every new shopping experiment Amazon is rolling out, the online retail giant is in a very comfortable position when it comes to establishing new platforms like the Dash buttons: Having one side easily on board, Amazon ‘only’ needs to get the other side, the customers, onto the platform. (That is one way to resolve the chicken-and-egg question: Be a strong, more straight-forward distribution channel first.) Not to take this too lightly: According to the Wall Street Journal, Amazon paid the first companies to sign up for the Dash button a $200,000 fee upfront. Those where household names like P&G and Pepsi.

The second interesting aspect is the fact that CPG brands pay Amazon $15 for every button sold. That is an upfront profit in there right there. Combine this with the commission fees for orders through the button and the fact that the Dash button is part of Amazon Prime, making the latter a richer offer. Amazon has created a sweet deal for itself. That the actual orders made with the Dash button won’t probably break even on their own most of the time isn’t such a big deal in this context. (And even then, customers using the Dash button probably buy constantly at Amazon anyway, and thus are increasing the chance for Amazon to combine several orders in one package.)

On a side note, this from the Wall Street Journal’s article suggests that Amazon needs to keep working on the user experience around the Dash buttons:

Among [a customer’s] complaints: the buttons don’t display price info when they are pushed, which can lead to big swings as Amazon updates its prices online. She stopped using her Gatorade button when the price of a 12-pack jumped from $9 from the first purchase to $22 for the second. Amazon provides text-message alerts—including price—upon request when a button is pushed. “If I have to check on the price every time,” she said, “it’s not actually saving me time.”

I suggest guaranteed prices for Dash button orders. A 100%+ price jump is understandably unacceptable for customers. (Guaranteed prices or price ranges could be a great selling point for the Dash buttons as well, creating customer loyalty.)

The Dash button received its first big brand expansion at the button’s one year anniversary in April of this year.

Around this time, a study looked at the brand distribution among the Dash Buttons:

P&G, in fact, rules the Dash Button market, the study indicated, taking the lion’s share of sales at 31 percent. After P&G, Kimberly Clark (Cottonelle, Huggies) sits at #2 with 14 percent of the market share, and Clorox (Glad) rounds out the top three with 11.7 percent.

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