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The rapid emergence of challenger brands and third-party sellers in the digital marketplace has created a big hurdle for major CPG brands, according to a new report from IPG’s Agentic Systems for Commerce unit.
“The Hidden Economy Taking Share from Big Brands” looks at sales figures from Amazon’s marketplace to illustrate how the rules of brand competition are changing in the world of online retail.
The big takeaway from the study, which is based on data compiled by retail price intelligence platform Intelligence Node, is that challenger brands have pulled far ahead of legacy brands when it comes to their performance on Amazon.
Across the 18 CPG categories that were analyzed, challenger brands were in the lead for 16 of them, with margins ranging from 52 percent (challenger) vs. 49 percent (legacy brands) in the oral care category to an overwhelming 93 percent of sales nabbed by challengers in the health care category vs. just 7 percent for their legacy-brand competitors.
The only two categories where major CPG brands still held an edge were dog food & treats and cat food & treats.
What accounts for the strength of challenger brands? One big factor, according to the study, is the network of third-party sellers who rack up sales for those brands. Third-party brands follow “a model that removes nearly all the barriers that once protected major CPG brands.”
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The lowered barriers are reflected in the relative strength of third-party sellers and major CPG brands on Amazon. Those sales numbers come close to matching the challenger brand/major CPG brand split, with third-party brands taking a 90 percent share in health care, an 82 percent share in pet health & grooming products and a 77 percent share in makeup.
Another advantage that third-party sellers have is agility. The study notes that they can “launch products almost immediately” and offer challenger brands the ability to “test, refine and scale products at a pace traditional retail structures never allowed.
In order to catch up, major CPG brands need to work at “machine speed,” optimizing product detail pages, search ranking strategies and retail media decisions quickly.
One possible solution for major CPG brands: adopting agentic systems that can continuously sense, decide and act across all part of the digital commerce ecosystem.
“Those that remain tied to legacy operating models and fragmented technology,” the report concludes, “may find the Emergent Brand Economy extending its lead in the years ahead.”
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