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Packaged-Goods Companies Slash Marketing Spending As Amazon Makes Sales "All About Price"

Amazon’s dominance of all things retail-related in the US is starting to effect on how packaged goods are marketed: Big Brands are starting to give up on expensive advertising campaigns because customers no longer see the value in expert branding. Now, thanks to Jeff Bezos and his algorithms, they're fixated at finding the lowest price available.

According to MarketWatch, as Amazon and Wal-Mart make bigger pushes into the packaged-goods categories, brand names are spending less on marketing and backing away from their original models, James Cakmak, an analyst at Monness, Crespi, Hardt wrote in a Monday note. The $800 billion consumer packaged-goods category includes name-brand detergents, foods and personal care items, with large companies such as PepsiCo Inc., Johnson & JNJ and Mondelez International Inc.

“We see these companies starting to give up, and that’s a bad thing for the industry, consumers and the country,” Cakmak said.

Amazon’s Prime Service, which attracted millions of customers by offering two-day shipping, comprehensive music and movie libraries, monthly deals and even discounts to customers on government assistance. According to estimates from Morningstar, nearly 79 million U.S. households now have an Amazon Prime membership, up from around 66 million at the end of last year – a number that rivals the total cable subscribers in the US.

In the past, packaged-goods companies were able to dominate their sector by controlling how the goods were distributed and placed on the shelf at retail stores. With prime presentation in stores, the companies would spend heavily on marketing, which made up 20% to 25% of their budgets, to influence consumers’ buying decisions.

Now, instead of fighting for shelf space, Cakmak says the companies appear to be scaling back spending. In his quarterly check with major advertising agencies, he found that consumer packaged-goods companies were spending less on marketing. More worrying were reports that these companies were more focused on protecting the bottom line, rather than investing in growth and new innovative strategies to combat the online models.

Packaged-goods spending is also suffering as Americans face stagnant wage growth and rampant inflation in housing, health care and tuition costs.

Cakmak says this trend will only intensify with Amazon leading this change as it increases its push into food and other goods, with its own private label brands and its recent bid for Whole Foods Market Inc. Wal-Mart is also playing a part, as it has shifted more into e-commerce with its acquisition of in August 2016 and its discounts for online orders.

With their fixation on price, Amazon and Wal-Mart have commodified packaged goods, transforming the market into one that’s dependent more on pricing than on brand reputation.

“Now it’s all about price, especially as Amazon and Wal-Mart fight on a race to the bottom,” Cakmak wrote.

Let the deflationary race-to-the-bottom price wars begin.