Amazon's Dash button: A look at the economics, returns to consumer goods companies
The Tide Dash Button.
Amazon is landing more consumer product goods companies to its Dash button roster in a move that highlights its supply chain cloud and the economics behind the automatic replenishment system.
The Wall Street Journal reported that Amazon will announce new brands to its Dash button program. The report was based on documents and unnamed sources.
Previously: Amazon's Dash Button turns one, triples available brands | Amazon's Echo Dot, Tap, Alexa equate to Amazon Everywhere strategy | Amazon activates Dash Replenishment Service on select gadgets
What's interesting about the report is that it highlights Amazon's clout, the economics and the returns to CPG companies in the Dash program. Among the business takeaways:
- Returns to CPG companies are mostly intangible. The Journal reported that executives said they have signed up for Dash to "maintain close ties to Amazon." The idea is that a brand needs to be there should Amazon create an Echo or Kindle-like hit.
- Marketing is another intangible. The Dash button is a thumb sized ordering system, but CPG companies see a marketing benefit of some sort.
- Companies pay Amazon $15 for each button sold and 15 percent of each Dash product sale. That 15 percent is in addition to normal commissions paid.
- Consumers pay $5 per button, but Amazon makes them free with a rebate. Prime members can buy the buttons.
- Amazon has dropped a buy-in fee of $200,000 for CPG companies.
It remains to be seen whether Dash buttons work well enough to justify the additional fees to Amazon. Frankly, the auto-replenishment system deployed by Amazon is more likely to be built into appliances in the future. Amazon's Echo can also order goods.
Add it up and the economics indicate that the Dash button is a break-even venture at best. Amazon is likely betting that the Dash button is like a commission fee device in homes. Amazon's ability to corral CPG makers reminds me of how Wal-Mart can force programs on its suppliers. With scale comes clout.