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August 25, 2020

5 Common Root Causes of Uncontrolled Online Sales

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Many companies will discover that a particular business practice is creating the economic environment that facilitates their product diversion and unauthorized online selling issues. In these instances, companies must weigh the economic and relational impacts of changing a particular practice against the countervailing benefits that could be achieved if the practice at issue - as well as the resulting diversion and brand harm - was amended or stopped all together. If you are struggling with uncontrolled online sales and want to get to the bottom of what is causing this phenomenon, look first to these five internal business practices:

1. Outdated Channel Strategy.

Many companies with online sales control issues continue to sell to and through as many channels as possible without putting any expectations, guardrails or other limitations on their downstream resellers. To be viable in light of today’s market dynamics, companies must instead be very intentional about defining and commuting to their customers regarding what are and are not authorized channels of trade, both online and offline.

2. Outdated Pricing & Promotional Practices.

Companies’ pricing and promotional strategies are also a common cause of uncontrolled online sales. For example, pricing differentials between markets or channels can facilitate diversion as products intended for one market are diverted into another. Likewise, large retail margins allow for easy money to be made on online marketplaces, and brands should give careful thought to their wholesale pricing, trade spend and incentive stacks. Volume-based discount structures are another common issue, which incentivize distributors to purchase at levels beyond which natural demand supports. In terms of promotions, BOGO deals, unlimited quantities subject to the promotion and compounded couponing can all cause significant unauthorized sales issues.

3. Liquidation.

Liquidated product is often resold on Amazon under the same ASINs as new retail product. Thus, brands need to maintain close oversight of liquidation outlets and consider the possibility of working through one or a very small number of trusted liquidation partners. Return to manufacturer or destroy-in-field protocols can also be leveraged to stem the harms caused by uncontrolled liquidation practices.

4. Internal Misalignment.

Many companies continue to experience internal misalignment. For example, traditional sales teams selling to diverting distributors at the same time that eCommerce teams are trying to clean up online marketplaces. Problems quickly ensue when unauthorized sellers easily obtain products because sales teams are content to sell to anyone in an effort to retire their quotas. Brands should give careful thought to whether their current sales incentives are a catalyst for diversion.

5. Lack of Diversion Impact Knowledge.

When internal stakeholders striving for better online sales control are unable to measure key metrics and tie their efforts to the business’s broader success, achieving broad-based buy-in will be more difficult to achieve. By understanding and educating the broader business on the true impact of uncontrolled online sales, which reaches far more broadly than marketplace or eCommerce performance, internal teams will be better equipped to drive the change management necessary to achieve online sales control and the commercial benefits that follow.

Vorys eControl is committed to educating manufacturers and brands on the need to look beyond unauthorized seller enforcement and understand the true root causes of their online sales control issues. To avoid the prospect of significant levels of enforcement on an ongoing basis, brands will need to address the internal business practices that are contributing to their online sales control issues. To learn more about these issues, please read our Root Cause Analysis & Corrective Actions whitepaper. If you wish to understand how our Root Cause Diagnostics and Corrective Action Team can help your brand to bring control to online sales, please contact Daren Garcia at dsgarcia@vorys.com or 513.723.4076.