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October 25, 2021

Channel Management Strategies that Optimize Sales Control

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Commerce has been irrevocably transformed in the age of online marketplaces. The online marketplace explosion has plagued brands with countless unknown marketplace sellers who are neither loyal nor accountable to the brands they purport to represent. These anonymous sellers obtain and handle products in mysterious and oftentimes nefarious ways, causing significant consumer confusion in the process. Unsuspecting shoppers frequently believe these sellers legitimately represent the brand, but are extremely frustrated when poor quality products arrive at their doorstep.

Commercially, unauthorized third-party (3P) sellers cause significant issues. Brands with a first-party (1P) Amazon.com relationship may suffer erosion of brand value, margin chargebacks, CRAPed out products, and reduced profitability in their 1P relationship as a result of the massive intra-brand competition that can be created by numerous marketplace sellers.

"BRANDS OFTEN EXPERIENCE TREMENDOUS PRESSURE — BOTH INTERNALLY AND EXTERNALLY — WHEN THEY LACK SUFFICIENT CONTROL OVER ONLINE MARKETPLACE CHANNELS."

Unauthorized sellers interfere significantly with brands’ crucial efforts to maximize the return on advertising, SEO and content enhancement investments. Making matters worse, the poor quality products often sold by unauthorized sellers result in negative product reviews causing further reputational and economic damage to the brand.

At the same time, the brand’s longtime brick-and-mortar retailers are negatively impacted when consumers decide not to buy the product after seeing bad reviews online, or from the showrooming phenomenon, where consumers use stores to browse and get information only to purchase lower-priced products online. In response, brick-and-mortar retailers are increasingly incorporating price-match policies for consumers and chargebacks for the difference to brands, and may even reduce shelf space or refuse to carry brands that lack sufficient control over their online channels.

Unmanaged Business Practices Exacerbate Sales Control Challenges

Brands often experience tremendous pressure — both internally and externally — when they lack sufficient control over online marketplace channels. As an initial matter, there are countless examples of poor consumer experiences associated with unprofessional third-party (3P) sellers on marketplaces involving late shipments or unresponsiveness. Worse, brands are at risk of 3P sellers shipping poor-quality products to consumers. Because

Amazon names the brand more conspicuously than the seller, consumers are likely to attribute these quality problems to the brand and leave poor product reviews. These reviews hurt the brand’s reputation and image in each of its channels.

Further, these sellers often acquire products at deeply discounted prices without having to make the investments other sales channels have to make to productively bring the brand’s products to market. This can lead all sales channels to stop investing in the brand because they cannot effectively support the brand and maintain a viable business.

More often than not, the root cause of these pain points is the business practices of the brand itself, which feed a range of harms across all sales channels. This cycle creates substantial downward pressure on revenue and profit for both brands and their channel partners. Brands seeking to maximize their brand equity and commercial growth have no choice but to develop a strategy for holistic channel control that includes addressing some key business practices.

The remainder of this paper will focus on business strategies your company can use to protect and grow in today’s online marketplace environment. Brands seeking long-term success will inevitably have to evolve their business practices to account for the realities of online commerce. Specifically, brands must take a fresh look at and begin to evolve their efforts regarding:

  1. Sales channel strategy
  2. Channel pricing and promotional practices
  3. Internal misalignment; and
  4. Internal quantification and sales control advocacy

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Channel Strategy

At the extreme, many brands still sell to and through as many sales channels as possible without putting any expectations or limitations on those resellers. Today’s brands must evolve to ensure that they have a defined route-to-market strategy, including clear expectations regarding how their products should be sold and represented by authorized parties. This strategy and related expectations must be clearly communicated to authorized channels and enforced by the brand. Some key aspects of a channel strategy that merit focus include:

Marketplaces. Brands must give considerable strategic thought as to how they will sell on online marketplaces like Amazon. It is best practice to limit sellers on Amazon, ideally to just one who deeply understands how to optimize growth on the platform. Without a defined strategy, brands are likely to face a chaotic reseller environment with multiple unknown 3P sellers, resulting in poor service and products in the channel, significant harmful intra-brand competition, and an overall disincentive for sales channels to continue to invest in the brand.

"TODAY’S BRANDS MUST EVOLVE TO ENSURE THAT THEY HAVE A DEFINED ROUTE-TO-MARKET STRATEGY, INCLUDING CLEAR EXPECTATIONS REGARDING HOW THEIR PRODUCTS SHOULD BE SOLD AND REPRESENTED BY AUTHORIZED PARTIES"

Authorized sellers in remaining channels. Brands must also have a strategy for defining and managing authorized sellers in other channels, as well as communicating their expectations and plans to these companies. Authorized sellers are a frequent cause of product diversion, as they can (knowingly or unknowingly) sell products to unauthorized resellers. Brands should create strong policies that clearly define how, where, and to whom authorized sellers may sell. Brands should communicate their policies and expectations to their authorized sellers, explaining the problems caused by product diversion and the importance of preventing it. In our experience, most downstream customers take such policies or contracts seriously. Brands should also assist their authorized sellers with best practices for detecting and stopping product diversion, and publish “do not sell” unauthorized seller lists to distributors. Brands often experience significant improvements just from implementing appropriate policies, contracts and processes with their authorized sellers prior to any legal enforcement.

Monitoring and business enforcement. Although many authorized sellers will comply with the brand’s policies, some may not. To effectively deal with recalcitrant authorized sellers, brands should continuously monitor their channels to identify likely sources of diversion and take appropriate action against violators. These actions range from limiting product, reducing trade allowances or terminating the relationship altogether.

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