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August 19, 2020

Struggling to Stop Unauthorized Amazon or Other Marketplace Sellers? Companies Must Take A Holistic Approach To Win.

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Many companies struggle to stop unauthorized sellers from harming their brands. In working with upwards of 500 brands and manufacturers across the world on this issue, we have seen a distinct theme across many companies that continually struggle: they try to solve their challenges with fragmented approaches like MAP policies, monitoring software, marketplace “takedowns” or “scary letters”. Invariably, such tactics fail to solve their problems, and patience and budgets are exhausted by what becomes a never ending game of whack-a-mole. Conversely, a different theme exists across those companies that have successfully taken control of their online sales – they have employed a holistic approach that leverages each of the following eControl components for their unique business:

1. KPIs That Drive Commercial Success:

First things first – brands must define KPIs that are both relevant to their actual go-to-market strategy and indicative of true commercial improvement. Choosing the right KPIs requires considerable strategic thought around the brand’s Amazon and other marketplace strategies, distribution channel realities, product nuances, current pain points and desired commercial outcomes. For example, some companies do not want their products on marketplaces at all, others want to maximize marketplace sales captured by authorized sellers, while others may want to own the channel themselves. Each strategy requires different KPIs. For more information, see our recent blog post on metrics that matter.

2. Authorized Seller Foundation:

Next, brands must implement the policies with their authorized customers necessary to define the customer’s authorized sales channel, set the brand’s quality control expectations and prohibit online marketplace sales without the brand’s permission. This policy structure is often referred to as an “authorized reseller program”. In addition, in the U.S., a MAP, MRP, or MSRP policy can be included as part of this foundational component, as only the brand’s authorized sellers will be subject to such pricing policies.

3. Unauthorized Seller Legal Foundation:

Critically, brands must next establish the requisite legal foundation for stopping unauthorized sales. Without such a foundation, there is generally nothing wrong with someone buying and reselling your brand’s products, and sellers will continue to do so undeterred. This general rule – often referred to as the “first sale doctrine” – must be overcome for the brand to be able to conduct effective enforcement against unauthorized sellers. To establish the legal foundation necessary to stop unauthorized sales, most brands will need to show that their authorized products sold in authorized channels are “materially different” than those sold by unauthorized sellers. Note that the products at issue do not need to be physically different, just legally different. Common material differences include warranty and satisfaction guarantee applicability limited to products purchased from authorized sellers; however, there are many others. In addition, certain quality control requirements initiated by the brand for marketplace sales can serve to overcome the first sale doctrine and provide a basis for enforcement. Bottom line: your brand needs the right legal foundation to stop unauthorized sales.

4. 360-Degree Marketplace Cleanup:

Next brands need to engage in a 360-degree marketplace clean-up effort. This typically requires a multifaceted approach, including:

  • implementing robust marketplace monitoring and data analytics that facilitate prioritization of sellers for enforcement relative to the unauthorized sales volumes and revenues they are driving;
  • investigating to determine sellers’ true identities;
  • triaging otherwise authorized sellers (selling on marketplaces in contravention of the brand’s policies) and unauthorized sellers;
  • conducting the right type of enforcement against each (i.e., brand led against authorized sellers and lawyer led against unauthorized sellers);
  • escalating legal enforcement as necessary based on level of disruption;
  • obtaining the seller’s commitment to never sell the brand again;
  • determining the seller’s product source; and
  • leveraging that information to perform diversion diagnostics and root cause identification as described below.

5. Diversion Diagnostics, Root Cause Identification & Corrective Actions:

To achieve long-term success and avoid indefinite large scale enforcement efforts, brands need to determine the source of diverted products – i.e., is a particular distributor supplying unauthorized sellers, is international product making its way back into the market, is there a retail arbitrage issue, and so on. This allows the brand to take appropriate steps to plug any such leaks. Finally, the most sophisticated brands in this area will work to understand the root cause of their diversion problems – i.e., is it volume incentives they are providing to distributors, is certain promotional activity fueling retail arbitrage, are internal sales incentives misaligned, or is emerging market pricing allowing products to be reshipped back into market and resold online? Once the cause is identified, brands should give careful thought to whether any proactive measures can be taken to mitigate the downstream unauthorized sales resulting from such root cause activity. For more information on the importance of diversion diagnostics and root cause corrective action, download our white paper on the topic.

Vorys eControl has worked with approximately 500 manufacturers and brands to help stop unauthorized sales, achieve online sales control, and leverage that control for significant commercial benefit. For more information on our approach, see our ebook (Achieving Brand Control and Stopping Unauthorized Sales Online) or contact Daren Garcia at dsgarcia@vorys.com or 513.723.4076.