November 1, 2019

Online marketplace trends continue to impact brands and retailers

Pittsburgh Business Times - View the full article.

With the rise of open online marketplaces, a whole industry has rapidly emerged in which unauthorized resellers obtain products from manufacturers’ distribution networks in myriad ways and sell them online. These resellers typically offer the products at discounted prices given that they have had to make no investments themselves to bring the products to market, and often are not committed to supporting the brands in the manner manufacturers intend.

Consequently, manufacturers that do not evolve to adapt to this new industry suffer channel conflict, degradation of brand value, reputational damage resulting from negative product reviews, decreased sales, and harm to established relationships with authorized distributors and retailers.

In short, these companies are losing control of their brands.

Of course, this new industry can also pose new problems for the retailers that have dedicated themselves to certain brands and want to engage in inter-brand competition. The prevalence of such sales on large online marketplaces allows consumers to shop for goods using the training, knowledge, and customer services the authorized retailers offer, but buy the goods from untrained and unsophisticated online sellers.

Unsurprisingly, many retailers have become hesitant to carry brands that turn them into nothing more than showrooms or customer service providers for other parties that actually get the customers’ sales.

In response to these third-party sellers, successful manufacturers are developing and implementing comprehensive approaches to clean up their online sales channels. These approaches allow them to achieve brand control and stop unauthorized sales. These approaches typically include three of the following steps:

1. Analysis, strategy development, and alignment within the brand.

Brands achieve internal alignment by identifying their pain points, distribution strategy, budget realities, desired return-on-investment measurements, and other crucial facts. This step is critical because achieving control in the e-commerce age is not a “one-size-fits-all” proposition; success requires customization.

For example, a company that sells products through distributors will require different tools than one that sells directly to retailers. A company with a number of low-volume, hobby sellers will require a different strategy than one grappling with several high-volume, professional unauthorized sellers.

2. Implementation of policies and procedures to support control and enforcement.

Brands implement a marketplace distribution strategy that can reduce the number of unauthorized sellers that are harming brand value. When many sellers are listing a company’s products online, no one seller is motivated to invest in the content, search engine optimization, and advertising necessary to increase listing traffic and drive sales growth. Brands become greatly devalued when unmotivated sellers do the only easy thing they can do to generate sales — slash their advertised prices.

Although many factors go into developing the ideal strategy for a brand, one widely applicable best practice is to limit each online marketplace to one authorized seller or, if necessary, a small number of sellers that will be appropriately motivated to protect and grow the brand in the online channel.

Brands that enforce their quality controls and customer service requirements can distinguish their genuine bundles of products and services from products sold by unauthorized sellers, and, in turn, have stronger legal claims to pursue unauthorized sellers.

3. Data monitoring, investigation, and enforcement of policies and legal claims.

Brands monitor and investigate unauthorized sellers, enforce their policies, and assert legal claims when necessary. Effective marketplace monitoring and consistent evaluation of key data is critical to prioritizing enforcement resources and achieving real business success. The focus should be on stopping resellers that are truly disruptive.

Many of these resellers operate anonymously, so brands have to employ investigation teams to leverage open source intelligence, apply advanced cyber investigation techniques, and gain access to enhanced informational databases. Ultimately, a brand is able to use the legal subpoena power to uncover the true identities of unauthorized resellers.

Once unauthorized resellers are identified, the most successful brands take the necessary steps to enforce their policies and legal claims. This typically begins with sending a detailed cease-and-desist letter to the reseller’s home or business explaining that they are unauthorized, have been identified, and are violating the law by selling the company’s products. Companies can also demand from the seller product source information and a commitment to never sell the company’s products again. If the seller does not cease selling the brand’s products, the brand can take legal action.

The benefits of the three-step approach

These three steps are interdependent, meaning the success of each step is dependent on effectively executing the others. This type of approach allows a brand to control costs and reduce the overall volume of unauthorized sellers while still maintaining the ability to use litigation against high-volume or other problematic resellers.

This three-step process has allowed brands to clean up their online sales channels, regain control of online marketplace sales of their products, increase their price-compliant sales, and preserve their brand reputation. As the inventory of third-party sellers on online marketplaces dwindles, the inventory of retailers — and with it, the shopping and buying habits of consumers — will also begin to normalize.

Regaining control of unauthorized online sales has the added benefit of protecting the brand’s valuable and established relationships with its authorized distributors and retailers.

Vorys, established in 1909, has grown to be one of the largest Ohio-based law firms with more than 375 attorneys in seven offices in Ohio, Texas, Pennsylvania and Washington, D.C. Vorys ranks as one of the 200 largest law firms in the U.S. according to American Lawyer. Learn more: www.vorys.com

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