As brands increasingly realize, online sales control is a critical predicate to profitable growth in the eCommerce channel, including, in particular, the online marketplace channel. In our first post in this series, we defined the four pillars of online sales control. In this post, we will do a deeper dive into the first pillar: channel management.
A key element to optimizing growth and preserving brand equity on online marketplaces like Amazon is limited distribution. That is, brands want as few sellers as possible – ideally one on online marketplaces like Amazon (whether that is Amazon, the brand itself, or an exclusive seller). This reality poses an initial challenge for brands, as many have relentlessly pursued widespread distribution for years, wanting their products out in the market as far and wide as possible. Accordingly, many products across numerous B2B and B2C verticals are easily sourced and sold online by unauthorized sellers, leading to massive intra-brand competition in the online marketplace channel. This, in turn, leads to diminished sales, diminished return on marketing investments, poor quality products, negative reviews and significant erosion of brand value – both in the online marketplace channel and across the brand’s other channels of trade.
Brands Must Take a Holistic Approach – Accounting For Realities “Below the Water Line”
This brings us to our first rule of channel management in the online marketplace era – online sales disruption starts below the water line in the brand’s traditional challenges, not on the marketplaces themselves. Many brands mistakenly focus solely on enforcement on online marketplaces like Amazon without addressing the issues in their traditional channel practices that are fueling the unauthorized online sellers. This leads to the proverbial game of “whack-a-mole,” which is not a winning strategy.
Developing & Implementing an Effective Authorized Reseller Program
Given this reality, the first channel management step that most brands need to take is to:
- Clearly define their authorized selling channels
- Make clear that customers may sell only in their authorized channels
- Stop marketplace sales without the brand’s express permission
This is often accomplished vis-à-vis an authorized reseller program – that is a program whereby the brand issues policies to its customers explaining where and how products can be sold in an authorized manner. Retailers and distributors are very accustomed to receiving these types of policies and, in many instances, welcome them. Without such a program in place, there is no governance whatsoever regarding who can and cannot sell on online marketplaces, and chaos soon ensues in the marketplace channel. Accordingly, implementation of an authorized reseller program is a key initial channel management step that allows brands to restore order to their channels and prevent online marketplace disruption fueled by their authorized sellers.
Effectively Monitor Authorized Channels for Compliance & Root Causes of Disruption
As brands implement their authorized reseller programs, they next should carefully monitor online marketplace activity to understand where and how products are leaving their authorized channels. Almost invariably, there is some business practice on the part of the brand that is fueling diversion and, ultimately, unauthorized sales. The culprit could be:
- Too many distribution incentives
- International pricing differentials
- Excessive retail margins
- Some other practice that makes it possible for products to be diverted from authorized channels and sold online at a profit
We refer to these underlying practices as “root causes.” Brands that are most successful in controlling online sales will have worked to identify the root cause(s) of their unauthorized online sales. This is a pivotal step at ending the “whack-a-mole” game and ensuring that online sales are made by the seller and in a manner consistent with the brand’s go-to-market strategy. The chart below identifies a number of common root causes of unauthorized online sales.
Channel management is the first of the four pillars of online sales control. It is often the first pillar that we recommend brands tackle in their online sales control journey, as the root cause of online sales disruption regularly resides in channel management practices. Brands should educate internal stakeholders on this reality (using the iceberg concept above), implement an authorized reseller program to mitigate channel chaos, and then work to understand and, eventually, mitigate the root cause of their unauthorized sales as much as possible. Stay tuned for our next post on the second pillar of online sales control: stopping unauthorized sellers.