8 Mistakes Manufacturers Make Starting up Their Online Reseller Channels, and How to Avoid Them All

By: Andrew Schydlowsky (TrackStreet) December 14, 2017

Whether your company already sells its products through a network of online resellers, or you’re just in the planning stages of building an online resale channel, it’s worth stepping back and thinking through the many common missteps manufacturers and brands make when they start growing a resale channel on the Internet.

Reseller Channel Mistakes

By making sure to avoid these 8 common pitfalls when you build (or adjust) your online resale channel, you can help to protect your company against price erosion, losing important retailer relationships, and harm to your brand value.

 

 

  1.   Failing to establish some type of authorized dealer program

One of the major problems manufacturers face with retailers selling their products online is that some of those retailers have no business advertising the company’s products in the first place.

Grey-market sellers, for example, might purchase products from one of the manufacturer’s wholesale or distribution partners, and then advertise those products on their eCommerce sites or on Internet marketplaces like Amazon at well below the prices all of the brand’s legitimate retail partners are selling the items. Worse, these sellers might use inaccurate or misleading sales copy, product specs and imagery in their product listings.

Such shady retailers can cause price erosion online, harm the manufacturer’s brand value, and undermine the company’s relationships with key retailers.

But if the manufacturer can’t readily identify where these product leaks are coming from, it will have difficulty preventing these grey-market problems from happening over and over.

 

WHAT TO DO

We recommend manufacturers establish an authorized dealer program, where any reseller interested in selling the manufacturer’s products online must proactively apply for inclusion in the program. Then, the manufacturer will let its wholesalers and distributors know that only businesses on the company’s authorized-dealer list can purchase products from them.

When the manufacturer knows who is allowed to advertise and sell its products to end-user customers, it will be much easier to spot and deal with the grey-market sellers.

 

  1.   Failing to supply its authorized dealers with a method of demonstrating their validity and credibility to customers

A related issue is that even if a manufacturer establishes an authorized dealer program, those retailers in the program — the ones who have earned explicit permission from the manufacturer to resell its products online — have no way of communicating this to their customers.

The authorized dealer program itself should significantly reduce the grey-market reseller problem. But if an unauthorized retailer manages to get its hands on the manufacturer’s products or puts up product listings online without permission, the customer will have no way of knowing that the eCommerce site (or Amazon listing) she’s viewing is not authorized to sell the product.

 

WHAT TO DO

We recommend that when a manufacturer or brand sets up its authorized dealer program that it also issue “Authorized Dealer Verified” trust icons that these companies can display on their product listings.

Ideally, these trust icons should be clickable links that pop open a live window further explaining that the online reseller is indeed a part of the manufacturer’s authorized network of legitimate retail partners.

 

Tip: TrackStreet offers an authorized dealer badging solution as part of its complete SaaS platform for dealer management. For more information, schedule a demo.

 

  1.   Failing to consider the online channel’s impact on the brand’s brick-and-mortar retail partners

When they start up an online reseller channel, many manufacturers forget to take into account how this new channel will affect the retail partners that sell the company’s products in their physical stores.

In most cases, these brick-and-mortar stores will much have higher overhead than an online-only retailer — and if it has no manufacturer guidelines to the contrary, the online retailer will therefore be able to sell the company’s products for significantly less than the brick-and-mortar store.

This means that if the manufacturer wants to protect those brick-and-mortar partners — and they should, because a product line’s presence in physical stores can deliver a lot of brand value — the manufacturer needs to implement some type of across-the-board pricing policy for all of its resellers.

 

WHAT TO DO

This is one of many reasons that a manufacturer should establish a reseller pricing policy. More on this below.

 

  1.   Failing to establish and communicate a set of branding and pricing guidelines for the brand’s online retailers

This is perhaps the single biggest mistake a manufacturer or brand can make when setting up an online resale channel for its products.

Without a clear, explicit set of guidelines regarding how the company expect all resellers to advertise and represent its products, a manufacturer is inviting all sorts of brand-threatening behavior from its network of online resellers — businesses that are, after all, competing head-to-head with each other to sell the identical products.

 

WHAT TO DO

We recommend working with legal counsel or a team of brand protection experts like the one at TrackStreet to set up a reseller pricing policy.

 

  1.   Failing to identify the correct reseller policy for the brand’s needs

There is no single, one-size-fits-all reseller policy that will make sense for every manufacturer or brand owner. This is why another common manufacturer mistake is selecting the wrong type of policy for its unique situation and needs.

For example, although most manufacturers immediately think of Minimum Advertised Price (MAP) policies when it comes to drafting reseller guidelines, MAP might not be best type of policy for a given company.

 

WHAT TO DO

We again recommend working with legal counsel or a team of brand protection experts to help determine the most appropriate and effective reseller policy for your company.

You can also learn more by reading our blog, MAP or UPP: Which Policy is Right for You?

 

  1.   Failing to publicize its reseller pricing policy to ensure resellers know it’s in place and the consequences for violating it

Drafting the correct reseller pricing policy is mission-critical when it comes to protecting your product and brand value in an online resale environment. But simply writing the policy is only the beginning of your responsibility of making sure it’ll be effective. Next, you’ll need to publicize it.

This is a crucial step for several reasons. First, you obviously can’t expect your online resellers (or your offline retail partners, for that matter) to adhere to your pricing policy if they don’t know it’s there.

Second, the more you widely you publicize your policy, the more likely you are to attract new resellers to your channel. When resellers see a manufacturer issuing pricing guidelines that will protect the interests of its retail partners, they often view the brand as worth investing in.

 

WHAT TO DO

When you have your reseller pricing policy drafted — and, ideally, reviewed by a team of brand protection experts — it’s time to get the word out about it.

You can read our recommended steps for publicizing your policy plus a comprehensive list of tips and best practices in TrackStreet’s free eBook: How to Draft and Enforce a Successful Reseller Pricing Policy.

 

  1.   Failing to make sure the reseller policy they draft and publish keeps the brand on the right side of antitrust law

Another very common trap manufacturers fall into is writing language into their reseller policy that federal regulators or a judge might construe as a violation of antitrust law.  

This mistake is usually completely innocent. The manufacturer drafts its own policy in-house, or simply grabs an existing policy from the Internet and customizes it, but doesn’t know the legal pitfalls that surround creating such documents.

In the case of drafting a Unilateral Price Policy (UPP), for example, it is imperative that the policy read entirely as a one-way statement — and that nowhere in the policy can it look as though the manufacturer is trying to either coerce or establish an agreement with its resellers.

 

WHAT TO DO

We recommend working on your reseller policy with qualified legal counsel to make sure your policy doesn’t raise any antitrust red flags.

 

  1.   Failing to deal swiftly, effectively — and within the constraints of Federal Anti-Trust Law — with every violation of the brand’s policies

In some ways, having a published reseller pricing policy in place — but then failing to quickly and consistently address violations — can be worse than not having such a policy in the first place.

This is because when your legitimate retail partners spot a business unfairly undercutting them by advertising your products below your policy’s approved prices — and they see your company doing nothing about it — this signals to these resellers that your company is comfortable with their competitors cheating the system to steal business from them.

Which is why proper enforcement of your reseller pricing policy is as important as developing the policy in the first place.

 

WHAT TO DO

In an online environment, it’s essentially impossible to manually monitor all of your products’ presence across the entire Internet at all times.

 

You simply can’t manually review every eCommerce page, every Amazon and eBay listing, and every online ad of every one of your products every second of every day — especially when you consider that, depending on your policy’s guidelines, this monitoring might also require your team to check a retailer’s in-cart pricing to make sure they aren’t violating your pricing minimums there.

Our recommendation, therefore, is to deploy an online brand protection platform like the one offered by TrackStreet to do the tracking and monitoring and to help you automate and scale key enforcement tasks.

 

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