How do we think this ends?
Updated: May 6
As Amazon and eBay have become more popular, so too has the phenomenon of unauthorized 3P sellers. These sellers often undercut authorized dealers on price, which can damage the product values of brands and manufacturers. As a manufacturer, how do you think this is going to play out? What will the cost of the Grey Market be to your brand value and authorized distribution network?
We've spoken with numerous people and have written several articles on the issues around unauthorized 3P sellers on Marketplaces. The question for any Executive responsible for Sales, Marketing, or Brand Protection, is, if you don't do anything about the Grey Market how do you think this is going to play out? Follow-up question, if you do everything in your power to combat the Grey Market, is the outcome different? Hopefully the later question read as rhetorical as it was intended. Our founders have worked for and managed some of the biggest brands in the world, and we are passionate about protecting product values in the ever changing retail landscape.
Most people that we've spoken with are aware of the issue and everyone agrees that it's a big problem. In some instances, the problem seems overwhelming. To compound the overwhelming feeling, most Marketplaces will not help Brands remove unauthorized 3P sellers. And why would they, commissions from an unauthorized seller looks the same as commissions from authorized sellers? Manufacturers must take control of their product values and distribution networks.
There is a solution and blueprint for how to manage this sometimes seemingly unachievable goal. Hopefully, many readers have invested in some tools to combat the Grey Market. If you have, you will eventually find a mix of the following issues feeding the Grey Market,
Authorized accounts operating an unauthorized 3P SellerID - In some instances, this is an issue of the account not "knowing" that they are unauthorized.
Authorized accounts continuously sell products to an unauthorized 3P Seller. Often this allows the account to hit volume-based discount levels.
Distributors selling to customers that operate unauthorized 3P SellerIDs.
Market Manipulation, or sellers who don't own the products that they are selling. This goes against Amazon's seller policies, but many sellers will inflate their catalog, in order to win the buy box on the products that they do have in their possession.
Consumer Resale or Retail Arbitrage.
Once a brand realizes that they have these issues, the question will become, how can we quickly identify the source of product fueling the issues described above and set up a process to consistently manage unauthorized marketplace activity? The key is understanding the issues and being able to confidently make decisions to address them. Whether that is confronting or terminating an account, or adjusting internal policies or practices that are contributing to the Grey Market. The point is, there is no account or distribution outlet where maintaining a relationship is more important than protecting your long-term brand value.
If we briefly follow the steps one of our clients followed as a success model, we find a brand with the following circumstances,
Categorized their products as premium in their space.
Had a significant unauthorized 3P seller issue.
Were willing to take quick action to address the Grey Market.
By identifying the source of the product, this brand found that they had a mix of Accounts operating unauthorized 3P IDs, Accounts selling products to Unauthorized 3P Sellers, and some 3P Sellers getting products from an outlet. The key for this brand was the confidence obtained to make quick decisions to remove access of products to the Grey Market. Several accounts were terminated, but the volume was quickly replaced by accounts willing to follow sales policies and the accounts own .com. They removed in-season products from the outlet store, protecting the demand for new-to-market goods. One of the keys to success was how quickly this brand was able to identify the source of products to sellers. Today this same brands' inline products garner "Hype" level prices, where the offers are significantly above their MSRP pricing, and none of their authorized accounts are asked to match marketplace pricing.
As manufacturers, we need to be constantly aware of how the Grey Market is impacting our brand and authorized distribution networks. There are solutions available, but it will require a commitment from all stakeholders to implement them. The first step is understanding the problem and then making quick decisions to address the unauthorized sellers. By doing this, brands can protect their long-term value and ensure that products are being sold through authorized channels only.
Counter Diversion is a boutique SaaS company - we don't have marketing and we don't use high-pressure sales tactics. Our goal is to have solid, honest conversations about the issues at hand and then either recommend our service or another one that is a better fit for your needs. If you'd like to engage in that type of discussion, please schedule a free consultation.