If you're a manufacturer or retail partner of a manufacturer, then you're probably aware of the dangers of product diversion. This is when unauthorized sellers acquire products from authorized sales channels and sell them through other channels, often times on the growing marketplace sales channel (Amazon and eBay) at a lower price. This can cause serious damage to your business, as it can lead to lost revenue and decreased profits. In this blog post, we will discuss 10 indicators that you need to be aware of in order to spot product diversion. Stay safe online and protect your business by reading this post today!
10 Indications that product diversion of your products exists.
1. Marketplace MAP violations
2. Unknown third-party sellers
3. Slow sell-through from authorized channels
4. No slow down of overall shipping
5. Higher than average return rates for authorized sellers
6. Product listings in a country where that product wasn't offered for sale
7. Products being sold at a significantly lower price than MSRP
8. Products being sold on unauthorized marketplaces
9. Products being advertised before they are available for purchase
10. Products being sold on auction or consignment websites
1. Marketplace MAP Violations - Marketplace MAP violations are one of the most common indicators of product diversion. MAP, or Minimum Advertised Price, is the lowest price that a retailer can advertise a product for. If you see MAP violations on a marketplace like Amazon and eBay, it's a good indication that the seller is not an authorized retailer and is trying to sell the product at a lower price in order to win the sale by working on a lower margin. It is possible that an authorized seller isn't up to date on your MAP policy, or that they are overstocked and willing to violate the policy, but this is usually the exception to the rule.
2. Unknown Third-Party Sellers - This sounds like a no-brainer, but, another common and maybe the most prominent indicator of product diversion is unknown third-party sellers. If you see products being sold by unknown third-party sellers, it's a good idea to investigate further. These sellers may not be authorized to sell the product and often sell at a lower price to win the sale, without any concern of maintaining a business relationship or protecting a brand value. This group is the most damaging to product values and long term brand health.
3. Slow sell-through from Authorized sales channels - As a manufacturer, slow sell-through from authorized channels is another sure sign that product diversion might be occurring. If you have products that are selling slowly through larger authorized channels but you don't notice a slow-down in overall shipments, then it's likely that product diversion is taking place. This can be a difficult issue to track and resolve, but it's important to be aware of in order to protect your business.
4. No slow down in overall shipping to the territory - If you have noticed a slow-down in sell-through for a particular product but there is no slow down in shipping overall to the territory, this is another indication that product diversion might be taking place. This could be due to illegitimate sellers exporting products to other countries or selling them on unauthorized marketplaces. It's important to investigate any sudden changes in sell-through rates and take action to protect your business.
5. Higher than average return rates for authorized sellers - can be an indication of product diversion, especially if #4 above remains true. If products are being returned to the company at a higher rate than usual, it could be because they are being sold through unauthorized channels. This will damage your business by causing lost revenue through desired channels and decreased profits. It's important to be aware of these signs and take action to protect your business.
6. Product listings in a country where that specific product isn't offered - If you see products being listed in a country where a product wasn't offered for sale, it's a sure indication that the seller is not an authorized retailer and is trying to win a sale in an area where competition is minimal. Whether the product is sold at a discount or not, it has the potential to cannibalize products that are intended to serve that market.
7. Products being sold significantly below MSRP - This sounds like #1 on this list, but it can be very different and equally disruptive. Not every product offered has a minimum advertised price. Some items are designed for authorized retailers to be promotional to drive in-store traffic. If unauthorized sellers are able to offer these products at the already discounted prices, it reduces the effect of the product's intended purpose for an authorized retailers. This can damage your business by causing lost revenue and decreased profits.
8. Products being sold on unauthorized marketplaces - This closely ties with point #2 above. Having a strategy on where your products are sold will be one of the most important efforts in the digital world. We've covered in other blog posts that anytime there are multiple listings on one offer/site for the same product, pressure on price will occur. Unauthorized sellers often don't have any skin in the game when it comes to your product or business and are only concerned with winning a sale.
9. Products being advertised before they are available for purchase can be an indication of product diversion. - It is possible that authorized retailers to lose track of a launch date, but that is less likely. More often than not, a listing of products ahead of a launch date will occur from a seller trying to improve their sell-through when competition is low. Again, this damages the brand by creating a non-unified launch, taking the wind out of the sales of the actual launch date, and creating hard feelings with authorized accounts.
10. Products being sold on auction or consignment websites are a dead giveaway of product diversion. It cannot be said enough, that protecting your desired distribution channel to get your products to your desired consumer is vital. These types of websites are not the places where your products should be sold. It's a race to the bottom on price and will only serve to damage your business.
If you see any of these signs, it's important to take action to protect your business. Product diversion can damage your business in many ways. There is a solution for every business type.
For more information on how to protect your brand and product values, or to learn more about our services, contact us today.
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.