Brand equity is like the secret sauce that makes certain companies stand out and thrive. It builds trust and loyalty, so people keep coming back for more, even if they have cheaper options. This loyalty means brands can charge premium prices and still win over customers. Plus, strong brand equity sets a company apart from the competition, making it easier to expand into new markets and launch new products successfully. When a brand is well-regarded, it also gives businesses an upper hand in negotiations and helps them weather tough economic times. Marketing efforts become more effective, and new product introductions are smoother because people already trust the brand. In short, investing in brand equity pays off big time, enhancing everything from market position and financial performance to investor confidence. The trouble is this "secret sauce," is under constant pressure and risk dilution in the modern retail world.
What Changed
The retail landscape is barely recognizable from what it was 20 years ago. The move to ecommerce overall, the acceleration of Amazon and other marketplace sales channels have changed how consumers engage with products, and how brands interact with consumers. Digital platforms have become the new battlegrounds for customer attention, with personalized experiences and data-driven insights driving marketing strategies. The convenience and speed of online shopping have elevated consumer expectations, prompting brands to innovate continuously to meet these demands. Brick-and-mortar stores are evolving into experiential spaces, often blending physical and digital experiences to attract and retain customers. In this dynamic environment, a focused and detailed approach toward consumer engagement is crucial for brands to stay competitive and relevant. This shift has put immense pressure on brands to do just that. Any holes in the comprehensive plan to maximize consumer engagement will be exploited by outlets competing solely on price and willing to sacrifice hard earned brand equity to gain a competitive advantage.
The Importance of Controlling Distribution to Empower Advertised Price Compliance
Today, advertised price compliance is crucial for protecting product values and fueling the profitability required to maintain a healthy brand.
In theory, when brands enforce minimum advertised prices (MAP), it prevents price wars that can erode perceived value and profit margins. Compliance ensures a level playing field among retailers, fostering a consistent brand image and consumer trust. By safeguarding product prices, brands can invest in quality, innovation, and marketing efforts that further strengthen their market position and long-term profitability. This strategic discipline not only enhances brand equity but also supports the sustainability and growth of the brand in a highly competitive retail landscape.
The problem is the complex marketplace makes this difficult to do. Brian Cuttic wrote an article for ecapital.com, Maximizing Profitability: ABL Strategies for Wholesale Distributors to give wholesale distributors some guidance on tackling the issue. Counter Diversion Partner and Co-Founder, Art Fletcher wrote an article outlining this issue in 2023, titled Distribution Policies - The building blocks to Brand Health that outlines some key issues to consider for brands and manufacturers.
The problem is, advertised price compliance only applies to authorized accounts, often who are only authorized to sell products through specific channels. If the listing does not fall into these specific categories, it is a distribution violation and should be handled differently.
We specialize in the analysis, data mining, and source of product identification of online listings. This information clearly and consistently informs our clients which sales policies to enforce at the source of product. We are passionate about protecting brand health and seeing strong brands thrive in today's marketplace.
The Impact of Distribution Leaks on MAP Compliance
Distribution leaks can severely undermine Minimum Advertised Price (MAP) policies, creating significant challenges for brands. At the risk of stating the obvious, the issue arises from the volume and complexity of unauthorized third-party (3P) sellers who disguise themselves under unknown seller names.
These sellers often source products from struggling or opportunistic wholesale partners who sell off inventory at discounted rates, willing to work on fast pennies over slow dimes, they cause significant harm to official distribution channels. This unauthorized flow of goods disrupts the market by offering products at lower prices than authorized sellers, eroding the perceived value and pricing integrity of the brand.
Additionally, professional sellers often exploit Direct-to-Consumer (DTC) outlets by purchasing large quantities of products meant for end consumers and reselling them at discounted prices. This practice leaves MAP policies useless as there is no punishment that a brand can levy on a consumer. Again, this drastically hampers the profitability and reputation of legitimate retail partners who adhere to the brand's pricing guidelines.
These distribution leaks dilute brand equity, undermine consumer trust, and create an uneven playing field that can lead to long-term financial repercussions for the brand and its authorized distributors.
As long as the product is genuine, it has to come from someplace and uncovering the source is the solution to maximizing brand strategies and profitability.
Unlocking Revenue Potential: The Financial Impact of Distribution Control
Counter Diversion recently completed some financial modeling for a client with a complex distribution network that generates well over $10M a month in sales on Amazon. By investing in the process, this client was able to drive an additional $1.2M a month toward their approved sellers at a significantly higher average sale price (+ $18).
To break this down in round numbers, if a brand sell $10M worth of products a month on Amazon where the average MAP or MSRP price is $100, the brand would move 100K units. If the average sale price is $18 below that price, as we experienced, the brand would need to sell almost 122K units to achieve the same top line number.
But it doesn't stop there. Again, for simplicity, a $100 product may cost a retailer $50, and if the retailer can sell it for the Manufacturer's suggested retail price, they will make 50% margin. If that MSRP price is impacted or MAP prices can't be enforced, that margin, if we use the - $18 example we recently encountered, that margin drops to 39%.
If they sell it on Amazon, and Amazon takes a commission, which we'll use 15%, the margin on full price sales goes to 41%, and if impacted by $18, it drops to 28%. If this happens, two things will follow.
Higher average sale prices drive demand through authorized sales outlets. Generally, if ASP is negatively impacted, more sales will be converted by the grey market. This impacts the sell through of the brands more sustainable sales channels. This cannibalization often times comes with inventory returns or margin relief funding, so the retailer can then sell your goods at a discount to move through the inventory.
Products whose value is compromised have a significant impact on brand health. If a $200 product sells for $125 through margin relief funding or other clearance strategies, it is harder for the consumer to justify spending $200 for its' successor. The product is essentially stuck at a value perception versus a premium one.
Conclusion
Mastering advertised price compliance is essential for any brand looking to protect and enhance its equity. Distribution control stands out as a powerful tool in this endeavor, acting as your secret weapon. By meticulously managing where and how your products are sold, you can ensure consistent pricing that upholds the value and prestige of your brand. This control not only safeguards your products from unauthorized sellers and price erosion but also reinforces consumer trust and loyalty. In the fiercely competitive retail landscape, leveraging distribution control to enforce MAP policies is key to maintaining brand integrity, driving profitability, and fueling sustainable growth. Investing in these strategies not only preserves your brand's "secret sauce" but also fortifies its position in the market, ensuring long-term success in an ever-evolving retail environment.
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.
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