Tell me if this sounds familiar, your company's sales team that calls on Amazon is complaining about declining sales due to 1P offers losing the buy box. You have other retailers telling you that they are not going to adhere to your MAP policy because they need to be competitive with marketplace listings, or they are complaining about reduced profits due to matching prices on marketplace sales channels.
Shoshy Ciment, Senior Business Editor for Footwear News, recently highlighted the success of Crocs and Birkenstock in protecting their iconic products. In a LinkedIn post, Ciment noted, “According to market watchers, executives, and brands, it all comes down to controlling distribution, staying true to design codes, and innovating new ways for the brand to show up.”
In today’s digital landscape, mastering marketplace distribution control is crucial for brands. It involves managing how products are distributed across various online platforms to maintain consistency, protect the brand, and enhance sales. Why is this so vital? Effective distribution control helps prevent unauthorized sellers, adhere to pricing strategies, and ensure a seamless customer experience, thereby maximizing brand health. By excelling in this area, brands can build a strong reputation, earn customer trust, and drive consistent growth in the digital marketplace and beyond.
This blog post is a journey that kept leading to successive topics. We will explore key concepts, strategies, challenges, and opportunities for technology and automation in addressing marketplace distribution control.
Marketplace Distribution Control Key Concepts
Controlling marketplace distribution is all about ensuring that your products reach customers in the most efficient and effective way possible. It starts with choosing the right distribution channels, whether that’s selling directly to consumers or through intermediaries like wholesalers and distributors. Your product and brand should dictate your distribution strategy and drive the strategy necessary to protect those products online.
Many healthy brands have brand advocates, who brands would prefer to buy from their own e-commerce site or retail stores. Several consumers are going to prefer specific retailers where they know a curated assortment, product expertise and service offer supreme value when making purchasing decisions. Transactions through these scenarios where no or only minimal discounting occurs are brand enhancing. Cannibalization to these sales is the danger to profitability and brand health.
Marketplace Distribution Control Advantages
There are several advantages to controlling marketplaces highlighted in the table below. The digital marketplace has made this more challenging. Gone are the days of shipping products to retailers and trust that they are selling and promoting a brands product in their geographical markets. Today, brands must navigate a complex web of online platforms, each with its own rules and algorithms. This requires a more hands-on approach to ensure consistent brand representation and customer experience across all channels.
Done correctly, the data will tell the story of how healthy a brands marketplace presence is. By leveraging data, brands can gain insights into customer behavior, market trends, and the performance of their products across different platforms. This information is crucial for making informed decisions about inventory management, pricing strategies, and marketing efforts.
As we delve into this topic, effective marketplace control must involve monitoring and managing third-party sellers to prevent unauthorized sales and ensure that all sellers adhere to the brand’s standards.
Case Study on Effective Marketplace Distribution Control
Our process started in 2017 with HOKA ONE ONE, the running shoe division of Deckers Outdoor. Known for its innovative oversized midsole technology, HOKA has rapidly gained popularity among runners and outdoor enthusiasts. The brand’s focus on providing maximum cushioning and support, along with some great colors has set it apart in the competitive footwear market. Their commitment to quality, continuous innovation, and a focused distribution strategy designed to authentically engage with their target consumers have helped them become one of the fastest-growing performance footwear brands in the world.
HOKA's desire to drive demand to their authorized sales outlets and their zero-tolerance approach to unauthorized marketplace sales reinforced a sustainable and profitable distribution strategy. By not allowing for full-price sales to be cannibalized, the brands premium position grew contributing to its' long-term brand health. But it wasn't easy.
HOKA's leadership was committed to the vision for the brand and had no patience for accounts that were not going to take their Terms & Conditions seriously. The immediate question on our first phone call was how.
If you've been involved with marketplace brand protection, you have probably heard the term “Whack-a-mole.” The term is often used to describe the ongoing effort to control unauthorized third-party (3P) sellers on platforms like Amazon and eBay. This metaphor originates from the arcade game Whack-A-Mole, where players use a mallet to hit mechanical moles that pop up randomly from holes. As soon as one mole is hit, another one pops up, creating a never-ending cycle.
Similarly, in the context of e-commerce, “Whack-a-mole” refers to the challenge of dealing with unauthorized sellers who continuously reappear despite efforts to remove them. When one seller is identified and removed, another one often appears shortly after, sometimes even the same seller under a different name or account. This creates a persistent and frustrating cycle for companies trying to maintain control over their brand and product listings.
Going back to the question of how, the Counter Diversion process is the only way to stop the moles. They have to be eliminated at the source of product. Knowing that once the source of product is identified we would be recommending the client to shut off a source of revenue. Not something we took lightly.
In HOKA's case, their commitment to protecting their product values and approved dealer network was reconfirmed with the actions they took on the insights we delivered.
Importance of Distribution Control in Today's Marketplace
Marketplace expert and Amazon alum Marin Huebel frequently provides insights to followers on LinkedIn and through his consulting company Consulterce. In terms of distribution control Heubel recommends, "educating leadership teams early on how discounts to long-term distribution partners can backfire if these retail partners also resell products on Amazon. In these situations, the brand effectively funds their own competition, facing higher lost Buy Box rates and margin compensation claims by the online retailer. Instead, selling on Amazon requires an early emphasis on distribution control and product differentiation strategies to sell sustainably to the online retailer over the long term."
Distribution partners, as Huebel describes, are any outlet where a brands products are available. The challenge is understanding how this distribution is creating cannibalization and driving down the value of a brands products and health.
Studying, analyzing and identifying the source of products to thousands of unauthorized 3P sellers, we have noticed that most sellers will fall into one of these five categories.
If sellers that fall into the top two categories, like the example below from one of our clients, the brand is in great shape. Most brands have sales policies in place to address violating listings from "Approved Sellers" and "Discovered Wholesale" in the form of MAP (Minimum Advertised Price) policy for the former, and Terms & Conditions for the later. In the example below, this brand can enforce its' MAP policy on the 1,598 listings that are below MAP pricing and enforce its' Terms & Conditions on the 23 resellers we helped them identify.
However, if a brand has listings from sellers acquiring products through their direct-to-consumer channels (indicated below as "Company eCom," where sellers acquire product from a brands website, and "Consumer Resale," where sellers acquire products through brand store or outlets), there are no policies that can be enforced to address these listings. Consumers are not beholden to brand sales policies, and if permitted to continue unchecked, will continue to eat away at approved sales, that are usually at higher average sales prices.
It is a very challenging position to be in where you can only enforce brand policies on a percentage of unauthorized or disruptive listings. Holding your approved sellers to a MAP price that is constantly being undercut by unauthorized 3P sellers is a recipe for disaster.
Conclusion
Mastering marketplace distribution control is not just a strategy; it’s a necessity in today’s competitive digital landscape. As we’ve explored, effective distribution control involves a multifaceted approach that includes choosing the right distribution channels, leveraging data for informed decision-making, and maintaining strict oversight of third-party sellers. Brands like Crocs, Birkenstock, Stanley 1913, Rawlings and HOKA ONE ONE have demonstrated the importance of protecting their distribution channels to maintain brand integrity and drive growth.
By implementing robust marketplace distribution control strategies, brands can prevent unauthorized sales, adhere to pricing policies, and ensure a consistent customer experience. This not only enhances brand reputation but also fosters customer trust and loyalty. The challenges are significant, but with the right tools and commitment, brands can navigate the complexities of the digital marketplace and achieve sustainable success.
In conclusion, the key to thriving in the digital marketplace lies in a proactive and data-driven approach to distribution control. By staying vigilant and adaptable, brands can protect their market position, optimize their supply chain, and ultimately, deliver exceptional value to their customers.
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, schedule a consultation here.
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