Authorized Dealer Programs

We’ve referred to Authorized Dealer Programs throughout this course, but we haven’t yet fully explained what these programs are or why how why they can add so much so value to your company’s efforts to protect your brand.

So, in this module, we’ll answer the following questions:

• What is an Authorized Dealer Program?
• How do these programs benefit your company and your retail partners?
• What are the legal implications of having one of these programs?

 

What Is an Authorized Dealer Program?

An Authorized Dealer Program (sometimes called an Authorized Dealer Network) is an opt-in partner program in which retail businesses that want to sell a brand’s products must first go through an application and vetting process to become one of that brand’s “authorized dealers.”

Brands implement these programs to set guidelines for how they expect their approved retailers to sell, support, and advertise their products. Some of the many standard clauses you might find in an Authorized Dealer Program agreement include:

• Reseller may sell our products only in its original packaging.
• Reseller may sell to retail customers only, and may not sell in bulk to other retailers, wholesalers, etc.
• Reseller must provide levels of customer and sales support that reflect industry best practices.
• Reseller must adhere to our brand policy in all sales and advertising materials.
• Reseller must include appropriate trademark other intellectual-property symbols in all advertising and sales materials.
• Reseller must promise not to sell returned or refurbished items unless clearly advertising them as such.
• Reseller is expected to sell our products only in locations approved by our company, which includes not selling on any third-party eCommerce sites without our permission.
• Reseller must submit a valid and active business license to be considered for inclusion in this Authorized Dealer Program.

Once you’ve implemented your Authorized Dealer Program and have begun building a list of authorized dealers, you will then set up agreements with your distributors or wholesale partners stating they are allowed to resell your products only to these dealers.

Most such agreements include penalties for wholesale partners that sell to retailers not on this list, up to and including terminating those partners’ relationships with the manufacturer.

 

How Does This Program Benefit Your Retail Partners?

Authorized Dealer Programs are designed to create an exclusive channel of approved resellers for a manufacturer or brand. 

As an “authorized dealer,” your reseller gets the benefit of being among a select group of retailers allowed to sell your products, thereby reducing the competition they face from other retail companies.

Additionally, your resale partners also enjoy added protection against rogue retailers unfairly undercutting them—because the program is specifically designed to limit rogue retailers’ ability to acquire your inventory.

Ideally, your program will also give your authorized dealers ways to easily identify themselves as part of your exclusive inner-circle of approved retail partners—to steer customers to them and away from the inevitable free-riding rogue retailer also trying to sell your inventory.

For example, your program should include Authorized Dealer Badging—the use of trust icons that your dealers can place on their sites or their listing pages of your products. These icons designate the dealer as an official representative of your brand, and you can even make them clickable links to live pop-ups on your site where your company verifies that, yes, this retailer has your official seal of approval to sell your inventory.  

 

How Does Your Company Benefit from Your Authorized Dealer Program?

 When you create an Authorized Dealer Program, you erect barriers that make it more difficult for rogue sellers to get their hands on your products. This is a vital component of your overall brand protection strategy. That’s because it is often these rogue sellers who violate your pricing policy, unfairly steal customers from your authorized dealers, and create lousy purchasing experiences that can lead to bad customer reviews and damage to your brand. 

This method is not foolproof, of course. No method can stop every attempt by every shady reseller to get their hands on your products and sell them without your permission. But Authorized Dealer Programs do create a number of protections that can significantly reduce your company’s risk of brand damage. 

Here are a few examples of how an Authorized Dealer Program can protect your brand.

 

1. IT GIVES YOUR WHOLESALERS INCENTIVE TO BE CAREFUL ABOUT WHERE THEY SELL YOUR PRODUCTS.

Because your wholesalers want to continue doing business with your company, they have an incentive not to sell your inventory to companies that you don’t want acquiring your products.

Without a list verifying the retail companies to which they’re allow to sell your inventory, your wholesale partners might unintentionally sell to gray-market sellers or businesses you’d rather not see representing your brand.

Moreover, because these wholesale partners want to maintain a positive relationship with your company, they will have an incentive to abide by that list.

Plus, because you can draft wholesaler agreements that relate exclusively to your guidelines for selling to authorized retailers only—and because these agreements will not discuss resale pricing in any way—it will be perfectly legal to structure such arrangements as two-way contracts without any risk of violating antitrust law. This is in contrast to most reseller pricing policies, which for legal reasons usually need to be structured as unilateral statements and not two-way agreements.

 

2. IT LETS YOU WORK ONLY WITH RETAILERS YOU ARE CONFIDENT WILL REPRESENT YOUR BRAND WELL.

Another advantage of setting up an Authorized Dealer Program is that it helps you proactively build and control your retail sales channel, allowing you to work only with businesses you are comfortable representing your brand, as opposed to allowing that channel just to form naturally as your wholesale partners sell to any retailers who submit bulk orders for your products.

Also, because these retailers have opted into your program, they, like your distributors and wholesalers, have an added incentive to follow your reseller pricing policy and your other guidelines, and to take more care to create customer experiences that reflect positively on your brand.

When these retailers have gone through the effort of applying to your Authorized Dealer Program, they will know that violating your reseller guidelines could result your company removing them from the approved retailer list, meaning an end to their ability to acquire your inventory from wholesalers or distributors.

 In other words, your Authorized Dealer Program gives every retail partner who gets accepted into the program a reason to be on their best behavior when it comes to representing your brand.

 

3. IT LETS YOU MORE EASILY TRACE THE SOURCE OF A ROGUE RETAILER.

Finally, with an Authorized Dealer Program in place, if you find an unauthorized seller advertising your products on a marketplace like Amazon, you will have a much easier time tracing that retailer back to its wholesale source. 

Many manufacturer-wholesaler agreements require those wholesalers to track all sales to retailers and submit those reports to the manufacturer (or at least to have them handy if the manufacturer asks for them). With this information, you should be able to use either the name of the retailer or (if the seller is operating under a different name to hide) the specific product ID to figure out which wholesaler sold to this rogue seller.

Additionally, you can serialize your products, affixing each unit with a unique serial number and then tracking which serial-number ranges your in-house team sells to which wholesaler or distributor. Then, if you spot what appears to be an unauthorized retailer listing your products, your team can conduct a test buy and use the item’s serial number to trace it back to the distribution partner who sold it to this rogue retailer.

This will allow you either to warn the violating wholesaler or issue whatever consequences your agreement calls for, and then to begin aggressively going after the rogue retailer. Remember, you can threaten such a retailer without worry about violating antitrust law, because this type of reseller has no official right to resell your products in the first place, and you are legally free to pursue whatever action against the company you choose. 

This enhanced ability to identify the source of a product “leak” to shady retailers won’t necessarily end all such instances, unfortunately. Rotten resellers are very clever and employ many tricks to acquire your products for resale. But having an Authorized Dealer Program can definitely reduce your risk of both the frequency of these violations and the degree of harm they can cause your brand.

 

What Are the Legal Implications of an Authorized Dealer Program?

The reason MAP and MRP policies can raise antitrust issues is that brands enact these policies to set guidelines on how resellers can price their products. If not handled carefully and with an understanding of antitrust law, such policies can violate the “price fixing” or “restraint of trade” clauses of the law.

This is why legal experts recommend manufacturers err on the side of caution and draft their pricing policies as one-way statements, as opposed to structuring them as two-way agreements requiring signatures from their resale partners. A pricing agreement is much more likely raise antitrust red flags.

But an Authorized Dealer Program is not a pricing policy. It is a set of guidelines for how a manufacturer expects its retail partners to behave—and it does not include guidelines on how these resellers are allowed to price the company’s products for resale. As long as your company does not mistakenly use this program’s language to set pricing demands, it will likely not come under the same scrutiny from antitrust regulators that a pricing policy might face.

 For this reason, you should structure your Authorized Dealer Program on a two-way agreement signed by both your company and the authorized dealer you’ve welcomed into your network.

 

Caution: Avoid This Legal Pitfall in Your Authorized Dealer Program

As you’re developing your Authorized Dealer Program’s language, however, it is important that you include a clause that explains your dealer needs to follow your company’s reseller guidelines… “except where compliance is not mandatory.”

Why is this important? Because your Authorized Dealer Program should act as a complement to your reseller pricing policy. And when you’re drafting your MAP or MRP policy, you will include language in that document explaining “compliance is not mandatory.” The pricing policy is, after all, unilateral, and your resellers are free to adhere to it or not. (You, then, are free to issue consequences against anyone who violates it. None of this constitutes an agreement in the eyes of the law.)

As long as you’ve explicitly stated in your Authorized Dealer Program agreement that wherever MAP or MRP guidelines come into play, your resellers are free to honor those guidelines or not—in other words, that compliance is not mandatory—you will be on legally safe ground. 

Many manufacturers miss this all-important step. They get their resellers to sign an Authorized Dealer Program agreement, but they leave out the “except where compliance is not mandatory” language that would cover their MAP or MRP policy. And a regulator or court could then determine that this in effect turns your pricing policy itself into an agreement.