Common Threats to Brand Value
As we discussed in earlier modules, your company’s brand encompasses far more than just your color scheme, advertising, or taglines. Your brand represents the totality of what people think and feel when they come in contact with your company or products, based on every experience they’ve ever had dealing with you, as well as everything they’ve ever seen, read, or heard about your company.
Which is why protecting your brand is so important to the health and success of your company. Damage to a brand is often irreversible, and a damaged brand can ruin a business.
Anything you do can affect your brand’s value (for better or worse)
Because your brand represents the sum-total of everything your organization does, your brand value can grow or fall at any time, according to any number of factors, such as:
- The quality of your products
- How your staff treats prospects and customers
- Any publicity (good or bad) involving your company
- The values you convey in your marketing and advertising campaigns
- How customers feel when they browse or buy your products from retailers
In this course, however, we will focus primarily on the threats a brand faces when it sells products through a resale channel. Specifically, we’ll explore five common ways that resellers can do damage to the brands of the suppliers whose products they sell. We’ll also briefly discuss how to overcome each of these threats.
5 common ways resellers can harm the brands they sell
1. RESALE PRICE EROSION
If a manufacturer or brand owner sells its products through a network of retail partners, particularly online, where savvy consumers can easily compare prices, that company has a vested interest in establishing a price floor below which it will not let any of its resellers advertise its products.
There are several reasons for this. The first, and most obvious, is that if some retailers slash their online advertised prices well below what everyone else is charging, they will undermine the manufacturer’s other retail partners, and those resellers might decide it’s no longer profitable to carry the products.
This issue is even more serious for manufacturers that sell through both online and bricks-and-mortar retailers. Consumers often discover new brands by visiting physical stores, and those stores—particularly the larger chains that have their own strong consumer trust and brand value—can lend credibility to these new brands.
But physical stores have overhead that pure eCommerce businesses don’t, and they need to keep their advertised prices high enough to protect their margins. If a manufacturer repeatedly lets its online retailers undersell the bricks-and-mortar stores, those storeowners will likely drop the manufacturer’s line altogether—which could cost the brand untold numbers of potential new customers who might not otherwise ever discover their products.
There’s also a second reason manufacturers have an interest in establishing advertised price minimums across their resale channels. If resellers are allowed to advertise a brand’s products at any price they wish—and some decide to offer deep discounts to boost sales or increase market share—the public could begin to view the brand as low quality, or simply a commodity product indistinguishable from any other.
As you can see, resale-price erosion can cause real harm to a brand. So, why does it happen, and what can you do about it?
Common causes:
Resale-price erosion, particularly among online retailers, often occurs because the manufacturer has not developed (or does not effectively enforce) a reseller pricing policy.
Policies such as a Minimum Advertised Price (MAP) policy or a Minimum Resale Price (MRP) policy allow manufacturers and brand owners to set guidelines articulating how they want their resale partners to price their products.
How to prevent it:
The first steps any manufacturer should take to reduce the chances of its products experiencing resale-price erosion—and the potential brand damage that could cause—will be to draft, distribute, and then actively monitor and enforce a reseller pricing policy.
2. GRAY-MARKET SELLERS
Another common threat to your brand comes from retail companies that sell your products in violation of one or more of your reseller guidelines.
These companies might be retailers you have no official relationship with but who somehow manage to purchase your inventory in bulk either from your wholesalers or even from your own in-house sales team.
They might in some cases be retailers you’re actively doing business with but who purchase your inventory using some sort of dishonest approach. One common tactic is to pretend to buy your products for resale in another country, so they can acquire your inventory for a lower wholesale price. Then they’ll turn around and sell them online in the United States—and unfairly undercut all of your legitimate retailers who are abiding by your MAP pricing.
Because these gray-market sellers have no official relationship with your company, they have no concern about abiding by your guidelines, making sure they positively represent your brand, or even seeking your permission to use your sales copy and other intellectual property. Their misuse of these assets can create bad experiences for your customers—and that can harm your brand.
Common causes:
Gray-market sellers are typically the result of “leaks” in your supply chain.
These leaks could come from your own internal sales department, eager to sell product to hit their numbers and therefore not willing to look very closely at a new (or even suspicious) reseller interested in buying inventory.
They might also be the result of failures of your wholesale or distribution partners to properly vet the retailers they’re selling to.
How to prevent it:
The best way to prevent gray-market sellers is to plug the leaks in your supply chain, and one of the best ways to do that is to create an Authorized Dealer Program.
This is an opt-in program in which retailers must apply to your company to be allowed to sell your products. You will then build your “authorized dealers” list and share this with your wholesalers and distributors, and you’ll draft an agreement that these partners must sign promising to sell only to retailers on that approved list.
A related step is to create an authorized dealer badge or trust icon, which retail partners in your program can post on their eCommerce sites and on the sales pages of any online marketplace (such as Amazon) where they resell your products.
This icon should be a live link that, when clicked, will open another window directly to your brand’s own site and verifying that, yes, the retailer is indeed a part of your authorized resale network and has your company’s endorsement to sell your items.
3. INCOMPETENT OR UNETHICAL WHOLESALERS AND DISTRIBUTORS
So how do these gray-market sellers actually get their hands on a brand’s inventory in the first place?
If the manufacturer sells through a wholesale channel, the gray-marketer will in most cases have to go to one of those wholesale distributors to acquire the products. This might play out in a couple of ways.
First, the gray-market seller will use some sort of ruse to buy product either at a price much lower than a legitimate retailer could purchase it for, or to resell it in a region not allowed by the manufacturer. Wholesaler that do not have their own processes in place for vetting retail buyers fall for these tricks all the time.
A second possibility: The wholesaler knows the retailer buyer is actually a gray-marketer planning to resell the inventory in ways that will violate the manufacturer’s guidelines, but they go ahead with the sale anyway. They might be looking to hit their own internal sales quota, or they might just no longer want to carry the manufacturer’s products and are happy to dump their remaining inventory on any unethical retailer who comes along.
Common causes:
Brand problems that originate at the wholesaler or distributor stage are usually the fault of a manufacturer that is too lax or disorganized in overseeing its supply chain.
These manufacturers fail to understand the connection between a “leaky” distribution network and long-term harm to the public’s perception of their brand.
How to prevent it:
Here again, the best way to prevent your inventory from leaking out to lousy retailers who will damage your brand when they resell your products will be to implement an Authorized Dealer Program.
Because your wholesalers will need to sign a contract agreeing to restrict their sales to those retailers on your approved list—and because these wholesalers know they will face consequences for violating that promise—they will be more likely to police their own sales to retail buyers.
If you implement this program correctly, you will also require your wholesalers and distributors to record and report all of their sales. This means that if you do discover a gray-marketer advertising your products, you will have a much better chance of quickly tracing those products to their source and preventing further gray-marketer shenanigans from undermining your brand.
4. NEGATIVE CUSTOMER REVIEWS
Research shows that three out of four consumers read online product reviews as part of their buying process, and 87% of shoppers say they’d trust a customer review almost as much as a recommendation (or warning) from a friend or relative.
Statistically speaking, this means a customer looking up one of your products online is far less likely to buy if the product page contains a lot of negative reviews—because the research shows most shoppers will read those reviews and take their warnings seriously.
But perhaps even more important than the hit this would cause to your product’s sales is the longer-term damage these negative reviews could do to your brand.
Common causes:
Customers leave lousy reviews at marketplaces like Amazon and other retail sites for a slew of reasons. Maybe the product was just a disappointment. If that is the case, then the manufacturer obviously has some business or product-quality issues to address.
But for our purposes here, let’s assume the issue is not about your product itself but is instead about some aspect of the customer’s experience with your reseller.
This can happen if a manufacturer is not careful about vetting the retail companies it trusts to carry its inventory. Keep in mind: those retailers are also representing the company’s brand. Considering how important that brand is to the manufacturer’s business, the company shouldn’t partner with any retailer without first thoroughly researching its track record and reputation. A poor retail experience for the customer won’t necessarily just hurt the retailer—it can also harm the product’s brand.
How to prevent it:
There are a number of smart steps a manufacturer can take to minimize the risk of amassing negative customer reviews as a result of its resale channel disappointing its customers.
One strategy is to develop that Authorized Dealer Program we’ve been discussing. That program alone will create a barrier to a manufacturer’s products landing in the hands of a retailer that offers poor customer service or otherwise creates the type of lousy experience that could lead to a negative customer review—one that mentions your brand.
Another strategy is to put a process in place to respond directly to bad customer reviews, and to try to make things right. Often, if a brand shows a good-faith effort to reach out to a dissatisfied customer and takes the time to listen to the issue, that customer will be willing to amend their original negative review.
Finally, a manufacturer hoping to minimize its negative customer reviews should implement a review tracking system. Ideally, this system will record all reviews across the Internet at all times—and alert the brand owner when a review is posted containing red-flag content such as words like “broken” or “late,” or a low star rating.
5. COUNTERFEIT PRODUCTS
One of the most infuriating problems manufacturers face in protecting their brands is the common, even rampant issue of counterfeiters producing identical versions of their products and illegally using the brand’s identifying marks to pass them off as the real thing.
Certain industries are particularly vulnerable to knockoffs—apparel, handbags, luxury watches, and consumer electronics products, for example—but counterfeiters are increasingly producing fake versions all types of consumer goods.
Common causes:
Unlike the other threats to your brand we’ve discussed so far, counterfeit products aren’t usually the result of some flaw in a manufacturer’s processes. Counterfeiters are, by definition, brazen criminals, and if they set their targets on your company’s products, there isn’t much you can do until you discover those knockoff products on the market. But then you can—and for the sake of your brand, you must—take action.
How to prevent it:
The first step to protect your brand against counterfeiters is to assert your legal rights to your company’s intellectual property. That means registering for all appropriate trademarks and using those marks publicly.
Having these marks won’t stop a counterfeiter from manufacturing imitation versions of your products and trying to sell them. But they will give you a much stronger case should you ever catch a counterfeiter and want to pursue legal action against them.
The threat of counterfeiters is also another reason to establish an Authorized Dealer Program and issue your legitimate retail partners a trust badge or icon that they can post on their sites. This not only helps your authorized dealer partners set themselves apart from gray-market sellers; it also will help educate consumers about which retail channels they can trust and which they can’t. This will place another obstacle in front of the counterfeiter trying to sell knockoffs of your products.
And finally, you can address the counterfeit threat by deploying a review tracking system that monitors the Internet for mentions of your products—and instructing the system to alert you to red-flag terms like “fake” or “counterfeit.”
Often it will be your own customers who are the first to realize that someone out there is knocking off your products—and your team should be listening.