An Authorized Dealer Program is a program that a manufacturer or brand owner establishes to gain control over how, where, and by whom its products are advertised and sold. Under this program, the brand owner will use an application process to vet all retailers interested in becoming official resellers of the company’s products.
As we will discuss in detail throughout this course, an Authorized Dealer Program (also called an Authorized Reseller Program) is an important brand protection strategy for any business that sells through retail partners. In fact, failing to implement an Authorized Dealer Program can create both legal and business challenges for a manufacturer or brand owner with a resale channel.
In this first lesson, we will focus on the basics:
- What an Authorized Dealer Program looks like
- The key benefits of implementing an Authorized Dealer Program
What An Authorized Dealer Program Looks Like
The details of these programs will vary by industry, a company’s specific goals and concerns, and other factors. But you can think of the typical Authorized Dealer Program as consisting of four basic components.
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The application and vetting process
In most cases, a manufacturer will develop an Authorized Dealer Program because the company wants to increase control over which retailers sell its products, where those businesses sell their products, and the practices they use to do so.
By requiring retailers to apply to its program, the brand can vet would-be partners and allow in only those that have proven themselves reputable, honorable, and stable retailers. Most Authorized Dealer Program applications include details such as:
- Years in business
- Credit history
- Litigation history
- Resale channels (ie. what websites the seller runs, and which marketplaces/names the sell under
During the vetting process, the brand’s team will also research other details about the applicant’s business, such as:
- The seller’s reputation online (including star ratings, customer reviews, etc.).
- The business’s address and phone number. (If this reveals an applicant is using a residential address, a UPS store, or the address of a distribution center, these might be red flags.)
- The other products the seller offers, and whether or not the company adheres to those manufacturers’ MAP (Minimum Advertised Pricing) policies, if they exist
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The Authorized Dealer Agreement
The second component of this program will be developing the Authorized Dealer Agreement and executing that agreement with each new retailer that the brand welcomes into the program.
Most reseller pricing policies, such as a MAP or UPP, typically take the form of one-way statements rather than agreements. This is primarily for legal reasons: An agreement between a manufacturer and its resellers could be viewed as price-fixing and a violation of antitrust laws.
Authorized Dealer Programs, however, can—and in fact, should—be structured as two-way agreements between brand and retailer.
These policies can be built on a contract that both parties sign because the terms of these agreements are about authorization to sell a company’s products—not about price. (This is why an Authorized Dealer Agreement cannot establish minimum or maximum prices; doing so could violate antitrust laws.)
Additionally, this policy should be designed as a two-way contract for two reasons. First, it protects the manufacturer or brand legally in terms of enforcing the agreement’s terms. Second, it puts pressure on the brand’s authorized dealers not to violate the agreement in the first place. (They’ve signed the agreement, after all, and therefore can’t later claim they didn’t know its rules.)
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The relevant updates to the company’s Distributor Agreement
If your company sells through a distribution or wholesale channel, you will also need to update your Distributor Agreements when you roll out an Authorized Dealer Program. This is because you will now have a list of “authorized dealers,” and you’ll be requiring your wholesalers to sell inventory only to the companies on that list.
The Authorized Dealer Program can work only to the extent that your distribution partners limit their sales to the dealers you’ve allowed into your authorized network. So you will need to call out these new restrictions—and consequences for violating them—in your Distributor Agreement.
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The brand’s management, monitoring, and enforcement plan
The final major component of an Authorized Dealer Program will be the administrative tools and processes the brand implements to oversee the program and make sure the company’s resale network is abiding by its terms.
This might include, for example:
- Educating the company about the new Authorized Dealer Program, and how to follow its rules and communicate those rules to sellers.
- Establishing product serialization (or other tracking mechanisms) to more easily trace inventory as it makes its way through your distribution channel.
- Making it clear where your accounts are allowed to sell, and where they’re not (ie. on a specific website, but not on Amazon or eBay.
- Monitoring the internet at all times to ensure authorized dealers are following the program’s guidelines.
- Monitoring the internet also for unauthorized sellers and taking appropriate action against those rogue retailers.
- Creating a “Do Not Sell” list for violators, and sharing that updated list with both in-house sales reps and distribution partners to prevent them from selling products to these violators unless and until you lift the ban.
The Key Benefits of Implementing an Authorized Dealer Program
We’ve given you an overview of what an Authorized Dealer Program will consist of, and what executing the program might entail. Now let’s discuss why a brand or manufacturer would want such a program in the first place.
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You’ll find it easier to track down the source of a leak in your distribution channel.
As we mentioned above, part of implementing an Authorized Dealer Program involves updating your agreements with wholesalers and distributors, as well as adjusting the resale guidelines for your internal sales force, to ensure these reps sell only to retailers on your new list of authorized dealers.
It is important to communicate to your sales team what makes a good customer, and what will constitute a problem customer. Opening new accounts for customers that do not fit the new criteria just makes more work for everyone.
When you combine these new guidelines with additional strategies, such as applying unique serial numbers to your inventory, you will have a much easier time monitoring your products as they move through the distribution channel.
This means if you discover an unauthorized retailer advertising your products online, you will have a better chance of tracing that seller’s inventory back to its source. And that will allow you to more quickly and consistently deal with unauthorized sales or distribution of your products.
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You can limit your resale channel to dealers you trust to represent your brand well.
Many manufacturers and brand owners grow their resale network without any strategic thought or planning, by allowing their in-house sales team and wholesale partners to sell inventory to any retailer who asks for it.
But some sellers, particularly online, have unethical plans for your products when they buy them wholesale. Some pretend to have retail operations in countries where you allow for lower pricing, but when they get their hands on your inventory they’ll sell them right here in the US—undercutting your authorized dealers and potentially harming your brand. Sellers like these have many other dirty tricks that could undermine your brand’s reputation, which is why you need a proactive strategy to keep them from acquiring your products.
With an Authorized Dealer Program, your company will have much more control over which businesses are able to sell your products. Plus, because this is an opt-in program, your authorized dealers will have an incentive to adhere to your guidelines and act in ways that reflect positively on your brand.
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You’ll be on solid legal ground when you aggressively pursue unauthorized sellers.*
One common mistake manufacturers make when developing their brand protection strategy is to draft and publish a MAP policy that contains all of the company’s rules for resellers. One section sets advertised price minimums, another section addresses intellectual property use, and elsewhere the manufacturer discusses authorization to resell its products.
The risk here is that a MAP policy is, by definition, a pricing policy. This means a manufacturer needs to be careful about threatening retailers who violate the policy’s guidelines—even its non-pricing guidelines—because a court or antitrust regulator might later view this as an attempt at price-fixing.
But by implementing an Authorized Dealer Program built on a standalone agreement—which does not even mention pricing guidelines—a manufacturer or brand can create a very safe and perfectly legal tool to pursue unauthorized sellers. This is because the brand will be targeting violators not for pricing violations but for selling their products without permission.
Even if the manufacturer wants to remove an unauthorized seller’s listings because the retailer is offering the products below MAP price levels, that manufacturer can use its Authorized Dealer Program to legally pursue the seller on the grounds it has no authorization to sell the brand’s products.
Time for a short quiz to see how much you’ve learned in this introduction to Authorized Dealer Programs.
* TrackStreet develops software for price monitoring and brand protection. Although our company works closely with antitrust attorneys, the information and guidance in this course does not constitute legal advice. For help understanding the legal ramifications of your Authorized Dealer Program, or other reseller programs and policies, we recommend contacting legal counsel that specializes in business contracts or antitrust law.