With heightened competition for product sales online, combined with the increasing sophistication and expectations of shoppers, one of the most important assets any company can own today is a positive brand reputation.
Often the things that harm a brand (online price erosion, lousy buying experiences, negative customer reviews) can be traced not to the company’s legitimate partners but instead to retailers who have no right to sell its products in the first place. One strategy a brand can use to reduce these risks is to proactively manage and control its reseller circle with an Authorized Dealer Program.
What Is an Authorized Dealer Program?
An Authorized Dealer Program is an opt-in reseller program in which a manufacturer or brand owner grants retail businesses the non-exclusive rights to sell its products under specific conditions. Retailers must apply to the brand’s program to become “authorized dealers” of the company’s products.
Unlike the unilateral reseller policies that we’ve discussed so far in this course, an Authorized Dealer Program can and should be built on written agreements signed by both the manufacturer and each of its dealer partners.
Why Is an Authorized Dealer Program Important for Brands?
Implementing an Authorized Dealer Program can create many strategic benefits for a manufacturer or brand. Here are three common examples.
- It minimizes gray-marketers and rogue selling practices. When you develop an Authorized Dealer Network, you will also update your agreements with wholesalers and distributors, as well as adjust the resale guidelines for your internal sales force, to ensure that all of these parties sell only to retailers on your new list of “authorized dealers”. By limiting your circle of approved retail partners, you will be able to more effectively monitor your products as they move through the distribution channel. If you discover an unauthorized retailer advertising your products online, you’ll have a better chance of tracing that seller’s inventory back to its source.This will allow you to more quickly and consistently deal with unauthorized sales of your products; often the source of poor customer experiences that lead to the erosion of a brand’s reputation and public trust. Note: In our experience, most of the risks that brands face from rogue retailing practices, including selling the company’s products below their MAP- or MRP-approved levels, are far more visible and therefore dangerous online. For this reason, we recommend that a brand structure its Authorized Dealer Program to vet all online sellers before allowing them into the program, but that in general authorize all brick-and-mortar retailers.
- It allows the brand to work only with trusted resale partners. Many manufacturers and brand owners grow their resale network without any strategic thought or planning, by allowing their in-house reps and wholesale partners to sell inventory to any reseller that asks to purchase it. But some sellers, particularly online, have unethical plans for your products when they buy them wholesale. For example, some pretend to have retail operations in countries where you allow for lower pricing, or which you sell to at a discount. But when they get their hands on your inventory, they sell them right here in the US, undercutting your reputable resellers and potentially harming your brand.With an Authorized Dealer Network, 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.
- It helps safeguard the brand’s reputation. Considering the two benefits above, you can see how implementing an Authorized Dealer Network can help protect your company against many of the ongoing risks to your brand’s reputation. Because you will be limiting which retailers you allow into your network and these dealers know you’ll be monitoring their behavior, you will reduce the likelihood of rogue sellers buying your inventory, violating your pricing guidelines, and creating unsatisfactory customer experiences that can lead to poor word-out-mouth and negative online reviews.In other words, an Authorized Dealer Program can help you become proactive in preventing bad things from happening to your brand—rather than having to react to them after the damage has already been done.
Now let’s take a broad look at how to build an Authorized Dealer Program—using a three-step process.
Step 1: Determine Which Retailers to Welcome into the Program
How to Screen for the Right Reseller Partners
As you develop an Authorized Dealer Program, your first step will be to establish a plan for vetting would-be partners interested in joining.
These retailers will be selling your products and representing your brand, so you’ll want to make sure you are accepting only those companies that your team deems reputable and stable, and that have a proven track record of great customer service.
Here are a few examples of the details you’ll want to research about each potential partner and to include in your application process:
- Credit rating
- Business history
- Customer reviews online
Your goal here will be to do a thorough review of each applicant, to determine if they would make a worthy “Authorized Dealer” to represent your brand.
Note: You will also want to determine at this early stage whether your dealer program will cover only internet resellers or both online and offline retail partners. For many of the brands that approach us for help at TrackStreet, we determine that the simplest and most effective strategy is to require online retailers to be vetted through the Authorized Dealer Program but allow brick-and-mortar stores to be authorized by default, unless the company finds them violating their rules.
This is a simple model to implement, and we have found that in most cases the common problems manufacturers worry about (price erosion, reputable retailers becoming upset at being unfairly undersold) take place online. That is where shoppers can perform simple price comparisons among many retailers in seconds.
Step 2: Develop Your Program’s Rulebook
What Goes into an Authorized Dealer Program?
Once you’ve created a plan for how you’ll screen potential dealer partners, you’ll then have to decide what guidelines you want to set for the retailers you invite into your program.
Ultimately, the goal of an Authorized Dealer Program is to lay out the rules for how you expect your approved retailers to advertise, sell, and support your products. Some of the standard clauses you’ll 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 not bundle the manufacturer’s products into units not sold identically by the manufacturer from the factory.
- Reseller must submit a valid and active business license to be considered for inclusion in this Authorized Dealer Program.
- Reseller must adhere to the manufacturer’s specifications on storing products (e.g., in terms of temperature controls)
Note: Including the last two rules listed directly above (disallowing product bundling into new SKUs and demanding specific measures for inventory storage) can help a manufacturer establish that a reseller is in effect selling “materially different” products than are allowed by the company’s policies. This could prove beneficial in a legal dispute, which we’ll explain below.
Leveraging the “Material Difference” to Protect Your Brand
According to a standard in trademark law called the “First Sale Doctrine,” in most cases, someone who purchases a product protected by intellectual property laws (trademarks, copyrights, etc.) may legally resell that identical physical product without infringing the trademark holder’s rights.
Think of purchasing a book on Amazon, reading it, and relisting it later for sale on Amazon as a used copy. This is legal under the First Sale Doctrine. What the law disallows, of course, is making copies of a copyrighted book and selling those on Amazon. You may legally resell the exact physical product you purchased one time. This is the First Sale Doctrine.
Another benefit to creating an Authorized Dealer Program is that it can help you raise the legal stakes for any unauthorized retailers trying to acquire and resell your products. Here’s how.
The First Sale Doctrine does not cover sellers who offer “trademarked goods that are materially different than those sold by the trademark holder. That material difference exception could include, for example, sellers who do not or cannot offer manufacturer warranties or rebates from proof of purchase. This means if you honor warranties only on products sold by your authorized dealers, then unauthorized dealers will by definition be offering a “materially different” product and that could put them at risk of a trademark infringement violation.
At the same time, as we noted above with some of the standard clauses in your Authorized Dealer agreement, you can use the material difference exception to place additional pressure on your authorized dealers to abide by your program’s requirements. Failing to do so could also put them at risk of selling a “materially different” product, which at minimum could be grounds for removal from your Authorized Dealer Program.
Step 3: Help Your Authorized Dealers Establish Consumer Trust
How Dealer Badging Can Improve an Authorized Dealer Program
Now that you’ve established the guidelines for your Authorized Dealer Program, and created a vetting process to screen applicants, you’ll need to find ways to support those retailers you decide to invite into your program.
You want to help these select dealers earn public trust as official representatives of your brand. This will help those retailers and because it will make it easier for consumers to trust them, it will also help increase sales of your products.
One way to accomplish this is with a dealer-badging strategy.
What is dealer badging?
Dealer badging involves creating digital trust icons or badges with phrases on them such as “Authorized Dealer: Click to Verify,” and which you can give to your dealers so they can display them beside your product on their own sales pages and ads.
Adding these little icons to the package of assets you give your authorized dealers, for retail or online use, can be such a powerful tool for everyone involved; your dealers, your customers, and your own company. Here’s why:
- A dealer badge allows your authorized partners to distinguish themselves as part of your official network of trusted resellers.
- Research shows that allowing your dealers to include a trust icon alongside your products is a proven way to help them increase conversions and sales.
- These trust icons are also a great way to reduce the number of rogue retailers selling your products. Consumers will catch on that they need to see a dealer badge before buying your products, and this will make it less lucrative for unauthorized sellers to carry your inventory.
- Because these dealer badges will reduce the number of shoppers fooled by unauthorized retailers, they could also reduce the number of negative reviews that these rogue sellers’ lousy buying experiences can lead to.
- Finally, by helping to chase away many unauthorized resellers, these dealer badges also represent a real victory for your end-user customers—who will now be far more likely to buy one of your products from an honorable, quality retail partner you trust.
Note: For dealer badging to be effective for e-Commerce, you will need to make these digital icons live links. When a shopper clicks on a e-tailer’s badge, it should validate with a secure database, which your company controls and authorizes, that, yes, the dealer is part of your official resale network.
How Does an Authorized Dealer Program Enhance Your Reseller Pricing Policy?
As we’ve noted throughout this course, your reseller pricing policy will almost certainly take the form of a one-way statement your brand makes to resellers. It will not constitute an agreement that your retail partners are obligated to honor.
But when you combine your unilateral MAP or MRP policy with an Authorized Dealer Program, you create an additional level of incentive for your retail network to adhere to your pricing guidelines.
This is because your Authorized Dealer Program will be a two-way agreement your resellers sign when they join your network. Because they don’t specifically establish pricing guidelines for your resellers to follow, Authorized Dealer Programs can be structured as contracts without creating any of the antitrust risks that a poorly written or poorly enforced reseller pricing policy can.
And because the sellers understand that their status as “authorized dealers” depends on behaving in ways that support your brand—and that you can remove them from your network anytime—they will have strong reasons to abide by all of your guidelines, including your pricing guidelines.
Please take the following short quiz—and let’s see how much you’ve learned about Authorized Dealer Programs.