As we have tried to make clear throughout this course, a brand that sells through a retail channel leaves itself open to significant risks if the company does not implement an Authorized Dealer Program. Failing to establish rules about which retailers can sell your products, and how they may do so, can expose your company to price erosion, poor customer experiences, losing your best retail partners, and other forms of damage to your brand’s equity and your bottom line.
But this is not to say that simply having such a program will eliminate all of these risks. To be effective, your Authorized Dealer Program must avoid the following common pitfalls.
4 Potential Pitfalls in Your Authorized Dealer Program
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Combining the brand’s Authorized Dealer Agreement with its MAP policy.
We have listed this mistake first because it creates the most significant legal risk to a manufacturer or brand. We’ll explain why below, but here are the two key takeaways:
First: You must create separate documents for your Authorized Dealer Agreement and your MAP policy.
Second: You must not discuss reseller pricing rules or restrictions in your Authorized Dealer Agreement.
Because they deal with reseller pricing, pricing policies should be drafted and implemented unilaterally. That is, they must be set up as one-way statements explaining the brand’s pricing guidelines, as opposed to two-way agreements requiring a signature from resellers.
This is because any pricing agreement between a brand and its reseller can bring both parties close to the legal line of violating antitrust law. It could even be interpreted by a court as illegal price-fixing.
Authorized Dealer Programs, on the other hand, don’t set pricing rules for resellers They establish only which dealers are allowed to sell the brand’s products and under what conditions they may do so. As long as those conditions do not include rules about pricing, manufacturers are well within their legal rights to codify their retailer relationships with an Authorized Dealer Agreement and require dealers to sign if they want to join the program.
The problem comes when a manufacturer attempts to combine these two programs, creating an agreement to document both the company’s authorized dealer relationships and its pricing policy.
This is a serious mistake because, in effect, it turns the brand’s reseller pricing guidelines into an agreement with the company’s resale partners—and that could put the brand in legal jeopardy with antitrust regulators.
Bottom line: Keep your Authorized Dealer Agreement and your MAP policy separate.
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Neglecting to enforce the authorized-dealer restrictions with distributors and in-house sales teams.
Your objective with an Authorized Dealer Program is obviously to control which retail partners are allowed to sell your products. But restricting sales to those retailers listed on your “Authorized Dealers” list can work only to the extent that your in-house sales teams and your wholesale partners know about this list and understand that they must honor it.
One common reason Authorized Dealer Programs fail is that the brand fails to enforce these restrictions.
In fact, in many cases, the brand fails even to let its sales teams know that they may sell product only to retailers on the company’s authorized list. Or companies will allow their in-house reps or distributors to ignore the list temporarily and sell to unauthorized retail buyers, often because the company’s sales teams are eager to make a monthly or quarterly sales number. It is important to consider changes to in-house sales representative goals and compensation when implementing an Authorized Dealer Program.
Without strict enforcement at the in-house-sales and wholesale level, the brand may as well not have an Authorized Dealer Program in place. Without making sure all parties in the distribution channel honor these restrictions, the brand should assume that unauthorized sellers, including rogue retail companies with no intention of honoring any of the brand’s selling guidelines, will acquire the company’s product for resale.
If a brand is working hard to protect its portfolio and root out rogue retailers, the company needs an all-hands-on-deck approach to ensuring that only honorable and trustworthy resellers get their hands on the brand’s products. This means making sure the sales team is educated about the types of new retail partners the brand is looking for, and which ones to avoid.
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Failing to monitor your resale channel at all times and quickly address violations.
Your Authorized Dealer Program represents an important step in controlling your products’ distribution channel. If implemented correctly (ideally, with guidance from a team of brand protection experts), this program will make it much more difficult for rogue sellers to acquire your product, which will also reduce the harm these rogue sellers can cause for your brand equity such as price violations, poor buying experiences, upset customers, and bad reviews online.
You also need to keep in mind that rolling out your Authorized Dealer Program is only one of many steps needed to protect your brand.
This program will not do much to prevent unauthorized retailers if, for example, your company is not monitoring your resale channel at all times, looking for violations. It also cannot protect your brand if, when you do discover a violation, your company fails to act quickly and aggressively to right the wrong.
In fact, when you implement a program like this but then fail to police it effectively, your authorized retail partners might be the ones who discover that other sellers are violating your rules. When this happens, these partners could lose interest in continuing to sell your products, and that could both shrink your resale channel and hurt your brand.
This is yet another reason not to try rolling out your Authorized Dealer Program manually, but instead with the help of an automated brand protection platform and an online Dealer Distribution Portal.
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Failing to aggressively pursue unauthorized retailers.
One important aspect of an Authorized Dealer Program many manufacturers overlook is that none of the rules contained in these agreements will mean a thing to the unauthorized sellers who use trickery to acquire the company’s products for resale.
It’s easy to become complacent after launching a program like this. As far as the manufacturer can see, its dealers may all be abiding by the rules of the Authorized Dealer Agreement. The company’s internal sales force may also seem to be sticking to the rules and making sure only to sell to retailers on the authorized list.
But it’s important to remember that those rogue sellers are extremely clever, and they have many proven strategies for tricking manufacturers and distributors into handing over product under false pretenses.
Policing your resale channel effectively does not mean monitoring the behavior of only your authorized dealers. It also means keeping a close eye on the rest of the eCommerce landscape, looking for retailers who aren’t part of your network but who are still somehow selling your products.
Again, because the internet is far too vast and dynamic to monitor manually, you will want help from an automated brand protection platform.
Note: One of the advantages of an Authorized Dealer Program is that it allows you to aggressively pursue violators because the program does not deal with reseller pricing, which could create legal risks, but instead with authorization.
When you send a cease-and-desist letter to an unauthorized dealer selling your products, you won’t be exposing your company to any antitrust risks because you’re simply warning the business that they don’t have your permission to sell your products, and if they continue to do so, you will consider further actions.
In fact, even if the primary reason you want to get rid of an unauthorized seller is that they’re advertising your products below your MAP-approved prices, you do not have to worry about the antitrust issue. As long as your company’s warnings address only the fact that the seller is not authorized, and doesn’t address price, you will be on solid legal ground.
This is why it is such a wasted opportunity to roll out an Authorized Dealer Program and then fail to use the program to aggressively target violators. It will be one of your brand’s strongest weapons in your fight against the resale landscape’s ongoing threats to your brand.
* LEGAL DISCLAIMER: 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.