What Happens When Rogue Retailers Begin Selling Your Brand?
As we discussed in Module 3 (Common Threats to Brand Value), one significant danger to your brand is the possibility that a retailer not authorized to sell your products—a “grey-market seller”—will somehow acquire your company’s inventory and sell it online, usually at prices below those you’ve allowed in your MAP policy.
We alluded only briefly in Module 3 to how these rogue resellers can undermine your company by eroding the profit margins of your legitimate retail partners and harming your brand’s value.
In this module, let’s dive deeper into the specific consequences your company could face if unauthorized retailers are able to get their hands on your products and sell them online without your permission.
6 stages of brand value destruction
Let’s think through an awful hypothetical scenario: Even after completing this course and learning how important it is to your brand that you maintain tight controls over your distribution channel, your company fails to take any steps to help prevent rogue resellers from acquiring your inventory.
For example, let’s assume you haven’t created an Authorized Dealer Program, which would help your organization gain more control over and visibility into which companies are wholesaling, distributing, and retailing your inventory. That also means you’ve failed to develop authorized dealer badging for your legitimate retail partners, to help them establish trust with online shoppers by immediately identifying themselves as officially authorized retailers of your company’s products.
Let’s further assume that you’ve failed to create internal controls, training, and education across your own company to ensure your in-house sales teams don’t sell product to rogue retailers, or to distributors or wholesalers you’ve had problems with in the past.
How exactly might these missteps undermine your brand? Let’s review six stages of brand-value destruction.
1. GREY-MARKET SELLERS ACQUIRE YOUR PRODUCTS AND SELL THEM WITHOUT YOUR PERMISSION, UNDERCUTTING YOUR RETAIL PARTNERS.
The first stage in this downward spiral of your brand’s health starts when grey-market retailers—businesses or individuals that have no official relationship with your company—somehow find a way to acquire your inventory for resale.
These rogue retailers have many tactics for getting their hands on your products—most of which involve trickery. They might approach your wholesalers or your in-house sales department, for example, pretending to be retailers selling in another country, so they can acquire your products for that country’s wholesale rates. But then they’ll turn around and sell your inventory right here in the US and unfairly undercut your authorized retailers.
To learn about more of these common tactics, watch our video on the dirty tricks rotten of resellers.
The important takeaway here is simply that rogue retailers understand there’s plenty of room to buy your products wholesale and then retail them online for less than your legitimate partners can—particularly if you’ve been smart and published a reseller pricing policy for your official resale partners.
So they do just that, and start undercutting all of your legitimate retailers. Soon, online shoppers are seeing your products advertised for less than they’ve ever seen them—at “discount bin” prices, in some cases—and your brand’s value begins to weaken.
2. SEEING A GROWING GREY MARKET FOR YOUR PRODUCTS, YOUR AUTHORIZED RETAILERS TRY TO COMPETE—AND A PRICE WAR BEGINS.
After a while, if these rogue retailers are able to continue getting away with offering your products at cut-rate prices online, your legitimate resale partners are going to notice. In fact, don’t expect it to take very long. Your authorized partners, after all, have a vested interest in making sure all retailers are abiding by your MAP, Unilateral Policy, or other reseller pricing policy, after all, so you should assume they’ll be monitoring the retail landscape for how competitors are advertising your products.
When they catch these rogue resellers undercutting them, offering your products for prices they can’t compete with if they want to keep honoring your pricing policy, your authorized sellers are going to start wondering what’s going on. They will probably assume you don’t take your pricing guidelines as seriously as they thought you did—because you’re allowing these violations of those guidelines to continue online.
So some of these legitimate retailers carrying your inventory are going to slash their own prices of your products. There are two reasons for this. First, your official retail partners are going to quickly realize that they’ll never be able to recoup their prices for your products if they stick to your reseller policy’s guidelines; online shoppers will always be able to find those identical products available for less from these rogue sellers.
A second reason you should assume your legitimate sellers are going to cut their own advertised prices of your products below your approved levels is that, because they now realize your company doesn’t take protecting your retail channel seriously, they’re not going to want to continue representing your brand. So they are going to want to offload whatever inventory of yours they have as soon as possible—so they can be done with your company altogether.
The upshot of all this is simple: A public price war has begun over your company’s inventory.
This race-to-the-bottom on resale price for your products represents the public’s first views of your brand’s erosion in the marketplace. And it will only spiral downward from here.
3. NOW YOUR BRICK-AND-MORTAR SALES PARTNERS BEGIN SLASHING THEIR PRICES OF YOUR PRODUCTS IN THEIR STORES.
This stage might represent the worst news yet in this downward spiral of your resale channel and your brand’s value: Your resale channel’s online price war is going to make some of your valuable brick-and-mortar partners stop carrying your products.
After all, these companies might have invested heavily in representing these products—buying plenty of inventory to carry in the store, setting up in-store displays and signage, and possibly even training their sales teams on the products’ benefits. These store owners have too much overhead to compete against online-only retailers who are willing to violate your pricing policy and unfairly undercut them.
Indeed, these storeowners correctly assume that if you don’t take action to stop these online pricing violations, their stores will effectively become mere showrooms for shoppers who want to see the products in person before buying them cheaper online from another retailer.
So now these brick-and-mortar retailers are out, too. And losing their shelf space and displays in these physical stores can significantly undermine your business. After all, these physical stores lent credibility to your brand, and they also probably introduced your products to shoppers who might otherwise never have discovered them. In other words, these retail partners were helping to grow your brand value.
But all of that benefit is now gone — because you didn’t have a mechanism in place to protect your legitimate resellers’ margins. And that’s not even the end of the story.
4. YOUR BRAND BECOMES IRREVERSIBLY DAMAGED.
After a while, consumers catch on: Your products are available across the Internet for lower prices than ever, and they just seem to keep getting cheaper.
Over time, this will have the effect of damaging your reputation for high quality and the public’s general perception of the brand and the company behind it. From this point forward, you’ve been marked as a “discount” producer.
In other words, your brand value is now in free-fall.
5. YOUR COMPANY LOSES RETAIL PARTNERS—AND HAS TROUBLE FINDING NEW ONES.
In this next stage, things get really bad, because your distribution network starts shrinking, making it far more difficult for your company to deliver products to customers.
For the same reason your legitimate retail partners are dropping your product line, you’re also finding it more difficult than ever to sign on new retailers to carry your products.
Prospective retailers are, after all, easily able to monitor what’s happening to the products’ pricing—and the margins of existing resellers—and the trend they’re observing now has any potential new reseller concerned that they won’t be able to earn enough carrying those products.
Worse, some of these retailers pride themselves on selling only premium brands, and the plummeting advertised prices of your products make those products less appealing for these premium-only retailers.
6. THE POOR CUSTOMER EXPERIENCE PROVIDED BY GREY-MARKET SELLERS FURTHER ERODES YOUR BRAND’S GOOD NAME.
This is perhaps the most frustrating aspect of the rogue-retailer effect: The lousy customer experience these companies often create when selling your products will actually hurt your brand.
None of this is fair, of course. These rotten retailers cheated and tricked the system to get their hands on your products in the first place. Your brand shouldn’t have to take the blame for a lousy customer experience created by a retailer that never even had permission to sell your inventory. But unfortunately, you can’t assume that the typical consumer will make that distinction; if feel they were feel mistreated while buying your products, fair or not, your brand will take the blame.
So, in a final ongoing insult to your brand, as legitimate retailers stop carrying your inventory, a growing percentage of the businesses selling your products will be shady, unauthorized retailers, and that will likely also mean a growing number of lousy customer experiences.
Many customers who call the retailer for support will receive none.
Customers who try to return the product will find they cannot—because you’ll have no record they bought the product in the first place.
And in some cases customers will have been misled by inaccurate product specs and other details written by the grey-market retailer—and not reviewed and approved by your company.
Of course, all of this also means your company will continue suffering even more erosion of your brand value.