As many brands know all too well, the best laid strategy to manage the channels through which their goods are sold can be quickly disrupted by unauthorized sellers. Because online marketplaces like Amazon are essentially open platforms, virtually anyone able to source a brand’s products can sell there – regardless of a brand’s specific channel management strategy. Often, these sellers do not adhere to brand quality standards; they do not contribute to marketing and conversion efforts; and they do not adhere to manufacturers’ minimum advertised price policies. 

While many brands are plagued by unauthorized sellers, there is still a massive amount of confusion regarding what tactics are most effective in shutting down such unauthorized sales. For example, there are seemingly countless brand protection and monitoring software companies that tout their ability to remove a percentage of unauthorized sellers using automated cease-and-desist letters. Some companies claim to have highly effective marketplace takedown tricks, while others claim to “know” secret marketplace tactics that others do not. The reality is ultimately not quite so rosy, and in fact, none of these tactics are especially effective because: (1) the law generally protects product resellers, and (2) these tactics – even if successful against some number of small, unsophisticated sellers – do not drive meaningful commercial outcomes, which is what brands need. 

Instead of playing “whack-a-mole” with these tactics, brands primarily need to establish the requisite legal foundation that provides an actual basis for enforcement against unauthorized sellers. With the requisite legal foundation in place, brands can overcome the primary defense asserted by unauthorized sellers – the first sale doctrine – and leverage their foundation to conduct legally-backed, precision enforcement against unauthorized sellers. (The first sale doctrine generally enables an individual to resell a trademark-bearing product after it has been sold by the trademark owner, even if the resale occurs without the trademark owner’s consent.)

Data-Driven Enforcement Against Unauthorized Sellers

Once brands have established the requisite foundation, they should conduct enforcement in a manner that drives real commercial outcomes, as opposed to focusing on meaningless vanity metrics, such as “take down” percentages. Realistically, brands do not have the time or the resources to chase every seller on sweeping online marketplaces. Instead, brands need to leverage a data-driven process that determines: (1) which sellers are most impacting commercial KPIs and (2) which tactics are likely to be effective against those sellers. When brands are able to prioritize sellers by the level of disruption they cause and then apply the tactics most likely to be successful against those particular sellers, they are empowered to drive real business outcomes, not meaningless “takedown” numbers. 

With that in mind, brands should consistently measure the success of their enforcement program at driving actual business KPIs, including, authorized sales growth, brand value stabilization, review sentiments, and any other important metrics to their business. 

Brands seeking online sales control must account for the disruption that unauthorized sellers will cause. Without a strategy in place for stopping unauthorized sellers, brands will not achieve optimum, profitable growth on online marketplaces. To effectively combat unauthorized sellers, brands need to establish the necessary legal foundation and then engage in a data-driven, precision enforcement process tailored to driving real commercial metrics.

This is Part II of a running series dedicated to online sales control. Part I – which can be found here – focused on channel management, and how brands in the online marketplace era should first level-set their channel management strategy to mitigate online disruption and best position themselves to be able to govern the online marketplace channel.

Daren Garcia is a partner and member of the Vorys eControl team, where his practice centers on the representation of manufacturers and brands and involves the implementation of thought-leading strategies and enforcement systems designed to protect brand value by controlling online sales.  

A brand’s ability to control its online sales is critical to its ability to maximize profitable e-commerce channel growth, preserve brand equity, and prevent damaging e-commerce conflicts with its brick-and-mortar business. Brands of all types continue to struggle with how to best achieve the control necessary for success, and there is a great deal of confusion around what does – and does not – work. In our work with hundreds of brands across many different B2B and B2C verticals, we have determined that there are a number of critical pillars to a brand’s ability to appropriately control online sales and to leverage that control to drive true commercial value, the first of which is channel management.  

A key element to optimizing growth and preserving brand equity on online marketplaces like Amazon is limited distribution. That is, brands want as few sellers as possible – ideally one on online marketplaces like Amazon (whether that is Amazon, the brand itself, or an exclusive seller). This reality poses an initial challenge for brands, as many – save for the likes of Louis Vuitton, Chanel, and co. – have relentlessly pursued widespread distribution for years, wanting their products out in the market as far and wide as possible. Accordingly, many products across numerous business-to-business and business-to-consumer verticals are easily sourced and sold online by unauthorized sellers, leading to massive intra-brand competition in the online marketplace channel. 

This, in turn, leads to diminished sales, diminished return on marketing investments, potentially poor quality products, negative reviews, and significant erosion of brand value – both in the online marketplace channel and across the brand’s other channels of trade.

Brands Must Take a Holistic Approach 

This brings us to the first rule of channel management in the online marketplace era – online sales disruption starts below the water line in the brand’s traditional challenges, not on the marketplaces, themselves. Many brands mistakenly focus solely on enforcement on online marketplaces, such as Amazon, without addressing the issues in their traditional channel practices that are fueling the unauthorized online sellers. This leads to the proverbial game of “whack-a-mole,” which is not a winning strategy.

Developing & Implementing an Effective Authorized Reseller Program

Given this reality, the first channel management step that most brands need to take is to: (1) clearly define their authorized selling channels; (2) make clear that customers may sell only in their authorized channels; and (3) stop marketplace sales that occur without the brand’s express permission. 

This is often accomplished vis-à-vis an authorized reseller program – that is a program whereby the brand issues policies to its customers explaining where and how products can be sold in an authorized manner. Retailers and distributors are very accustomed to receiving these types of policies and, in many instances, welcome them. Without such a program in place, there is no governance whatsoever regarding who can and cannot sell on online marketplaces, and chaos soon ensues in the marketplace channel. Accordingly, implementation of an authorized reseller program is a key initial channel management step that allows brands to restore order to their channels and prevent online marketplace disruption fueled by their authorized sellers.

Effectively Monitor Authorized Channels for Compliance & Root Causes of Disruption

As brands implement their authorized reseller programs, they next should carefully monitor online marketplace activity to understand where and how products are leaving their authorized channels. Almost invariably, there is some business practice on the part of the brand that is fueling diversion and, ultimately, unauthorized sales. The culprit could be; too many distribution incentives; international pricing differentials; excessive retail margins; or some other practice that makes it possible for products to be diverted from authorized channels and sold online at a profit. 

These underlying practices are “root causes.” Brands that are most successful in controlling online sales will have worked to identify the root cause(s) of their unauthorized online sales. This is a pivotal step at ending the “whack-a-mole” game and ensuring that online sales are made by the seller and in a manner consistent with the brand’s go-to-market strategy. Among some of common root causes of unauthorized online sales are limited to no channel controls; generous and/or uncoordinated promotions; pricing differentials between competing channels; unmanaged liquidation and return practices; excessive retail margins; international arbitrage; volume discounts and incentives; and employees compensation misalignment or theft. 

Channel management is the first of four pillars of online sales control, along with stopping unauthorized sales; pricing and promotional activities; and brand protection. It is often the first pillar that we recommend brands tackle in their online sales control journey, as the root cause of online sales disruption regularly resides in channel management practices. Brands should educate internal stakeholders on this reality, implement an authorized reseller program to mitigate channel chaos, and then work to understand and, eventually, mitigate the root cause of their unauthorized sales as much as possible. Stay tuned for our next post on the second pillar of online sales control: stopping unauthorized sellers.

Daren Garcia is a partner and member of the Vorys eControl team, where his practice centers on the representation of manufacturers and brands and involves the implementation of thought-leading strategies and enforcement systems designed to protect brand value by controlling online sales.