As brands increasingly realize, channel management or online sales control is a critical predicate to profitable growth in the eCommerce channel. In particular, the online marketplace channel. For the first post of the series, we defined the four pillars of online sales control. In this post, we will discuss the first pillar: 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. That reality poses an initial challenge for brands, as many 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 B2B and B2C verticals are easily sourced and sold online by unauthorized sellers. That can lead to massive intra-brand competition in the online marketplace channel. Which, in turn, results in diminished sales, diminished return on marketing investments, poor quality products, negative reviews, and significant erosion of brand value. That happens in the online marketplace channel and across the brand’s other channels of trade.
This brings us to our first rule of channel management in the online marketplace era. Online sales disruption starts below the waterline in the brand’s traditional challenges, not on the marketplaces themselves. Many brands mistakenly focus solely on enforcement on online marketplaces like Amazon. However, they do this without addressing the issues in their traditional channel practices that are fueling unauthorized online sellers. It leads to a proverbial game of “whack-a-mole,” which is not a winning strategy.
Given this reality, the first channel management step that most brands must take is:
This is often accomplished vis-à-vis through 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. That creates chaos in the marketplace channel. Accordingly, the implementation of an authorized reseller program is a key initial channel management step. That’s because it allows brands to restore order to their channels and prevent online marketplace disruption fueled by their authorized sellers.
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:
OR:
We refer to these underlying practices as “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. The chart below identifies many common root causes of unauthorized online sales.
Channel management is the first of the four pillars of online sales control. 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 (using the iceberg concept above), 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.
Vorys eControl has advised hundreds of brands on channel management strategies in the eCommerce age. Our dedicated channel management team is led by an experienced business executive with decades of channel management leadership experience. An all within a multi-billion dollar global organization. Our legal team members have designed and implemented hundreds of authorized reseller programs and have substantial experience working across practically every conceivable product category and channel strategy. Finally, our root cause team has worked with many brands to identify and mitigate the root causes of their unauthorized online sales.
To discuss how each of these components of the channel management pillar impacts your brand, please contact Daren Garcia. You may also find our eBook, Achieving Brand Control & Stopping Unauthorized Sales Online, and white paper on root cause diagnostics helpful for more in-depth information on these topics.
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