So, you’ve drafted and executed agreements with the distributors and wholesalers of your company’s products, but you’re convinced that at least a few of these distribution partners must not be complying with the terms of those agreements. Some of your products have “leaked” out of your official distribution chain, and they’re showing up in Amazon listings from retailers you’ve never heard of, who are advertising them well below the prices you’ve established in your MAP policy.
When you discover an unauthorized retailer is out there selling your products, that presents a real threat to your company. But the silver lining in that scenario is that you’ll have to deal with just one rogue seller. On the other hand, discovering you might have a misbehaving distributor or wholesaler can be worse—because they’re dealing with many retailers, and their noncompliant behavior could be creating all sorts of problems for your brand at the retail level.
So, when you learn that distributors are out of compliance with your policies, you’ll face two important questions:
- Why are your distributors failing to comply?
- What can you do about it?
This post will offer guidance on both of these questions.
5 Reasons Your Distributors Aren’t Complying with Your Policies (and What to Do About Them)
1. Your own sales staff isn’t following your policy guidelines.
Often the problem of distributor or wholesaler noncompliance with a manufacturer’s policies starts close to home—inside the manufacturer’s own company.
If the company’s in-house sales team needs to boost its short-term numbers, for example, those sales reps might offer inventory to a wholesaler at below-standard prices, which gives that distribution partner more leeway to resell to unauthorized sellers because they can do so and still clear a profit.
In some cases, if an in-house sales rep is highly motivated to reach a sales quota before a fast-approaching deadline, that rep might even contact a distributor that also sells retail, and offer to sell inventory at a steep discount and then look the other way if the partner wants to advertise the products at below the manufacturer’s MAP-approved levels.
What to do about it:
Your first step should be to educate your entire company—including your internal sales department—on the importance of adhering to your distributor and retail-partner policies for the sake of both your legitimate partner relationships and your brand’s reputation in the market.
You should also create internal processes to track all of your inventory—which sales teams are selling to which distributors, and for how much, and which retailers those distributors are selling to. This way, if you discover “leaked” products on eCommerce sites from rogue sellers, you’ll have a better chance of tracing the problem back to its source.
2. Your distributors don’t have internal controls to ensure they’re complying.
Sometimes the root cause of product leakage within your distribution channel has nothing to do with cheating or gaming the system—it’s the result of simple neglect or incompetence.
Even within an honorable distribution or wholesale company, where the company’s senior management enthusiastically signed your agreement and had every expectation to comply with its terms, mistakes can happen. If new people in the organization might are tasked with handling inventory resale to retailers—and these new people don’t know about your company’s Do Not Sell list—they might inadvertently and innocently cause that product leakage.
What to do about it:
Again, you will probably want to focus on education. Perhaps your team can develop a short training course (or even just put together a conference call) for new and existing wholesale and distribution partners, to walk them through what abiding by the clauses in your distribution agreement should actually look like.
You might also want to add requirements to your agreement, if they aren’t there already, such as demanding the distributor record and report to you on a regular basis key details of every inventory sale: e.g., name of company, tax ID number (or other identifying information), unit and price detail, date of sale, contact name, etc. This way, your distributor will know to build into its own processes a little more scrutiny about each of its sales of your products.
3. You haven’t clearly told your distributors what compliance looks like.
If you just grabbed a boilerplate distributor agreement from the web or paid a one-time fee to an attorney who doesn’t know your company to draft one for you, the problem might have originated right there.
If your distributors don’t know exactly what it means to comply with your company’s terms for carrying your inventory—and some of those distribution agreements can get very technical and confusing—then you can’t expect them always to know if they’ve stepped over the line.
What to do about it:
Your distributor or wholesaler agreement—just like your MAP policy—should be written in plain English.
So you might need to start over and draft a new one—which makes it clear to your distribution partners exactly what you want them to do (record all transactions, report the details back to us), and what you don’t want them to do (don’t sell to any retailers not on this list, etc.).
A related suggestion: If you don’t already have an Authorized Dealer Program and a list of approved retailers, you should make that a top priority. Your distributors will have a much easier time selling your inventory only to the right retail companies when you’ve told them exactly which companies those are.
4. The distributor is planning to end its relationship with you and wants to dump its remaining inventory in a hurry.
Although less common, some distributors or wholesalers will make a ruthless calculation as they plan to phase out your inventory and stop selling your products. They will determine the best and easiest way to unload their remaining product stock is to sell to anyone who asks—even rogue sellers or businesses you’ve specifically placed on your Do Not Sell list.
What to do about it:
One proactive strategy here might be to include in your original distributor agreement, and to communicate to your partners in other ways as well, a promise that if they decide to stop working with your company, you will buy back their existing inventory (ideally for a price better than they’ll be able to fetch on the grey market).
5. A well-meaning distributor has no idea it’s passing your inventory on to rogue sellers, because it is falling for one of the many tricks these sellers use to acquire product.
Unauthorized third-party sellers are becoming more sophisticated, so well-meaning distributors and wholesalers are falling out of compliance with their manufacturers’ policies because they’re simply being duped. These rogue sellers have many tricks to unethically acquire brands’ inventory that they will then unethically retail online in ways that harm that brand.
What to do about it:
First, we highly recommend you educate your own internal team about the clever tactics rogue sellers will use to get their hands on your products. Start with this short video tutorial.
Video: 13 Dirty Tricks that Rogue Sellers Use to Devastate your Brand’s Value
Then teach these tactics to your distributors and wholesalers, so they’re aware of what to look out for.
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