In an ideal world, a manufacturer would sell its products only to distributors or wholesale partners it knew and trusted, and those wholesalers or distributors would then sell that inventory only to retailers the manufacturers knew and trusted. Finally, these reputable retailers would sell these products only to end-user customers - abiding by all of the manufacturer’s reseller guidelines, of course.
Unfortunately, we don’t live in an ideal world. In the real world, there can be leaks at any of several points in the supply chain, which can lead to gray-market sellers or other unauthorized retailers acquiring your products and then selling them in ways that both undermine your legitimate resale partners and damage your brand.
One way to clamp down on a lot of these risks to your supply chain and brand is to establish an Authorized Dealer Program.
What is an Authorized Dealer Program?
An Authorized Dealer Program (sometimes also called an Authorized Dealer Network) is an opt-in partner program in which retail businesses that want to sell your products must first apply to your network to become “authorized dealers.”
You will then set up agreements with your distributors or wholesale partners stating they are allowed to resell your products only to these authorized dealers. Most such agreements also include penalties for wholesale partners that sell to retailers not on this list, up to and including terminating those partners’ relationships with the manufacturer.
How Can an Authorized Dealer Program Protect Your Brand?
When you create an Authorized Dealer Program, you are essentially erecting barriers that make it more difficult for rogue sellers to violate your pricing policy and other reseller guidelines to unfairly undersell your legitimate retail partners.
This method is not foolproof, of course. No method can stop every attempt by every shady reseller to get their hands on your products and sell them without your permission. But Authorized Dealer Programs do create a number of protections that can significantly reduce your company’s risk of brand damage. Here are a few examples of how an Authorized Dealer Program can protect your brand.
1. It gives your wholesalers incentive to be careful about where they sell your products.
Because your wholesalers want to continue doing business with your company, they have an incentive not to sell your inventory to companies that you don’t want acquiring your products.
Without a program in place that tells your wholesale partners which companies those are - or, better still, telling your wholesalers specifically which retailers they are allowed to work with - they might unintentionally sell your inventory to gray-market sellers or other businesses you’d rather not see representing your brand.
With a list of “authorized dealers,” you can make it clear exactly which businesses your distributors and wholesalers may sell to. And because these partners want to maintain a positive relationship with your company, they will have an incentive to abide by that list.
Plus, because you can draft wholesaler agreements that relate exclusively to your guidelines for selling to authorized retailers only - and because these agreements will not discuss resale pricing in any way - it will be perfectly legal to structure such arrangements as two-way contracts without any risk of violating antitrust law. (This is in contrast to most reseller pricing policies, which for legal reasons usually need to be structured as unilateral statements and not two-way agreements.)
2. It lets you work only with retailers you are comfortable will represent your brand well.
Another advantage of setting up an Authorized Dealer Program is that it helps you proactively build and control your retail sales channel - with only those businesses you are comfortable representing your brand - as opposed to allowing that channel just to form naturally as your wholesale partners sell to any retailers who submit bulk orders for your products.
Also, because these retailers have opted into your program, they, like your distributors and wholesalers, have an added incentive to follow your reseller pricing policy and other guidelines, and to take more care to advertise and sell your products in ways that reflect positively on your brand.
When these retailers have gone through the effort of applying to your Authorized Dealer Program, they will know that violating your reseller guidelines could result your company removing them from the approved retailer list - which will mean they won’t be able to acquire your inventory from wholesalers or distributors.
In other words, your Authorized Dealer Program gives every retail partner who gets accepted into the program a reason to be on their best behavior when it comes to representing your brand.
3. It lets you more easily trace the source of a rogue retailer.
Finally, with an Authorized Dealer Program in place, if you do find an unauthorized seller advertising your products on a marketplace like Amazon, you will have a much easier time tracing that retailer back to its wholesale source.
Many Authorized Dealer Programs require distributors and wholesalers to track all sales to retailers and submit those reports to the manufacturer (or at least to have them handy if the manufacturer asks for them). With this information, you should be able to use either the name of the retailer or (if the seller is operating under a different name to hide) the specific product ID to figure out which wholesaler sold to this rogue seller.
This will allow you either to warn the violating wholesaler or issue whatever consequences your agreement calls for, and then to begin aggressively going after the rogue retailer. Remember, you can threaten such a retailer without worry about violating antitrust law, because this type of reseller has no official right to resell your products in the first place, and you are legally free to pursue whatever action against the company you choose.
This enhanced ability to identify the source of a product “leak” to shady retailers won’t necessarily end all such instances, unfortunately. Rotten resellers are very clever and employ many tricks to get their hands on your products. But having an Authorized Dealer Program can definitely reduce your risk of both the frequency of these violations and the harm they can cause your brand.
Get Help Today Creating Your Authorized Dealer Program
It’s important to keep in mind that an Authorized Dealer Program, no matter how well it’s implemented or enforced, cannot protect your brand all by itself from all sources of potential danger. That’s why this type of program is most effective when it’s created as part of a larger, comprehensive brand protection strategy.
As part of our complete program for online brand protection, TrackStreet can help you develop and enforce your Authorized Dealer Program. Let us show you how.