If you’re a manufacturer or brand selling your products through a network of wholesalers and retailers, online price erosion can become a menace to your resale relationships and your brand’s reputation. In this post, I’ll offer some best practices for combating it.
The Bad News: Online Price Erosion Always the Brand’s Fault
But first things first. If you’re facing price erosion online, the most important step in dealing with it is to recognize that no matter how the problem is presenting itself right now, it started with something your company has done, or failed to do. Your policies, agreements, and processes—and not the actions of any reseller—are ultimately responsible. There are no exceptions to this rule.
If you spot unauthorized retailers selling your products online undercutting your authorized dealers, it’s because you’ve failed to control your distribution.
If Amazon Retail is violating your MAP pricing guidelines, it’s because you aren’t being aggressive enough in demanding that Amazon adhere to your policy, just like every other resale partner in your network.
And if you catch an authorized dealer repeating a violation for which you let them off with a warning the first time, it means either your policy isn’t strict enough or the reseller doesn’t believe your company is serious about enforcing it.
In fact, this might be the single most important step to combating online price erosion. Rather than focus just on that one rogue seller, or that one wholesaler repeatedly violating your distribution agreement, you need to step back and examine your company’s entire distribution infrastructure. That’s the only way to identify the true sources of your online price erosion problems, so you can take action to correct them.
The Good News: You Can Solve the Problem (or at Least Most of it)
Here are a few best practices to help you regain control of your distribution channels, to protect your company from the dangers of online price erosion.
1. Restrict your distributors’ sales to authorized dealers only.
All of the actions across your resale channel that lead to online price erosion ultimately trace back to how and to whom your company is selling inventory.
Without clear restrictions and rules to guide them, your distributors, wholesalers, and even your own internal sales teams might sell to disreputable retailers who have every intention of violating your policies. This is why control of your online prices starts with control of where your products are sold in the first place.
Put rules and limits into your distributor/wholesaler agreements allowing them to sell your inventory only to certain companies, and requiring them to report the details of all sales to you on a regular basis.
Another important rule in your distribution agreements should be to specify which resellers your distribution/wholesale partners are allowed to sell to. Which leads us to the next step.
2. Set up an authorized dealer network.
Establishing an authorized dealer network allows your company to control which retailers are selling your products, turning your brand’s distribution from a free-for-all to an opt-in program where only retailers your company screens and vets are allowed access to your inventory.
The fastest and easiest way to develop an authorized dealer network is to use an automated online dealer management portal.
The right portal, in fact, can help automate managing not only your dealers but also your distributors and wholesalers, all from a single online dashboard.
3. Be careful when selling to Amazon Retail.
This tip comes from TrackStreet friend and consultant Eugene Zelek, Jr. Gene is an attorney specializing in antitrust, pricing, and distribution issues for manufacturers and brands. In his decades of experience working with manufacturers and brand owners, Gene has helped develop hundreds of MAP, MRP (Minimum Retail Price), and other pricing and distribution policies.
Gene warns that although Amazon Retail can represent a boon to a brand’s business because of the marketplace’s enormous reach and marketing savvy, working with Amazon Retail can also create some of the same problems for your brand and resale pricing that you could face with any other reseller.
For example, although Amazon states it won’t violate a brand’s MAP, the company does leave itself a “price matching” exception. Amazon constantly monitors the internet for competitive listings of all the products it offers, and if the company’s algorithm spots a seller offering a product for a lower price, Amazon will drop its price to match or beat that seller’s.
If that original price drop represented a violation of your company’s MAP policy, now you have a much bigger problem. Now Amazon itself—the biggest and most visited marketplace online—is also advertising your products in violation of your pricing policy. That is why this situation is so dangerous. Once Amazon starts violating your MAP, your other resellers will notice—and you could quickly find yourself facing online price erosion as everyone else drops their prices as well.
As Gene explains, if you complain to Amazon about this, the company will often say that once you persuade your other sellers to bring their prices up to your MAP levels, Amazon will raise its own prices to match them.
But Gene recommends being more aggressive, letting Amazon know your MAP policy does not include a price-matching exception, and that if they continue violating your policy you will cut off future inventory. Because Amazon doesn’t want to lose products in its marketplace, they will, in some cases (although not all), be persuaded to comply.
4. Monitor and enforce your online prices.
None of the other tips I’ve discussed here will matter much if you’re not actually monitoring the market to catch violations before they have a chance to snowball into full-blown online price erosion.
So it’s important to set up a system to constantly monitor all of your products’ listings and ads online. This means watching not only your authorized dealers but also any rogue sellers who pop up advertising your products with misinformation and without your authorization.
In conjunction with this comprehensive monitoring effort, you’ll also need a process for quickly and aggressively dealing with violations. The sooner you can rectify an issue you spot online, the less of a chance it has to lead to loss of retail partners, online price erosion, and other major problems.
5. Let the professionals help you.
Yes, you could try to monitor your resale network entirely in-house. And yes, you can make some of the monitoring and enforcement tasks easier with a dealer management portal.
But reseller misbehavior has become so prevalent that you don’t want to leave anything to chance—particularly not when you consider that just a few mistakes or missed violations could lead to the dreaded online price erosion.
With that in mind, in addition to having an authorized dealer network, updating your distributor agreements, and setting up an online dealer portal to manage your channel, you’ll also want a comprehensive platform for MAP price monitoring and enforcement. This will let you automate managing, monitoring and enforcing your reseller policies from a centralized application.
And the best way to find the right solution for your company is to ask the professionals.