The Coca-Cola Company, one of the world’s largest corporations, owes almost half of its entire $200 billion market capitalization to its name, and all of the customer goodwill and brand equity that name has earned over the decades. In other words, Coke’s “brand value,” estimated at tens of billions of dollars, is widely considered the company’s single most valuable asset.
And just like Coke, your company has worked hard developing brand value — even if you’ve never thought of it in those terms.
You’ve invested heavily in developing quality products that you’re proud to offer. You’ve spent time and resources building a reputation as a premium, trustworthy company. And you probably put a lot of effort into growing and maintaining a top-notch resale channel — taking pains to ensure that only resellers who are as committed as you are to an outstanding customer experience are selling your products, while doing your part to protect the interests of those resellers.
All of these efforts have contributed to your brand value — which you can think of as the level of trust, comfort and goodwill your customers feel toward your company and products.
But if your business sells through a resale channel, one single misstep in managing that channel could significantly and irreversibly undermine your brand value — and even decimate your company’s bottom line.
What Can Happen if You Fail to Implement a Reseller Pricing Policy
Common pricing policy types include Minimum Acceptable Pricing, or MAP, or Unilateral Pricing Policy, or UPP. Let’s say you don’t draft and publish any sort of reseller pricing policy. Let’s further assume you don’t develop an invitation-only reseller network like an Authorized Dealer
Program, so you have no quality-control checks on your channel, and no immediate way of identifying which sellers are allowed to retail your products, and to whom.
Here’s an overview of what could hypothetically happen to your company if you fail to implement a set of reseller guidelines for your products.
1. Grey-market sellers grab products from wholesalers or distributors — and undercut your legitimate retail partners.
Grey-market retailers that have no relationship with the manufacturer, and no authorization to sell their products, nevertheless recognize that there’s plenty of room to buy the manufacturer’s products wholesale and then retail them online for less than the other sellers. Many of these grey-market retail companies have virtually no overhead, so they can afford to sell at lower prices.
So they do just that, and start undercutting all of the manufacturer’s legitimate retailers.
2. Authorized retailers get into the act next — and a price war begins.
The manufacturer’s authorized resale channel begins to spot their competitors violating the brand’s pricing policy that they’ve been forced to adhere to. And because the manufacturer doesn’t seem willing to do anything to stop them, many of these legitimate retailers start slashing their own prices to remain competitive.
The price war has begun. Authorized retailers want to offload their inventory as quickly as they can, so they can recoup their investment in these products. Ultimately, many of them will plan to stop selling the brand altogether — because it isn’t worth the risk.
This race-to-the-bottom on resale price for a company’s products usually represents a significant threat to the company’s brand value.
3. The manufacturer’s all-important brick-and-mortar retailers drop them.
The next round of awful news triggered by the online price war will be that the manufacturer’s brick-and-mortar partners will likely stop carrying their products.
After all, these companies might have invested heavily in representing these products — buying plenty of inventory to carry in the store, setting up in-store displays and signage, and possibly even training their sales teams on the benefits of the manufacturer’s products. In short, these retail stores have too much overhead to compete against online-only retailers who are willing to violate the manufacturer’s pricing policy and unfairly undercut them.
Indeed, these retail storeowners correctly assume that if the manufacturer doesn’t take action to stop these violations of its pricing policy, their stores will effectively become mere showrooms for shoppers who want to see the products in person before buying them cheaper online from another retailer.
And losing shelf space and displays in these physical stores can significantly undermine the manufacturer. These stores, remember, lent credibility to the manufacturer’s brand, and they also probably introduced the products to shoppers who might otherwise never have discovered them. In other words, these retail partners were helping to grow the manufacturer’s brand value.
But all of that benefit is now gone — simply because the manufacturer didn’t have a mechanism in place to protect its’ legitimate resellers’ margins.
And the worst is yet to come.
4. The manufacturer’s brand value becomes irreversibly tarnished.
After a while, consumers catch on: The manufacturer’s products are available across the Internet for lower prices than ever, and they just seem to keep getting cheaper.
Over time, this will have the effect of damaging the product line’s reputation for high quality and the public’s general perception of the brand and the company behind it. From this point forward, the company has now been marked as a “discount” producer.
In other words, the manufacturer’s brand value is now in freefall.
5. The pipeline of new retail partners begins to slow rapidly.
For the same reason its legitimate retail partners are dropping the manufacturer’s product line, the company is finding it more difficult than ever to sign on new retail partners to carry its products.
Prospective retailers are, after all, easily able to monitor what’s happening to the products’ pricing — and the margins of existing resellers — and the trend they’re observing now has any potential new reseller concerned that they won’t be able to earn enough carrying those products to cover costs.
Moreover, some of these retailers pride themselves on selling only premium brands — and the plummeting advertised prices of the manufacturer’s products make those products less appealing for these premium-only retailers.
Obviously, this will only further weaken the company’s brand value.
6. The lousy customer experience provided by the grey-market retailers further erodes the brand’s good name.
In a final ongoing insult to the manufacturer’s brand, the growing number of shady retailers selling the company’s products means that more and more customers buying your products online are now dealing with resellers that have no direct relationship with you. No training. No checks to ensure that content in ads is accurate or messaging is consistent with your brand guidelines.
That means many customers who call the retailer for support will receive a substandard experience.
It means customers who try to return the product may find they cannot — because the manufacturer has no record they bought the product in the first place.
And it means that the end-user of your product is far more likely to have a poor customer experience.
Which can drive poor reviews of your products and further erosion of Brand Value.
What to do to protect your Brand Value
Clearly, the risks of not having drafting and enforcing a reseller policy are substantial. But fortunately, drafting, publishing, monitoring and enforcing an effective reseller policy is far easier than you might think.
Learn more by signing up for TrackStreet’s free eBook, How to Draft and Enforce a Successful Reseller Pricing Policy.
The second measure that you must take, is to proactively monitor and respond to negative reviews of your products. These reviews can, in many cases, be driven by poor perceived Brand Value and substandard customer experiences supplied by Grey Market, Unauthorized or Other Resellers that you should remove from your dealer network.
Fortunately, TrackStreet offers a module as part of its SaaS Brand Protection platform to help you identify and address negative product reviews from across the Internet, including on major marketplaces like Amazon, eBay and more.
Would you like to see how TrackStreet’s platform can help you? Schedule a demo.