Distributor Compliance – How to Enforce It?
When all partners in your distribution channel comply with your company’s policies – honoring your guidelines on brand usage, pricing, product handling, and selling only through channels you approve – this can go a long way toward helping you grow your business and increase your brand value.
The question, then, is how to secure this distributor compliance? What steps can you take to ensure your partners at each stage in the distribution chain are adhering to your company’s guidelines? Here are a few best practices.
Develop Partnership Agreements for Your Distributors and Wholesalers
Let’s say you sell your products through a two-tier distribution channel: Your company sells inventory to a network of authorized distributors or wholesalers, and those companies then sell to retail businesses.
This means your distributors and/or wholesalers represent your products’ entry point into market. So it is extremely important to craft a set of rules and restrictions to guide their behavior. You don’t want to leave these distributors free to sell your products to any retailer who tries to buy them, because this is often how rogue sellers get their hands on your inventory and then violate your company’s guidelines in all sorts of ways when they resell them on the grey market.
So one of your first steps in enforcing distributor compliance should be to draft an agreement that clearly explains your rules for wholesaler and distributor behavior. You will also want to make signing this agreement – and then complying with it – a condition of continuing to do business with your company.
The primary reason that these agreements are so often effective is that they align your distributors’ and wholesalers’ interests with your company’s interests. Because they have agreed to follows these guidelines when selling your inventory, your distribution partners know they have something to lose – temporary access to your inventory, or even being removed from your authorized dealer list permanently – if they don’t comply.
Establish an Authorized Dealer Program (with Dealer Badging)
Another important step toward gaining distributor compliance is to limit which retailers you allow to sell your products. To help achieve this objective, you will want to establish an authorized dealer program that limits the companies that your business officially recognizes as authorized retail partners.
This step will be closely related to the first one we just outlined – drafting distributor/wholesaler agreements – because those agreements should demand that your wholesale partners sell your inventory only to retailers who are on your “Authorized Dealers” list.
In developing your authorized dealer program, you will need to create a process both to allow interested retailers to apply, and then for your in-house team to vet those applicants. The goal here will be to allow in only retail companies that have a solid track record of quality service and trustworthiness, a history of stability in business, and favorable customer reviews.
As with our tip to craft distributor agreements, an authorized dealer program helps your company create aligned interests between your business and your retailers’ businesses. Rogue sellers or unauthorized third-party sellers have nothing on the line when it comes to selling your products, so they won’t care about your policies. But your authorized dealers have gone to the trouble of applying to join your network, and they therefore know they could lose something they obviously value if they decide to violate your pricing policy or your other guidelines.
Note: For this program to be successful, you will also need to help retailers communicate to customers that they are in fact your authorized dealers. The easiest and most effective way to accomplish this will be to issue authorized dealer badges: electronic trust icons your retail partners can display alongside your products on their websites and in online ads, to quickly establish customer trust.
Publish and Enforce a MAP Policy (or Other Reseller Pricing Policy)
One of the most common ways for manufacturers to lose control of their brands in the market is when resellers get into online price wars, rapidly driving down the advertised prices of the company’s products. This can cause serious backlash among a manufacturer’s legitimate retail network, resulting in some retailers refusing to continue carrying the company’s inventory, and it can significantly weaken the manufacturer’s brand.
One way to combat the threat of online price erosion is to develop a reseller pricing policy – such as a Minimum Advertised Price (MAP) policy or Minimum Resale Price (MRP) policy.
Learn about reseller pricing policies in our free eBook.
But remember, equally important to drafting, publishing, and letting your authorized resale network know about your reseller pricing policy will be enforcing the policy. Effective enforcement will require its own set of best practices.
For example, you will need to make sure your team is enforcing the rules articulated in your policy consistently. (Playing favorites with certain retailers can put you in legal jeopardy. You will also need to set up a process for addressing all violations promptly. (You don’t want your honorable retailers spotting a pricing violation before you do.)
Automate Your Distributor Compliance Enforcement Process
For all of these reasons, and many others, our final tip for distributor compliance is to automate the reseller monitoring and enforcement process as much as possible. The best way to do this is with online distributor compliance software.
For more information, contact us, and let us show you how it works.