E-commerce sales continue to increase. In fact, according to data released by the U.S. Department of Commerce in early 2015, online retail sales in the United States totaled nearly $305 billion. This marked an increase of more than 15 percent since 2013. Unfortunately some of this growth is occurring because some brands have been ineffective at stopping unauthorized sales on the internet.
Online sales are not showing any signs of slowing down and that is fine for consumers and authorized retailers. However, the ease with which people can buy and sell products is hurting many brands; specifically in the form of diverted products and unauthorized online sales.
Many companies’ businesses models are based exclusively on selling through authorized retailers and dealers. This includes:
- multi-level marketing companies selling through distributors;
- high-end brands working with high-end retailers to sell their products;
- brands committed to maintaining minimum pricing and high reputation standards; and
- businesses limiting the sale of professional medical and beauty products to certain authorized sellers.
Authorized sellers can go online and see whether any companies pitching them have control over product diversion, unauthorized sales or grey market good issues. More specifically, they can compare companies and decide which has the fewest unauthorized sales. This means less competition from unauthorized sellers undercutting them; less trouble building repeat customer business; and a lower likelihood of customers getting upset that the products they purchased online are also being sold by unauthorized sellers at lower prices.
Each of these is a big deal for companies. The problem is only likely to worsen, unless they committed to stopping unauthorized sales on the internet. Companies need to consider how to handle this dilemma if they have not already done so.
Specifically, companies must think about the appropriate enforcement system to implement in order to meet their goals while conforming to the potential constraints of their budgets. (We recently published a white paper on stopping unauthorized sales, which includes a close look at a model enforcement system.)
Brand owners must consider how best to communicate their efforts to their authorized sellers. They also must decide whether this is going to be an area in which they will invest time and money and differentiate themselves, or if they are going to look the other way and deal with consequences.
In short, brands and manufacturers with controlled distribution channels must think about how they are going to deal with uncontrolled distribution online. Then, of course, they must take action. Most companies cannot afford to ignore the issue and hope the problem just disappears. Brands need to take actions towards stopping unauthorized sales on the internet.
The brands that are proactive and implement a legitimate enforcement system can truly crack down on product diversion and separate themselves from the competition by stopping unauthorized sales.
For more information, contact Vorys’ Online Seller Enforcement team.