Experts offer an array of solutions to combat sharp rise in unauthorized listings
By: David Bland
“To successfully confront the fraudsters and opportunists requires new weapons to exhaust and overwhelm them.”
—Trajan Bayly, CEO, Gray Falkon
“Over the years, we’ve watched this problem grow exponentially. Direct sellers really struggle with it because it kills enthusiasm in the field. But it’s not going anywhere, and companies need to stay on top of it if they want to thrive.”
—Jonathan Gilliam, CEO, Momentum Factor
Led by Amazon, the explosive growth of the global online marketplace has completely reshaped commerce over the past few decades. These vast new virtual storefronts have brought with them a serious threat to both online and offline direct sales: the unauthorized seller.
With just a few clicks and an inventory of one single item, an unauthorized seller can jeopardize a direct selling company’s reputation, customer base, legal standing and overall revenue.
Meeting this threat has become both challenging and critically important for the channel, and it requires an organized response to address not only rogue sellers but the virtual marketplaces as well.
To fight back against unauthorized sellers on global platforms means disrupting a primary revenue stream of some of the largest companies in the world. Amazon, eBay, Walmart.com, Facebook Marketplace, and others won’t give up their growing dominance without a fight. Solutions will require a dynamic and determined approach.
Direct Sellers Are Particularly Vulnerable
Direct selling companies are uniquely susceptible to losses from product sold in unauthroized ways without permission. Former distributors may try to unload unsold inventory or larger operators accumulate products to sell at rates designed to undercut the maker’s brand.
Regardless of who sells the products or why they are sold, there are several ways rogue sellers impact legitimate direct selling companies.
Customer confusion – The online shopper doesn’t differentiate between a rogue seller and the company that originally marketed the product, much less understand the direct sales channel and how sales are supposed to take place. Moreover, when a customer is directed away from legitimate distributors, they lose a critical consultant and educator of the brand. In some cases, they may not understand how to use the product or what the product outcome should be. The lack of service, combined with negative customer experience, can result in disappointment or even resentment toward the brand.
Distributor harm – By purchasing product from an unauthorized seller, a customer has disrupted the direct selling business model and bypassed the product distributor. This can obviously harm the distributor’s income, shrink their customer base and hurt their ability to recruit more representatives for the company.
Lawsuit exposure – When an unauthorized seller gains access to a product, there is no longer any quality control over that item. Inferior, bad, or expired products may result in legal action against the manufacturer if the consumer feels harmed by the resold product or deceived by the manufacturer.
Pricing problems – Unauthorized sellers often sell below the minimum advertised price (MAP). When shoppers search and sort by price, gray market listings below MAP can instantly siphon sales away from the field. This pricing differential is one of the most serious risks to sales inside the channel.
Brand damage – The posting of incorrect information, images, and claims can not only damage a brand’s reputation but get it in hot water with consumer advocates and regulators—even lead to unwarranted complaints and bad reviews.
New Solutions Emerge
Despite being an urgent threat to brands, illegitimate sales have proven to be an unrelenting challenge for direct sellers to deal with due to the various legal and administrative shields third parties hide behind. Fortunately, vendors and suppliers to the channel continue to respond to the ever changing marketplace, giving companies seeking to seriously address the threat of unauthorized sellers new and effective solutions to combat this hazard.
With the use of efficient legal bombardments, sales data analysis, cyber investigation, and even anti-fraud tools provided by the platforms themselves, the fight against the bad actors of the virtual marketplace is transitioning from a hopeless game of whack-a-mole to a very winnable war, if fought correctly with the appropriate expertise and resources.
Amazon’s Incentives (Or Lack Thereof)
As a customer- (and profit-) driven company, Amazon remains neutral in most disputes between producers and sellers. Amazon does not care that unauthorized sellers harm distributors because more listings means more product flowing through their warehouses.
Nor is the company concerned with the damage third parties may inflict on a brand, as long as they don’t violate Amazon’s own policies, of course. Amazon will make the same percentage from an item sold below MAP as it would above it and, as anyone who has tried to address this issue directly with Amazon knows, there is little economic incentive for the company to intervene.
Moreover, Amazon continues to evolve its business model in favor of hosting third-party sellers. One of Amazon’s stated goals is for its third-party marketplace to sell more than Amazon itself as they assume no inventory risk. A seller pays Amazon to house their inventory and then pays the company again when they sell it. For Amazon, it makes business sense: In 2019, third-party sellers generated over $50 billion in revenue for Amazon.
As the marketplaces grow, direct sellers will continue to see more and more of their products being sold without permission online. The question then becomes, what will deter rogue sellers and also get Amazon’s attention?
The answers are different but clear. The greatest risk to the unauthorized seller is losing their access to the platform—their golden goose. As for Amazon, its Achilles heel is being a party to trademark and/or copyright infringement, or worse, a purveyor of counterfeits, which could result in massive judgments or increased regulation.
Solution 1: Legal Attack
Calling in a legal team to identify, categorize, and ultimately threaten unauthorized sellers with legal action was one of the first solutions available to direct sellers and has been a go-to for companies in the channel for several years.
Generally, the service is managed by a law firm and a company’s internal compliance team. They start by reviewing a company’s agreements and policies within their field in order to strengthen future legal claims against third-party sellers. They can monitor and help prioritize the most disruptive sellers, and when they can’t identify the target they often investigate their identity by conducting “test buys” and other techniques.
This approach involves lawyers, legal strategy, and technology to blanket the marketplace sellers with threats of legal action.
Adam Sherman, partner at Vorys, Sater, Seymour and Pease LLP, says, “To get sellers down, we use legal tactics, such as cease-and-desist (C&D) letters, but we also leverage our knowledge of the marketplaces to report IP violations and marketplace policy violations where appropriate. We work with our clients to identify large diversion schemes and shut them down.”
While most law firms have the skills necessary to review policies and send letters, Sherman says traditional firms do not appropriately leverage technology or use investigation tactics. “Law firms can be very expensive in dealing with the problem that requires a broad, efficient approach. Our combination of legal tactics, technology, and investigation allows us to mold solutions that fit each client’s particular needs and goals.”
Solution 2: Threaten Their Store
While a preliminary barrage of threatening cease-and-desist letters may make sense as a first move against the one-off or amateur reseller, “a legal strategy can quickly become cost-prohibitive and toothless once the more easily-intimidated offenders have withdrawn,” says Trajan Bayly, CEO of brand protection firm Gray Falkon.
”After the wave of C&Ds are sent, the remaining minority of rogue sellers are far more stubborn,” says Bayly. ”These are the professional resellers and scammers that acquire large amounts of product via shady side deals with authorized distributors, acquire counterfeits from abroad, or purchase products directly from the company using stolen credit cards.”
Bayly adds, “They aren’t afraid of lawsuits, they know most companies aren’t going to spend the money, and even if they get a judgement, some keep selling anyway. It’s hard to enforce against somebody in China.”
”One way to get to them is by threatening their online store. “In our experience, career sellers are far more afraid of losing their Amazon store and being stuck with inventory that they can’t unload.”
One of Gray Falkon’s tactics is to contact the sellers directly and rattle their cage. “We’re constantly reinforcing that they’re violating the platform’s policy, and upsetting the platform is one thing they don’t want to do,” says Bayly.
Next, the firm contacts the marketplaces to point out sellers who are violating their policies and generating poor customer experiences, which enables them to take action, while at the same time demonstrating to a seller that it isn’t an empty threat.
Bayly sums up their approach. “It’s death by a thousand cuts. We keep up the pressure and chip away at the worst sellers, little by little until they just move on to other brands.”
Going after third-party gray market sellers with these types of innovative methods will be increasingly important as this segment of the marketplace continues to grow.
Solution 3: No Validation, No Sale
According to Jonathan Gilliam, CEO of compliance management firm Momentum Factor, the legal and tactical approaches can eventually remove up to 75 percent or so of offending sellers, but they rarely vanquish the problem entirely.
”Anything less than 100 percent success isn’t success at all,” says Gilliam. “One rogue seller on Amazon still delivers the same field disappointment as a thousand. While legal and technical strategies are a good start, lawsuits are expensive and e-commerce maneuvers can lag behind a clever seller. You’ve got to eliminate them all or it’s just a forever game of cat and mouse.”
While Amazon may not care much about who sells a company’s products at what price, they do care about the threat of fraud and counterfeits, which opens up avenues for a solution.
In its 2019 annual report, Amazon included the topic of counterfeit items for the first time. Major companies such as Nike have ended their relationships with Amazon over the counterfeit issue. Even more alarming to Amazon is the attention this counterfeit issue is receiving from Congress and regulators in Washington, D.C.
“Amazon doesn’t want to become the platform for fakes,” says Gilliam. “It causes all sorts of problems for them and carries serious liability.”
He says his firm approaches the rogue seller problem from an entirely different angle. “Our focus is to eliminate the threat of fraud and counterfeits that many sellers present. The only way to do that is to eliminate unauthorized listings altogether. With our approach, if it’s not offered by an authorized source and could potentially be fraudulent, it doesn’t get listed.”
Gilliam says his firm’s program completely eliminates rogue listings on Amazon. The key he says is a deep understanding of the inner workings of Amazon and partnering with them to achieve shared goals—selling products, generating revenue, and eliminating fraudulent listings.
“We implement measures to stop unvalidated products at Amazon’s receiving docks before they are ever available for sale,” he says. “If the brand owner doesn’t explicitly attest to the product’s authenticity it will be turned away at the warehouse.”
As a result, he says, test buying, seller investigations and product tracking become irrelevant, keeping costs low. “In the end, there are no products online to purchase other than those verified as authentic by the company and Amazon.”
At the start of a client program, Momentum Factor uses traditional approaches to pull down as many listings as possible and, depending upon the number of a brand’s products being sold on Amazon, the process is fully underway within 90 days. During the onboarding phase, data is collected and submitted to Amazon. All sellers of a brand’s products on Amazon are then sent a warning from Amazon itself that unvalidated products will be denied acceptance at Amazon fulfillment centers.
Once the warnings have been issued, the program is switched on so that when the current inventory of a product at Amazon sells out, no new unauthenticated product may be sent in, thus preventing any product sales other than authenticated items. As these listings fall off, product pricing moves back to proper levels.
“Over the years we’ve watched this problem grow exponentially,” Gilliam says. “Direct sellers really struggle with it because it kills enthusiasm in the field. But it’s not going anywhere, and companies need to stay on top of it if they want to thrive.”
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