Social selling companies struggle to protect their businesses from online marketplaces while keeping the field happy
By: Travis Wilson, Momentum Factor.
Selling through Amazon is actually the opposite of selling through a networked direct selling workforce.
With the massive increase in participation from everyday people in online marketplaces such as Amazon and Walmart, direct sellers are scrambling to prevent the erosion of their brands, lowering of price expectations, and reputational risk that comes from the unauthorized sale of their products online.
Indeed, the problem snowballs each year as more and more end-user customers search out direct sales companies’ products at the best price. Experts estimate that companies are facing billions of dollars in losses as marketplaces continue to profit handsomely from the enablement of gray market sales.
Direct sales companies are feeling the pinch across all categories, and are scrambling to stop these sellers and remove listings. As the number of product listings and sellers become overwhelming, many direct sellers are spending a fortune in time and money to try to meet the challenge.
Unauthorized sellers battle with companies for consumer dollars, and customers look for the least expensive way to get the product they want on their doorstep with free two-day shipping. This severely impacts a direct seller’s bottom line and, most importantly, hurts the field, as they often cannot compete with the cut-rate prices found online.
There Are So Many Solutions, but Few Solve the Problem
As a result of the shift in consumer behavior, service firms over the past five years have attempted to create solutions to try to contain the threat from online sellers. One early solution centered on legal remedies, including the identification of sellers, tracing product sales, and ultimately sending legal demands to sellers to discourage them from reselling the company’s products.
Another solution threatened an unauthorized seller’s bread and butter—their online store—by using Amazon’s policies against them, including intellectual property and other brand protection mechanisms, while using an escalating series of threats to press them to drop the offending listings.
A more recent approach that has stopped these sales centers is an attempt to “out-Amazon” Amazon itself. It’s the “if-you-can’t-beat-em-join-’em,” approach: Build an official corporate store, advertise it heavily, and get the official site ranked on Amazon so you capture most of the sales.
While this may work for smaller companies with relatively minor issues (low sales volume, few SKUs, few competing listings, etc.), direct sales companies with high volumes of unauthorized listings cannot solve the problem this way, primarily because it competes with the field.
The issue with this is, even if brands are able to establish their company as the first listing a customer sees, as long as the customer can see other listings with a lower price, brands are at risk of losing the customer.
It doesn’t address the pricing issue, and most of all it doesn’t eliminate the competing low-priced listings that will inevitably crop up around the brand and compete with the field. Bottom line, every sale that happens on Amazon is one that is not happening through distributors.
Another way this solution falls short: If promotion of the company’s official listing is successful, it still drives customers away from distributors. The whole point of the direct sales model is to build sales volume through a distributed workforce of independent representatives. Selling online is contrary to the model itself. Selling through Amazon is actually the opposite of selling through a networked direct selling workforce.
While all of the above can be helpful, the problem is these solutions cannot remove all listings that compete with the brand (in our experience, typically fewer than 75% of listings and sellers can be removed this way).
Sophisticated online sellers know the game and have plenty of resources, workarounds, and legal defenses to protect their golden geese. Just one under-priced listing will compete with your field; therefore all competitive listings must be completely removed from the marketplace.
How Can a Company Stop Unauthorized Sellers?
While there are several good firms in the space seeking to corral this problem, our firm’s philosophy is that the only way to stop the negative impact of unauthorized listings is to remove all of them. Period.
Since companies can’t trust entities such as Amazon to remove unauthorized listings, self-advocacy is the most valuable tool. For starters, explore solutions that are tailored with the direct selling industry in mind and have a proven track record of eliminating all unauthorized sellers.
Companies can then explore legal avenues to augment technology initiatives. But pursuing a strictly legal or technological solution can be costly and ineffective. Companies desiring to be successful in cleaning up their unauthorized sales problems must take a proactive, multi-faceted approach.
- There will always be a small segment of customers who will buy on Amazon–the goal should be to fulfill those sales without driving additional sales to Amazon.
- Remove all unauthorized sellers from the platform.
- Ensure all listings are at Minimum Advertised Price (MAP) or above (otherwise customers will buy at the lowest price).
- Be transparent with your field about your efforts to reduce unauthorized sales and push sales back to them.
- Engage experts with a proven track record of helping companies with these issues.
What If We Give the Money Made Online Back to the Field?
In an effort to assuage the frustration of distributors, companies that implement a solution that effectively competes with their field may elect to pay a portion of online sales to distributors through a bonus pool in their compensation plan. However, this negatively impacts the opportunity to build successful downlines. Companies hoping to grow are likely to experience the exact opposite when deciding to officially sell on Amazon and other third-party selling sites.
Companies should enable their field associates to grow their businesses by removing all unauthorized sellers and pushing sales back to distributors, where they belong. This will win the day with the field—showing distributors that the company didn’t “give in” to Amazon, and instead fought with everything they had to protect their businesses.
In short, direct sales companies expend substantial resources to build brand awareness and develop quality products for distributors to sell. Unauthorized sellers can destroy a company’s field success, perception of quality, and even its overall reputation.
So, What Exactly Are Unauthorized Sellers?
An unauthorized seller is any third party that is not associated with your company and resells your products without your permission. This could be an individual, a former distributor, a group of sellers, or even an entire business. And it’s easy for them to maintain some level of anonymity, at least on the consumer-facing side of online marketplaces. The selling often takes place on Amazon, which does not discriminate between official and unofficial sellers of products. Its algorithm searches the entire database for the “best deal” to advertise to shoppers, often leading potential buyers directly into the arms of the unauthorized seller. Selling on Amazon in the U.S. does require users to meet some basic guidelines and provide information such as Tax ID and State Tax ID. However, Amazon does not generally prioritize filtering unauthorized sellers out of the equation. It’s somewhat of a free-for-all, which is the perfect way for these sellers to make a payday off of your product.
Why Are Unauthorized Sellers Risky to Your Field?
There are two main ways in which these types of sellers can harm your business. Part of the reason these sellers are so prolific is because the asking price for the product is often marked lower than your company’s MAP, which means that the “Buy Box”—the box denoting Amazon’s highest-rated item in the search category—could go to the unauthorized listing.
Being that a high percentage of shoppers look for the “Buy Box” when deciding between two sellers, this is a big deal. Not only are they usurping customers from you, but they’re also lowering the price of your product, which further deters potential buyers from your official listing, and at the same time hurts the sales efforts of your entire field and thus your bottom line.
Secondly, the unauthorized sellers are the ones responsible for the quality of product they are reselling, which is often below quality standards put in place by your company. It is not proactive for your brand to sit back while someone else sells your products at a lower price point and a lower standard of quality. This can lead to negative reviews and a negative brand image that results in a drop in customer loyalty/support and consumer trust.
In the end, you could experience damage to your online reputation and pricing integrity, hurt your overall business, and negatively impact your field’s ability to enroll and sell.
Travis Wilson is Director of Momentum Factor.