top of page
Writer's pictureRyan Weller

Unauthorized Distribution - How do we think this ends?

Updated: Oct 23, 2024

As Amazon and eBay have become more popular, so too has the phenomenon of unauthorized 3P sellers. These sellers often undercut authorized dealers on price, which can damage the product values of brands and manufacturers. As a manufacturer, how do you think this is going to play out? What will the cost of the Grey Market be to your brand value and authorized distribution network?



Grey market refers to the sale of genuine products outside of the authorized distribution channels. When a brand's products are sold on the grey market, the brand loses control over the pricing, quality, and distribution of its products. This can lead to several negative consequences for the brand, including:  Damage to brand reputation: When products are sold on the grey market, the brand cannot guarantee their quality or authenticity. This can lead to negative reviews and loss of trust among customers.  Loss of revenue: Grey market sales can undermine the brand's pricing strategy, leading to lower profits or loss of revenue.  Legal issues: Grey market sales may violate the brand's intellectual property rights and lead to legal action against the brand or the grey market sellers.  Channel conflict: Grey market sales can cause conflict with authorized distributors and retailers who are competing with unauthorized sellers.  Unchecked grey market issues can have a significant impact on a brand's reputation, revenue, and legal standing. Therefore, it's crucial for brands to take measures to prevent the sale of their products on the grey market.
If you have unauthorized sellers on Amazon, let us help you identify the source of product.

The Rapidly Changing Marketplace and the Risk of Unauthorized Distribution.


We've spoken with numerous people and have written several articles on the issues around unauthorized 3P sellers on Marketplaces.


The question for any Executive responsible for Sales, Marketing, or Brand Protection, is, if you don't do anything about the Grey Market how do you think this is going to play out?


Industry experts like Martin Huebel of Consulterce, have posted numerous times on the importance of distribution management, recently advising brands that if they prioritize, "one thing in 2025 - make it distribution control," and in the same post stating, "lack of distribution control will kill your business."


Wake founder James Wakefield posted to LinkedIn, "if the market is selling your products too low, you have a distribution problem," in a post about brands switching from Vendor Central to Seller Central in an effort to control pricing.


Momentum Commerce Founder and CEO, John T. Shea listed "Manage gray market with an iron fist," in a checklist of top 10 actions for brands to be successful on Amazon.


Marketplace expert Kara Babb, advises, "nothing will waste money faster than a dirty channel," in a post about Amazon profitability and brand value.


Everyone seems to be aware of the issue and all agree that it's a big problem. The two biggest issues when tackling this issue are,


  1. The problem seems overwhelming. It can feel like that, but it's not if you have a process to digest the issue and address the root cause of the problem.

  2. Most brands want an easy solution to the problem. Unfortunately, that is not going to be possible if the brand wants to truly solve the issue. There are too many options to sell grey market goods, the problem must be addressed at the source.


Most Marketplaces will not help Brands remove unauthorized 3P sellers. And why would they, commissions from an unauthorized seller looks the same as commissions from authorized sellers? And, as James Wakefield also mentions, Amazon will "always have an eye on the "street price of your products."


This "street price," includes listings on all of the sites and platforms (Temu, Shein and others) that are trying to replicate Amazon's model. Amazon's consumers expect Amazon to have the biggest selection at the best prices, and Amazon will do what is necessary to maintain that perception of their platform. Manufacturers must take control of their product values and distribution networks.


We specialize in the analysis, data mining, and source of product identification of online listings. This information clearly and consistently informs our clients which sales policies to enforce at the source of product. We are passionate about protecting brand health and seeing strong brands thrive in today's marketplace.



Managing Distribution and Demand


Next question, if you do everything in your power to combat the Grey Market and unauthorized distribution, is the outcome different? Hopefully this question read as rhetorical as it was intended. Our founders have worked for and managed some of the biggest brands in the world, and we are passionate about protecting product values in the ever-changing retail landscape.


There is a solution and blueprint for how to manage this sometimes seemingly unachievable goal. Hopefully, many readers have invested in some tools to combat the Grey Market. If you have, you will eventually find a mix of the following issues feeding the Grey Market,

  • Authorized accounts operating an unauthorized 3P SellerID - In some instances, this is an issue of the account not "knowing" that they are unauthorized.

  • Authorized accounts continuously sell products to an unauthorized 3P Seller. Often this allows the account to hit volume-based discount levels.

  • Distributors selling to customers that operate unauthorized 3P SellerIDs.

  • Market Manipulation, or sellers who don't own the products that they are selling. This goes against Amazon's seller policies, but many sellers will inflate their catalog, in order to win the buy box on the products that they do have in their possession.

  • Consumer Resale or Retail Arbitrage.


Path showing steps to manage profitable sales online
Sustainable process to manage healthy distribution in today's retail world.



Once a brand realizes that they have these issues, the question will become, how can we quickly identify the source of product fueling the issues described above and set up a process to consistently manage unauthorized marketplace activity? The key is understanding the issues and being able to confidently make decisions to address them. Whether that is confronting or terminating an account or adjusting internal policies or practices that are contributing to the Grey Market. The point is, there is no account or distribution outlet where maintaining a relationship is more important than protecting your long-term brand value.


If we briefly follow the steps one of our clients followed as a success model, we find a brand with the following circumstances,

  • Categorized their products as premium in their space.

  • Had a significant unauthorized 3P seller issue.

  • Willingness to take quick action to address the Grey Market.


By identifying the source of the product, this brand found that they had a mix of Accounts operating unauthorized 3P IDs, Accounts selling products to Unauthorized 3P Sellers, and some 3P Sellers getting products from an outlet. The key for this brand was the confidence obtained to make quick decisions to remove access of products to the Grey Market. Several accounts were terminated, but the volume was quickly replaced by accounts willing to follow sales policies and the accounts own .com. They removed in-season products from the outlet store, protecting the demand for new-to-market goods. One of the keys to success was how quickly this brand was able to identify the source of products to sellers. Today this same brands' inline products garner "Hype" level prices, where the offers are significantly above their MSRP pricing, and none of their authorized accounts are asked to match marketplace pricing.


Conclusion


As manufacturers, we need to be constantly aware of how the Grey Market is impacting our brand and authorized distribution networks. There are solutions available, but it will require a commitment from all stakeholders to implement them. The first step is understanding the problem and then making quick decisions to address the unauthorized sellers. By doing this, brands can protect their long-term value and ensure that products are being sold through authorized channels only.


Counter Diversion is a boutique SaaS company - we don't have marketing, and we don't use high-pressure sales tactics. Our goal is to have solid, honest conversations about the issues at hand and then either recommend our service or another one that is a better fit for your needs. If you'd like to engage in that type of discussion, please schedule a free consultation.

101 views0 comments

Comments


CounterDiv_Rev_200.png
bottom of page