What Is 'Leaky' Distribution?

John LeBaron

May 27, 2021

Leaky distribution. It’s a pernicious foe that can seriously harm the success of your business, and chances are, if it’s happening, it’s happening right under your nose. But what is leaky distribution and why does it matter?

What is leaky distribution?

Imagine that your house has a leaky faucet or a leaky pike. Instead of firmly containing and transporting your water from point A to point B, leaky plumbing creates water loss which over time can rack up the cost of your water bill and also compromise the entire system if left unchecked for too long.

Leaky Distribution Pipe

Leaky distribution works in a similar fashion.

Leaky distribution means that you’re losing products en route to or from the target retailer or distributor. We often call this gray market activity.

Gray market activity can take place at multiple points in your distribution chain, and it takes several forms. It might be theft of a product, diversion of a product from an authorized retailer to a rogue seller, or unauthorized liquidation of a product—maybe a retailer at the end of the chain has bought too much of a certain product and they choose to lower the price below MAP to get rid of it.

Whenever your product is being distributed in an unauthorized or unpermissioned manner, that’s leaky distribution.

What causes leaky distribution?

According to Jared Mason, Pattern’s Director of Brand Management, the biggest reason why leaky distribution happens is that a brand doesn’t have clearly defined policies and procedures in place that everybody in their chain of distribution should be following, and those distributors often take advantage of it.

“Most companies want to do the right thing,” Mason said. “Most distributors are like, ‘I’m only going to do what my agreement with this manufacturer says I can do. But if my agreement doesn’t say anything about it, then I’m just going to do what I can to make money.’”

Why does leaky distribution matter?

Manufacturers are often apathetic about leaky distribution, Mason said, because they think they’ve already made their money selling their product to the distributor. That assumption is a mistake.

Even though it might seem like a small issue at first, leaky distribution can evolve into a very large headache for your business that has tangible negative impacts on your profits, your relationship with your distributors, and your relationship with your customers. It allows bad players to devalue your product and your brand across multiple channels, including your brick and mortar retailers. It can harm your brand image, it can eat into your profits, and it can create distrust in the market so that your distributors who are playing by the rules lose incentive to work with you and sell for you.

An example

Let’s say you’re a supplement manufacturer, and you’re selling your product to a distributor. That distributor in turn sells those supplements to Walmart or Target, or to doctors’ offices or homeopathic clinics.

In this hypothetical scenario, let’s imagine that one of those retail distributors realizes they’ve bought too much of your product, and it isn’t selling, so they choose to lower the price to liquidate it. Now you have a recipe for trouble.

It is very common in these kinds of scenarios for individuals to walk into a retail location that’s liquidating a product, buy up the entire supply of the product, and then relist it on Amazon at 5 or 10% over wholesale to make money off of it.

Once this happens, none of your other distributors are safe, not even your brick and mortar retailers. They cannot compete with lowered pricing online unless they lower their own pricing to match it, and pretty soon, you have a situation where distributors are battling it out on cost and steadily losing their margins in the process. This is called price erosion, and it can lead you headfirst into a profitability death spiral.

When prices are eroded by gray market activity, it signals to your consumers that your product might not be as good a quality as you claim, or if they purchase your product from an unauthorized seller and have a bad experience, they’ll think negatively of your brand.

Price erosion signals to your distributors (as well as your potential distributors) that they can’t make a profit carrying your product, so they’ll ask you to sell it to them for less or they won’t carry it at all. Finally, it doesn’t sit well for marketplaces like Amazon whose entire business model is centered on giving consumers a convenient, quality experience. Your brand may be penalized in these spaces as a result.

How do you stop leaky distribution?

The solution to leaky distribution is to get proactive about your policies and make sure they’re enforced.

“If there is no policy governing the relationship between the manufacturer and the distribution chain, then they can legally do what they want,” Mason said. “And so the solution is to put in place a reseller policy, an online sales policy, an ecommerce policy, something—or all of the above—that says, ‘You can buy my product, you can even post it online, but you can’t post it in a marketplace.’”

A good policy, Mason said, has clear limitations or outlines on where a product can be sold—whether that be in-store or online—clear delineation about price ranges that it can be sold at, and MAP requirements among other things. You’ll want to consult with a legal professional to hammer out the details.

Leaky distribution is the first step

When it comes to brand protection and full marketplace control, leaky distribution is just one of 3 main facets. Interested in learning more about guarding your brand against unwanted sellers and unauthorized pricing? Tune in to our upcoming webinar: Taking Control of Your Ecommerce Marketplace Presence.

Taking Control of Your Ecommerce Marketplace Presence Webinar Registration

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Amazon's Sponsored Product ads
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What Are Amazon’s Advertising Products? Sponsored Product, Brand, & Display Ads

What Are Amazon’s Advertising Products? Sponsored Product, Brand, & Display Ads

Utilizing Amazon sponsored ads can be a smart way for a brand to drive greater traffic to a product listing and start increasing sales. While many brands still struggle to manage their advertising strategies, 30% of Amazon brand sellers increased their advertising budgets in 2022. As ecommerce executives (or even on the nose with VPs of ecommerce?)  approve their 2023 advertising budgets, it may be worth it to take a look at Amazon’s advertising products and the benefit they may have on increasing conversions. 

​​Pattern is the premier ecommerce accelerator with all of the expertise, data-driven insights, and technology brands need to gain control on Amazon and maintain their competitive niche. We know the high value of and how to utilize Amazon’s advertising products to drive the most traffic and conversions to benefit and accelerate your brand.

Here are Amazon’s three main advertising products you should know about in order to drive listing traffic to your products and increase conversions: 

For a brand executive who is selling their product on Amazon, you may not already know the differences between campaign type, so we will walk you through the differences and uses for each of these three ad campaigns.

Sponsored Product Ads

Sponsored Products are a mid-funnel advertising strategy that gives visibility to products above the top organic listings (see example below). This strategy uses custom keywords to get products in front of the consumers who are searching for them, however it can be used to capture new audiences as well.These cost-per-click (CPC) ads require no additional copy or images, but usually receive the most interaction of the campaigns and need to be monitored closely.

As you can see, these ads look just like an organic listing, however they say, “Sponsored,” on them. These types of ads can be especially effective forms of advertising because they tend to blend in with the organic results around them. With Sponsored Products, you can get your products in front of qualified customers who are searching for your product in such a way that doesn’t make them feel like they are being served an advertisement.

Sponsored Brand Ads

Sponsored Brand Ads are a top-of-funnel brand awareness tool and function on keywords. This ad format helps show a customer what they may be in need of and where to get it.  Commonly used to promote product lines or best sellers, a Sponsored Brand ad shows up as a banner above the search results (see example below). This type of ad requires that the brand showcase at least three separate products.

Unlike other campaigns used on the Amazon platform, Sponsored Brand ads require ad copy and a unique logo. These ads also can take customers to a custom landing page, or a page on the brand store, that way they get a clear and overall picture about who your brand is, what other products you sell, and why they can trust your brand

Sponsored Display Ads

Sponsored Display ads can be a tactic for top, middle, or bottom of the advertising funnel due to its varying targeting abilities. Although most commonly found under the bullet points of a detail page, these ads can also show in emails, newsletters, and even more locations off platform.

Unlike the previous ad campaigns discussed, sponsored display ads can target shopping behaviors, like repeat purchasers, similar product purchasers, and even people who viewed the detail page but did not buy. Sponsored Display ads help customers discover your brand, drive awareness, and create loyalty. 

The example above shows just one of the many placements Sponsored Display has.

Accelerate Your Sponsored Products With Pattern 

Rather than competing with each other, each of the three sponsored ad products focus on a different section of the sales funnel, allowing you to target your customers and hit your sales numbers, all while edging out possible competitors. When brands use these advertising campaigns, they can better optimize their ad budget to improve ROAS and build revenue. 

At Pattern, we have all the resources to help your brand build successful advertising and digital marketing campaigns on Amazon so you can increase traffic and conversions, which will in turn increase your revenue

Global Ecommerce Weekly News: 27th September 2022
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Global Ecommerce Weekly News: 27th September 2022

Get up to date with this week's ecommerce headlines from around the globe. --- Amazon News --- Amazon drives renewable energy push with 71 new projects Amazon is planning to add 2.7 gigawatts of clean energy capacity through a couple of new projects as the company attempts to use 100% renewable energy by 2025. The ecommerce business will soon have a total of 329 renewable energy projects, generating 50,000 gigawatt hours of clean energy, which is equivalent to powering 4.6 million US homes every year. [Read more on Reuters](https://www.reuters.com/business/sustainable-business/amazon-drives-renewable-energy-push-with-71-new-projects-2022-09-21/) Amazon launches Prime Early Access Sale Amazon is launching a new 2-day shopping event for its Prime members only, beginning on the 11th of October. Across 15 countries, Prime customers will have access to the shopping event, with thousands of deals on offer globall, ranging from fashion to electronics to essentials. The event has the purpose of giving Prime users the chance to spread the cost of items over the winter months, 6 weeks ahead of Black Friday. [Read more on Charged Retail](https://www.chargedretail.co.uk/2022/09/26/prime-early-access-sale/) --- Other Marketplace News --- Shopify unveils new localisation tool Shopify is launching a new localisation tool, called Translate & Adapt, which works with Shopify Markets to offer localisation for sellers who are looking to expand into new markets. The tool translates a user’s online store into different languages, including product pages and information pages. Merchants are also able to create different shipping terms for each market using the new tool, which allows international expansion and offers a more localised consumer experience, unveiling new potential. [Read more on Ecommerce News](https://ecommercenews.eu/shopify-launches-new-localisation-tool/) Etsy is set to invest hundreds of millions into its marketing platform Etsy CEO claims that the company is on route to spend more than $570 million USD on marketing this year. Even during a time of macroeconomic pressure, inflation and rising interest rates, the company is preparing itself and its sellers for the upcoming holiday season and is focused on retaining interest from buyers. [Read more on Yahoo News](https://uk.news.yahoo.com/etsy-600-million-on-marketing-ceo-154054219.html) --- Other Ecommerce News --- Meta looks to cut costs by 10% in the coming months Meta employees are facing job redundancies as the company plans to cut its costs by 10% over the next few months. Meta reported a 22% YoY increase in costs and expenses, totalling over $20 billion USD. The cuts are expected to come in the form of job redundancies as a result of department reorganisations rather than formal layoffs. [Read more on Charged Retail](https://www.chargedretail.co.uk/2022/09/22/meta-to-slash-costs-by-10-over-coming-months/) DHL teams up with Quadient to offer smart locker deliveries in the UK DHL and tech company, Quadient, have partnered to offer smart lockers parcel pick-up throughout the UK. The new contactless, secure locker stations will give recipients more choice and flexibility to receive their parcels at a time and location best suited to them. The partnership plans to install 500 locker stations across the country by the end of 2022. [Read more on Charged Retail](https://www.chargedretail.co.uk/2022/09/21/dhl-partners-with-quadient-to-offer-smart-locker-delivery/) The online fashion market is set to be worth nearly $170 billion USD in 2025 The European online fashion retail market is set to grow 50% by 2025, with an online turnover of $170 billion USD, which is 33% of the retail branch’s total. Cross-border marketplaces prove to be the largest drivers of this growth, with online websites and apps like Vinted largely pushing the market’s online growth. Zalando recently became the largest cross-border fashion retailer/marketplace, responsible for 11.7% of the online market’s share. [Read more on Ecommerce News](https://ecommercenews.eu/online-fashion-market-worth-e175-billion-in-2025/)

Top 5 Ways to Prepare for Peak with Google Ads
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Top 5 Ways to Prepare for Peak with Google Ads

Peak season is almost upon us and with all signs pointing to it starting earlier than ever, with Christmas gifting searches now ramping up in August and September, it’s time to start preparing for peak. In this article, we’re sharing our top five tips for planning and preparing for peak season with Google Ads and the strategies required to get your Paid Search ready so you can drive success over this crucial period.

1. Go Early

In 2021, gifting search terms started increasing in popularity in August. The general trend is that people are looking, researching and weighing their options early, so it’s best to start your Paid activity early to ensure that you’re capturing that early research traffic. This will help drive revenue alongside aiding those consumers who are in their research phase.

From 2020 to 2021, spend during Cyber Week actually only rose 2% but in the weeks leading up to it, it increased by 16%. However, Cyber Week is still the biggest period during the latter half of the year, accounting for 23% of all online spend by consumers over peak. Being prepared and starting early will help you to maximise your time during this period.

2. Get Ready for Privacy Changes

 According to Google, 48% of global consumers have stopped buying or using a service due to privacy concerns. Privacy is front of mind when consumers are shopping online and we know that Google is phasing out 3rd party cookies in 2023. This is going to make it much harder to track users online and it’s something that brands need to think about this now – waiting isn’t an option.

From a Google Ads point of view, you want to ensure you have set up the Google Ads tag across your site and have enabled ‘Enhanced Conversions’, which ensures all conversions are tracked and allows you to monitor other actions such as ‘Add to Cart.’ This is relatively easy to set up, especially if you use ‘Google Tag Manager’.

It’s also vitally important that you build up your first-party data during this time as this is data you own and it can be used when targeting consumers that have provided your brand with their email address. Pattern’s own experience shows that by segmenting and using first-party data, you can see a 10% improvement in revenue and ROI.

3. Ensure Consumers Can Discover your Brand

A full-funnel approach is now more important than ever as consumers become more discerning and have more choices than ever of where to shop.

Pattern has seen success with Google Ads’ ‘Discovery Campaigns’ (image-based ads that appear on Google platforms such as Gmail and the Google app), which have driven success both from a traffic and revenue perspective.

The performance of these campaigns is significantly enhanced by adopting a segmented and nuanced approach to first-party data and incorporating these into your campaigns. Other options for a full-funnel approach include YouTube and testing bidding on keywords that are more representative of the research phase. (e.g. ‘best baby clothes’ for a baby clothes brand)

4. Get Moving with Performance Max

Earlier this year, Google announced that they were moving away from Smart Shopping and launched Performance Max. This is a new campaign type that incorporates features and placements from Smart Shopping but expands them onto other platforms such as Gmail but also alternative creative options, such as images and videos.

Since Google has already started automatically upgrading Smart Shopping campaigns to Performance Max, expect to see some fluctuations in the first 2 weeks following the switch over but results generally seem positive. We recommend upgrading sooner rather than later to limit any potential impact to peak period.

5. Flight Budgets Accordingly

Peak period will be even more competitive than in 2021 and you’ll need your budgets to support this period, we recommend boosting budgets in October to start capturing that early peak traffic. As we enter November and the Cyber Period, start early and make sure you are capturing those consumers looking for early bargains, ensuring you are being nimble in your optimisations and reacting to the data that you are seeing.

Overall, peak period is vital to help drive your sales and by preparing early, you will see strong results and drive success for your brand. If you want to discuss how your brand can navigate this next peak period, contact us to discuss your options with our performance team now.