Unauthorized sellers on Amazon can be pretty sly, and when left unchecked, they’ve got a bite that can do serious damage to your ecommerce brand equity and wound your growth. It’s important to be aware of the problems unauthorized sellers cause so you can take active steps to prevent them.
After all, the unauthorized sellers in your ecommerce business might just be the reason why you’ve been passed up for that big promotion lately. And no, it's not just your ecommerce person's problem. Here are three of the biggest ways unauthorized sellers negatively impact your brand’s growth, and what you can do to get them under control (ergo, helping your CEO clearly see the value you’re bringing to the organization).
Unauthorized sellers cause price erosion
Unauthorized sellers don’t ask for permission when it comes to moving on price: They don’t have to. In most cases, they’ve purchased your product from another source just to turn around and resell it. This becomes a big issue when they dip below your minimum pricing.
As a quick aside, the reason this unauthorized seller got hold of your product in the first place is most likely because you have a wide distribution net. The wider your distribution, the more difficult it is to control sellers, and price. If you don’t believe in limited distribution yet, see this blog that explains the concept in depth.
Where were we? Oh yes. When an unauthorized third-party seller undercuts your pricing, the pressure falls on other distributors to do the same to keep up. This can often lead to a nasty price war that pulls in big distributors like Walmart or Amazon who move to even lower prices to stay competitive and won’t budge on price. Other distributors can’t afford to lower their price when this happens, but they also can’t afford not to. Just like that, your brand has experienced price erosion.
Price erosion leads to loss of sales and shrinking margins, and by simply reselling your product at a low price, an unauthorized seller can cut deeply into your brand’s profits.
At Pattern, we’re strong believers in profit over revenue. That’s why we believe that a wide distribution net pulling in more revenue on the surface will never make up for crappy product images and sinking prices from authorized sellers eroding it below the surface. The first step in getting in control of unauthorized sellers is limiting distribution. If they don’t have your product in the first place, your problems are mitigated. Imagine explaining this to your CEO and CFO… Trust us, it’s a game changer.
Unauthorized sellers CRaP products on Amazon
Though they’ve got a funny moniker, CRaPped products are nothing to laugh about. A product that’s been CRaPped by Amazon is a product that “Can’t Realize a Profit.” Typically, CRaPped products are low-cost, high-weight items that cost a lot to ship and are therefore deemed unsellable by Amazon, but shipping costs aren’t the only thing that can CRaP a product: fluctuating prices can, too.
When an unauthorized seller cuts the price on your product and other sellers move to deal-match, that product becomes increasingly unprofitable to Amazon. In order to protect its own margin, Amazon will CRaP the product. They’ll stop promoting it and bar your access to marketing services like Subscribe and Save and AMS, they’ll suppress your Buy Box, and if you don’t take action, Amazon may even drop the product altogether, causing further damage to your ecommerce growth. More on CRaP here.
Plus, if your prices get to that point, it’s likely your brick-and-mortar sellers won’t be too happy either. You might even lose a few of them. More on that below.
Unauthorized sellers harm your relationship with brick-and-mortar sellers
When an unauthorized seller causes harm to your brand online, that harm extends offline as well. To keep up with price changes online and maintain sales, many brick-and-mortar stores offer price matching to customers. This can prevent showrooming and capture sales that may otherwise have gone to an ecommerce merchant like Amazon or Walmart.
When an unauthorized seller has eroded your pricing and caused price fluctuation on a product, it can harm your brand’s relationship with brick-and-mortar sellers. These sellers may see that your brand is out of control online and want little to do with it, for good reason.
The negative effects of an unauthorized seller not only hurt your profits but they hurt your relationship with the valued distributors you work with and want to keep working with. When pricing lowers online, these distributors lose margin and sales to keep up. They may come to you demanding discounts on your products because they can’t move them at the eroded price, or they may decide it’s not worth it to distribute your product at all. Any forward momentum with them can be severed. When that happens, the sales-machine you built with blood, sweat, and tears is at a standstill. And so is that promotion deck you were making.
So how do you prevent unauthorized sellers from hijacking your ecommerce brand and your relationships with other distributors? How can you prove your worth to your organization beyond top-line revenue? There are many ways you can regain control, such as limiting your distributors (as we discussed earlier), creating a robust MAP policy, and attacking the root of the problem with software like Predict that shows you where it’s happening so you can take decisive action to stop it.
Schedule a free consultation with Pattern to get a demo of Predict (our price-tracking software that empowers you to find unauthorized sellers) and see how making Pattern your authorized distributor can fix your price erosion woes AND get you in line for that promotion you deserve.