January 13, 2021

How to Handle Existing Distributor Relationships While Transitioning to an Exclusive Seller

By John LeBaron / Logistics & Fulfillment, Brand Protection

Amazon is designed to work best for exclusive seller relationships. When multiple distributors are fighting for a single product’s Buy Box, things get messy and chaotic, and you start to see problems like price erosion, loss of control, and customer dissatisfaction.

The solution should be simple then, right? Companies should just start working with competent partners, cut off their inventory from other sellers, and leave behind the days of a chaotic Buy Box? Not so fast. While working with one distributor is the ideal situation for brands wanting to maximize their performance on Amazon, it’s tricky to cut off existing, loyal distributor relationships to make that happen.

You can avoid backlash for cutting off loyal distributors

A brand may face backlash if it suddenly stops selling its products to its loyal distributors to switch to an exclusive seller relationship. In many cases, these distributors started selling the brand’s products in brick-and-mortar storefronts before starting to sell them on Amazon. Distributors could be largely responsible for the brand’s present-day success, and it doesn’t sit right with brands to repay distributors for their loyalty by cutting them off and slashing their revenue.

It’s a complicated situation that many brands find themselves facing. Even though switching to a single Amazon seller is best for the brand and the consumer in the long run, it’s tempting to put it off to avoid any conflict with loyal distributors—especially if these distributors are still selling the product in brick-and-mortar stores (and could easily stop selling it if they’re upset with the brand.)

Handling this situation well will require forethought and strategy, but we believe that brands can switch to an exclusive seller relationship without having to sacrifice the relationships that they’ve spent years establishing with existing distributors. Below are four tips to help you handle this awkward situation so everyone—including your brand, your previous distributors, and your consumers—is happy in the end.

1. Set up a transition period

Many brands opt to set up a transition period so they can warn their distributors of the upcoming change and give them time to adjust to the news. Brands can use this time to optimize their channels by polishing their listings, updating their ad spend, and standardizing their pricing and customer service.

It’s a good idea to give your distributors sufficient notice about your decision to transition to a single seller—a season or two would be best—and explain to them your reasoning for doing so, including the many benefits to both your business and theirs. You may tell them that switching will help you create a more consistent buyer experience, streamline the return process, and make it easier to keep inventory available and prices consistent.

If you have Amazon distributors who also sell your product in their brick-and-mortar stores, tell them how they can benefit from this decision even if they won’t be selling your product on Amazon anymore. When your brand works with a single distributor, prices stay more consistent. This means that customers won’t be walking into their brick-and-mortar stores, finding the product they want for cheaper on Amazon (likely due to the price erosion caused by having multiple sellers), and opting to buy it online instead. Yes, they’ll no longer generate revenue from selling your product on Amazon, but they’ll likely increase their sales of your product in-store.

2. Consider profit-sharing a portion of your revenue

Some brands who transition to a single Amazon seller may go as far as profit-sharing a portion of the proceeds from their channel with their top distributors. This replaces some of the distributors’ lost revenue while also simplifying the distributors’ business operations, since they don’t need to worry about handling Amazon listings and distribution for your products anymore.

Even though this may not be a viable option for all brands, it may be worth it in some situations. Brands benefit from the local representation they get when brick-and-mortar stores carry their products. Consumers may go to a storefront to learn more about a product, try it on, or see how they like it in person before finally deciding to purchase it on Amazon. If distributors are regionally based, your brand could regionally share profits from Amazon sales with those distributors.

It may also be helpful to allow distributors to continue selling your product on marketplaces like eBay, Walmart, or Target even while you transition to a single seller on Amazon. You can explain that Amazon US is so important for your brand that you’ve decided to work with a specialist to maximize your success on the platform, but that they’re welcome to continue selling your products on other marketplaces.

3. Divide the assortment up and give each distributor an exclusive segment

While the ideal situation is to turn over your company’s entire inventory to one seller, it’s still a step in the right direction to divide your inventory and give each of your distributors an exclusive segment to sell. That way, you’re reducing the issues of managing a network of sellers without damaging your relationship with your distributors or drastically reducing their Amazon revenue associated with your brand.

Explain to the distributors that it just isn’t efficient to sell your whole catalog to them anymore, but that they can have exclusivity on one segment of your assortment. You can encourage the distributors to do their very best with their exclusive assortment, which helps you function at the highest level on Amazon while eliminating the fight for the Buy Box.

4. Give retailers promo dollars based on performance

If dividing up your assortment isn’t right for your brand and you want to fully transition to one seller, you can still offer other olive branches to your distributors in the form of samples, rebates, or other incentives. These programs can serve to thank your distributors for their consistent loyalty and partnership.

Distributor rebate programs offer distributors money back when they meet certain requirements or goals related to loyalty, order size, or any other metric. You can also start customer rebate programs that encourage consumers to buy your products, which in turn makes it easier for distributors to sell said products. Both types of rebate programs can help maintain your delicate relationship with your distributors while also improving your product sales in their stores.

SPIFFs (Sales Performance Incentive Funds) are another type of incentive you can offer to your distributors. According to Channel Mechanics, these short-term incentives can include dollar rewards, prizes, or loyalty points. You can offer them to reward any type of behavior you’d like, but the main goal is to increase your product’s sales.

Ready to start the transition?

It can be intimidating to transition to an exclusive seller relationship on Amazon when it’s important for your brand to maintain a positive working relationship with distributors. But that doesn’t mean you’re doomed to deal with the drawbacks of multiple sellers forever. With a little bit of tact and planning, it’s possible to maximize your Amazon presence with an exclusive seller relationship without jeopardizing your relationship with your existing distribution network.

Keep in mind that it does little for your brand to switch to a single seller unless that seller is experienced and committed to your brand. Otherwise, it can be risky—you don’t want to put all of your hard-earned eggs in an unreliable basket. This is where Pattern can help. We’re a best-in-class marketplace seller, and we’re eager to use our data and expertise to help you take your brand to the next level. Contact us using the form below to learn more.

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