June 22, 2020

Why You Should Care About Brand Control as an Investor

By John LeBaron / Brand Control

As an investor for an ecommerce brand, your topline is at the top of your mind. You want your investment to flourish and pay rich dividends, so you may reasonably approach it with a growth-first strategy, funneling in ad dollars and watching sales closely.

While growth is an important focus, there are some negative implications of having a growth-first strategy. Your brand might be losing control online while your back is turned, and without regaining that control, the positives of growth can quickly be negated, wasting your money and harming your brand.

In order to both grow your investment and help your brand thrive, brand control should be on your radar.

It starts with viewing Amazon and ecommerce through the right lens.

Caring about brand control begins with understanding the full impact of Amazon. Scott Chandler, Head of Partnerships at Pattern, said most peoples’ understanding of Amazon is fairly limited, including investors’.

“In their mind, without the full context, Amazon is just analogous to any other sales channel,” Chandler said. “In any other sales channel, they walk in and they’re like, ‘Hey, do you want to buy our product and negotiate on a whole sale price,’ and they’re done. Maybe in some retail cases, they have to negotiate shelf space and a few other things.”

Amazon, in contrast, is a whole different ball game, one with different rules and damaging penalties for slipping up. Unlike other channels, Amazon creates visibility that can shine light on all of your transgressions for your customers and other distributors to see.

“Everyone kind of gets a sense of what your profitability is or if you’re overinflating your margins. Do you cut one deal with one channel and . . . a different deal with another?” Chandler said.

Using Amazon listings and pricing as a reference for the rest of the market, consumers can easily determine if your brand is one they can trust or one they should avoid.

“It’s more than just a sales channel, because it has a spillover effect into all of your other business,” Chandler said.

Lack of brand control hurts brands on and off ecommerce.

When unauthorized sellers list a brand’s product for cheap and erode pricing, and when third-party sellers poorly represent brands with their Amazon listings, it’s a result of little to no control, and it doesn’t just impact the way a brand is perceived across channels, but it hurts a brand’s relationships with other sellers, including brick-and-mortar sellers.

If an investor wants to sell their product through a retailer like Target, but buyers are using Amazon data against them, Target may look at that and lose interest in stocking the product on their shelves, Chandler said. Furthermore, vendors that can’t sell a brand’s product because grey market sellers are undercutting them on price won’t want to work with that brand either.

Another thing lack of brand control can do to you as an investor is render any money you spend on advertising almost worthless. Chandler explains.

“Let’s say I’m an investor and I want to throw money at advertising and try to grow it. Well, it’s kind of like a blind auction behind the scenes of who owns the Buy Box. Who owns the Buy Box is generally whoever has the lowest price, so me as an investor, do I want to throw advertising dollars knowing that that sale would likely get attributed to the person who’s creating my biggest problems? It’s a disincentive to actually advertise and grow, because it’s fueling the flywheel of the problem here.”

Until you remove the problem, get your pricing back to where you want it to be, and regain control, Chandler said, “It’s probably not a good idea to exacerbate the problem with a bunch of ad spend.”

Proper brand control can help you win on ecommerce.

“Proper control allows you to have wins or win across all channels as opposed to winning in one, but having that then hurt you somewhere else,” Chandler said.

Proper brand control on ecommerce can help you demonstrate that you’re clean and your strategy is retailer friendly. It can help you hold on to a couple points of margin in your negotiation and protect your brand from harmful players. It can also help your brand to not only grow but thrive.

One brand in particular that has found big wins after regaining control is Pure Encapsulations, a company that sells dietary supplements. According to Chandler, Pure was selling a supplement product to practitioners solely through doctor’s offices, but soon practitioners stopped buying the product from those offices because it was being sold at a significant discount on Amazon by grey-market distributors. Pure learned that some of the doctors who had been purchasing the product were reselling it without authorization, putting their entire business model at risk.

Pure came to Pattern asking for help cleaning up their account. Within months, Pattern helped Pure remove 215 unauthorized sellers, increase MAP compliance to 98%, and give them the peace of mind to again focus on growth. According to Chandler, they’ll make over $100 million in sales in 2020.

Paying close attention to brand control has particular payoffs for you as an investor while you’re in a partnership with an ecommerce company and on your way out.

“All this rolls up into a nice exit strategy that you can use in your negotiations on evaluation with the company,” Chandler said.

It gives those who follow you a win instead of a mess.

So what can investors do to ensure the brands they invest in have control on Amazon?

Before partnering with a brand, Chandler said investors should evaluate that brand’s Amazon presence to see how much cleanup, if any, will need to be done. You should look at things like how many dollars a brand has, and are they selling directly to Amazon or going through a third-party strategy?

Another thing to look at is a brand’s policies.

“If I were an investor, I think I’d want to review what their MAP policies are. Do they have MAP policies? Do those MAP policies contain ecommerce verbiage and then are they enforcing against it?” Chandler said.

Investors should know if a brand knows which unauthorized sellers are moving their product online and what they’re doing about it. If there are significant control or distribution problems, investors should be proactive and step in.

“I think I would sit down with their executive team and say, ‘How willing are you to cut off a good retail customer who could be creating these problems for you on Amazon?’” Chandler said.

Software like Pattern’s Predict software can help your brand see detailed data about where and how extensive the problem is so they can move forward in preventing it.

To learn more about brand control and strategies to regain it for your brand, contact Pattern through the form below.