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?
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 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.
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.’”
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.
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.
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.
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.
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If you’re in the global ecommerce space, you are most likely aware of Amazon, and probably selling your products on the marketplace. With over $470 billion in sales in 2021 alone, Amazon stands as the third largest company in the world based on revenue. The ecommerce giant is a household name in the U.S. and working hard to grow its market share across five continents worldwide.
Having your products available on Amazon and being competitive there, though, are definitely two different things. If you want to really succeed on Amazon, you’ll need specialized insight into how Amazon works and how to make it work for you. So, for many brands, it’s a great idea to work with an Amazon Search Engine Optimization (SEO) agency.
At Pattern, Amazon SEO optimization service is one of our key competencies. We understand that technology, data-driven insights and expertise are the most important tools brands can leverage to win top listing spots on digital marketplaces. With expert teams and years of experience, we help brands conquer the Profitability Death Spiral as they compete with other products and sellers online. We offer Amazon SEO agency services as a core solution to brands that need more resources to get ahead.
An Amazon SEO agency serves brands by improving their products’ rank and listing performance on Amazon. They make strategic decisions about ad spending and placement that lead to higher traffic, conversions, and revenue for ecommerce brands.
A great Amazon SEO Agency partner will:
Unfortunately, many Amazon SEO agencies profit in unfair ways from your brands’ perceived success based on the ROAS numbers they provide. This is done through including branded search terms in ROAS reports, which naturally skew listing performance.
Let’s say, for instance, your brand is called “Annie’s” and you sell lollipops. Your brand has a very high likelihood of winning the top listing spots on Amazon for lollipop search terms that are paired with “Annie’s,” your brand name. So, SEO agencies will spend your ad money on those terms and report a very high ROAS.
To avoid scenarios like these, it’s best to look for an agency that either calculates their profits on metrics other than your ROAS scores or weighs branded search terms differently in the performance metrics reports. Regardless of your Amazon SEO agency’s cost structure, you should align onbranded search terms before committing to a scope of work.
A great indicator of a high-quality Amazon SEO agency is the level of insight they can provide into your competitors’ listing positioning and how it compares to yours. Data fanaticism is so important at Pattern that we’ve developed proprietary technology to display this exact information with precise detail for every brand we work with. In fact, you can find our free version here to see how you compare to some of your top competitors based on ASIN.
It’s certainly possible to improve your Amazon search performance with blind spending strategies. But a truly great solution will help you to know where your dollars are at their most powerful and competitive.
Amazon’s A10 algorithm prioritizes customer satisfaction—it wants to show consumers the best products that align with their search intent to improve conversions and sales. So, the best way to gain momentum on Amazon is to work on incremental wins.
Improving your performance on more obscure search terms that align with your customers’ search intent is a great way to increase ROAS for the long term. A10 will reward your success with better rankings on higher-volume search terms and the virtuous cycle can help you conquer your most-coveted listing spots. And the best part? This process of gaining momentum, if done right, will naturally decrease your ad spend over time as Amazon recognizes your value and works with you to keep your products at the top of consumers’ search results.
As an Amazon SEO specialist, Pattern knows how to help your brand win better success for long-term profitability on Amazon. With our data-driven tools and brilliant teams of ecommerce experts, we help brands with listing management, content optimization, Amazon ad strategies, and more.
Contact us to learn more about our SEO optimization services.
Entering the ecommerce landscape is a huge undertaking for any brand—it usually requires a large investment in resources and expertise to really be successful. Any brand can quickly get in over their heads trying to navigate the nuances of SEO, fulfillment and logistics, distribution control, listing optimization, and meeting the numerous other requirements and administrative tasks to show up well on marketplaces.
Unfortunately, because it’s so easy for third party, gray market, and unauthorized sellers to obtain and sell products online, many brands find themselves pressured to execute an ecommerce plan without the right resources to succeed on marketplaces and their other channels.
So, for brands looking to enter the ecommerce space or improve their current and future performance, it makes sense to partner with an ecommerce consultant.
Pattern’s global presence and proven success with hundreds of brands has allowed us to develop highly effective ecommerce consulting services. We can guide your brand to navigate issues both large and small in marketplaces worldwide. To maximize your ecommerce efforts, you’ll need to understand what an ecommerce consultant does and how to select one who drives the right value for your brand and products.
An ecommerce consultant is a specialist in the ecommerce space who can give you personalized guidance on how to market your products and grow their presence on digital marketplaces.
An ecommerce consultant should be able to analyze your brand, audience, category, opportunity, and current roadblocks and help you understand how to utilize your resources (or what resources are missing) to be most effective in capturing your opportunities in the ecommerce space.
Not sure how to evaluate a consultant? Here are 4 key attributes to look for as you make your choice.
At Pattern, we prioritize brand obsession for a reason—we know that a brand-centered mindset makes a crucial difference in the outcomes and results our partners achieve. So in our experience, when you begin your search for an ecommerce consultant, it’s important to look for a partner who is specialized in ecommerce, invested in the product, and passionate about helping brands build and improve their strategies. Typically, this means finding someone that consults exclusively for ecommerce marketplaces, rather than choosing a consultant who offers many different services.
It’s also important to avoid choosing a consulting partner who can’t deliver the right experience for your brand. The best indication of whether your potential consultant can do that is to review their history, data, and results with other brands. Ask if they’ve helped others in your selling category, if they’ve solved specific issues your brand is facing, and why they feel you are a good fit. The key is to leave the conversation feeling confident that you understand your consultants’ capabilities and whether or not they match up with your needs.
It’s best to pick a consultant who knows how to guide a brand onto and through multiple marketplaces worldwide. You’ll want to take a look at your long-term strategy and think about the regions and platforms you’re currently on and where you might want to take your brand in the future. If your consultant is truly great at what they do, they’ll be able to help you perform well enough with your current product roadmap that it’ll be a no-brainer to expand your presence at the right time.
The most effective partnership with an ecommerce consultant will be able to give you both recommendations and point you to solutions for making those changes in your planning, processes, and execution. Your time and money is valuable, so you want to make sure that you’re spending it as efficiently as possible as you follow your consultant’s advice. So, before you commit to an ecommerce consultant, ask about the resources and concrete solutions they typically recommend to the brands they work with.
Finding an ecommerce consultant that checks the boxes can be a difficult task. At Pattern, our entire focus and drive centers around giving brands the tools and resources they need to succeed on domestic and international ecommerce marketplaces.
With over 100 global ecommerce consultants across 10 global offices, we have the right tools to partner with brands across the world to achieve better ecommerce success. We give specialized advice, then make sure our partners have all the adequate SEO, social media, CRM, Amazon multi-channel fulfillment services, and ecommerce outsourcing services they need.
Interested in ecommerce consulting services? Set up a call here to learn what Pattern can do for your brand on global marketplaces.