How to Set Manufacturer-Imposed Limitations for Amazon Sellers
In Amazon, there are both authorized and unauthorized resellers of known brands. While the authorized sellers are easier to control, the unauthorized sellers can be quite a problem.
It is a common practice for most independent sellers to buy products from a manufacturer and sell at a higher price on online marketplaces such as Amazon for a profit. This is known as retail arbitrage and is a widely used strategy to make money. In fact, Sprigley Allan, the Head of Amazon Program Development stated that 80% of all Amazon clients are dealing with retail arbitrage.
However, not all manufacturers like the practice, because even though they did make money through selling in bulk to a reseller, they would face some competition if they also tried to sell online and they might receive backlash on the quality of the products, which would damage their brand in the process. It is extremely important, to know how to deal with these unauthorized sellers so that your authorized sellers and your brand’s sales will not be affected.
Image Credit: Pixabay
We’ve put together a list of actions and things for manufacturers to considering imposing to its authorized resellers to protect the brand.
Concerns of the Manufacturer
There are a couple of major reasons as to why manufacturers don’t approve of retail arbitrage. The first reason, as mentioned above, would be a backlash on the brand credibility if the products delivered from a reseller to a customer are poor quality. Without proper brand control by the manufacturer, it will reflect badly on the brand thus resulting in negative customer feedback.
The other reason would be because of the Amazon Buy Box. If there is an increase in the number of sellers selling the same product, there would be a higher competition rate for the Buy Box. Since manufacturers are after a good spot in the Buy Box, then they wouldn’t want unauthorized sellers to add to the competition. Unauthorized sellers, unlike authorized ones and the brand owner, are not afraid to drop down prices too low by making use of software that can monitor price action.
What Can Manufacturers Do to Control Unauthorized Sellers?
This has been an ongoing battle for manufacturers because it's perfectly legal for resellers to list their items on Amazon since it's an online marketplace. Being a global and profitable marketplace, Amazon does not necessarily have the legal responsibility to stop the resellers from listing their items on the website, because it generates extra revenues for them (unless the reseller violates Amazon terms and conditions).
So in truth, the only way manufacturers can control this would be to limit the number of resellers by doing these things:
1. Politely Send Them a Notice
The first course of action would be to try to ask the reseller to stop selling your products if they are not official resellers. Most of them would actually take their listing down, as they don’t want to mess around with the manufacturer and other possible legal repercussions.
2. Hit Them On IP Rights
Although resellers are legally allowed to sell your items on Amazon, you can hit them from another angle. Do you have Intellectual Property rights or trademarked items that you can see the resellers violated? If you do (such as using the logo or the brand images), then you may actually ask Amazon to take down the listing on grounds of IP or Intellectual Property Infringement. Of course, Amazon will have to verify this before they take action. If they see that the reseller has indeed violated your IP rights, then Amazon will remove the sellers.
3. Hit Them on IP Rights If They State They Are Selling “New Products”
The term “new” is often misused to simply draw the customers to the products. This causes misinformation and makes customers think that these products are directly from the brand or manufacturer. In this case, you may also hit the reseller for stating the words “new” if you have IP rights over the product. Just follow the same procedure as above.
4. Set Price Control Earlier On
Prevention is always better than cure. You can prevent retail arbitrage by setting a price policy earlier on. Sprigley Allan of Amazon states that brands who sell their product higher than 30% off the SRP are more likely to deal with retail arbitrage. Knowing this, you can work your way around the pricing.
[bctt tweet="Prevention is always better than cure. You can prevent #retail #arbitrage by setting a price policy earlier on." username="skubana_erp"]
5. Set a Strict Warranty
As a manufacturer, you can set a strict warranty clause wherein customers who buy from unauthorized sellers are not eligible to take part in the warranty. Your warranty may also require a receipt in order to avail. Since unauthorized resellers don’t give receipts, then people could be discouraged from buying from unauthorized Amazon sellers, since there is no warranty.
6. Allowing Authorized Resellers
Of course, some manufacturers do allow authorized resellers to sell their brands. Of course, these authorized sellers may also sell in online marketplaces such as Amazon. The only difference would be that these authorized sellers are easier to control because of a contract. It is still a good idea for manufacturers to allow resellers because it promotes the product faster. However, there just needs to be some control for authorized resellers.
Wholesale Account Limitations
Some of the ways you can control your wholesale accounts would be...
7. Set a Strict SRP and Monitor Your Resellers
An SRP or suggested retail price is created so that the product will not be cheapened too much and spoil the market. The manufacturer could state an SRP in the contract and may pull out products once the reseller goes below or above the SRP.
8. Set Limits and Boundaries on How the Reseller can Sell the Product
Aside from price, you also want to avoid misrepresentation from the reseller. For this, you have to set a list of limits that the reseller can and cannot do when marketing the product. This is to ensure that the reseller does not misrepresent the company and give false information.
9. Give Guidelines on How to Sell Online
Online selling could bring in tons of profit, which means many resellers will want to sell your brand online. Be sure to set guidelines on how they do this in a contract. In the event that the reseller violates any of those guidelines, you should be able to find the reseller. Always remember that once an authorized reseller signs the contract, he or she has to follow whatever guidelines are stipulated for him otherwise it could turn into a legal case. See our guide on online selling best practices for more info.
Protect Your Brand Online
It is definitely a good opportunity for manufacturers to spread their products by letting authorized sellers sell their products in online mediums such as Amazon. However, unauthorized sellers can mess up the market and also misrepresent the brand if not kept in check. The information above will give you some insights on authorized and unauthorized sellers.
With this guide in mind, it can help manufacturers weed out the unauthorized resellers and also monitor the authorized wholesale accounts that sell your products. Always remember that Amazon prefers not to get involved between the squabbles of brands and the resellers that use the platform. It is up to the brand to know how to control the resellers who sell their products on the website.
Chad Rubin is the co-founder and chief executive officer of Skubana, a multichannel e-commerce software the enables brands to unlock growth by unifying their back-office operations.