Winning the New Channel War on Third Party Platforms

Marketing Science Institute Working Paper Series 2021

Report No. 21-112

Winning the New Channel War on Third Party Platforms

Sandy Jap, Whitney Gibson, Denise Zmuda

“Winning the New Channel War on Third Party Platforms” © 2021

Sandy Jap, Whitney Gibson, Denise Zmuda

MSI Working Papers are Distributed for the benefit of MSI corporate and academic members and the general public. Reports are not to be reproduced or published in any form or by any means, electronic or mechanical, without written permission.

Marketing Science Institute Working Paper Series

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WINNING THE NEW CHANNEL WAR ON 3RD PARTY PLATFORMS

by

Sandy Jap, [email protected]

Emory University

Whitney Gibson, [email protected]

Denise Zmuda, [email protected]

Vorys, Sater, Seymour and Pease

February 2020


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Abstract

This article is about rogue resellers in marketplaces such as Amazon, eBay, Alibaba, Jet.com, and

Walmart. While these storefronts provide wider selection and convenient purchasing methods, they

also present greater risk in terms of unknown and potentially unauthorized sellers who may not provide

quality experiences aligned with customers’ expectations of a brand. As more commerce migrates

online, every distribution intensive, business‐to‐business sales organization will face rogue reseller

activity, if not already. We describe this new channel war afoot and provide a broad framework for how

firms can deal with the problem of rogue third‐party sales on ecommerce platforms.


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Summary

This article is about how to deal with rogue resellers in ecommerce marketplaces such as Amazon, eBay,

Alibaba, Jet.com, and Walmart; our perspectives are based on our experiences and collective wisdom as

a university professor and lawyer. The scenario described here was the reality for a case study that we

were closely involved with (the name of the company and key decision maker has been disguised for

confidentiality). These marketplaces accounted for $18.7 billion in revenues in 2017 and Amazon’s

marketplace accounted for over 50% of all ecommerce revenues in the United States. While these

Internet storefronts provide wider selection and convenient purchasing methods for customers, they

also present greater risk in terms of unknown and potentially unauthorized sellers who may not provide

quality experiences aligned with customers’ expectations of a brand. As more and more commerce

migrates online, every distribution intensive, business‐to‐business sales organization will also face rogue

reseller activity, if they have not already. And most firms are not prepared for the fight. Confronting

unauthorized, often anonymous, third parties marketing their goods in competition with trusted

partners requires a systematic battle plan in order to be effective. In this article, we describe the

channel war that is at work and the forces that are fueling its development. We overview various types

of rogue resellers that largely comprise these platforms and explain how their activities drive down

pricing, increase channel competition and conflict, impact customer experience, and harm brand equity.

Many manufacturers have a unilateral promotional policy, called a Minimum Advertised Price (MAP),

that specifies the lowest prices at which retailers can advertise manufacturers’ products. Such policies

are common in many industries including electronics, housewares, marine equipment, motor sports,

plumbing, and toys, and they leave retailers free to set their actual sales prices above or below the MAP

level. Violators can lose mandatory funds or be cut off from product supplies. Despite this, MAP

policies are commonly violated; in fact, on average, 22% of authorized retailers and 46% of unauthorized

retailers have been found to violate MAP.1 Monitoring MAP violations, even in the absence of third‐

party marketplaces, can be difficult and time consuming but especially on third‐party marketplaces

where sellers of questionable origin operate.

And in fact, this was exactly the situation facing Laurel Zykes, the Senior Director of Global Channel

Strategy, Programs and Communications at Purpose1 Technologies. At one point, its products were

being distributed on the Amazon marketplace by some 250 different sellers, both authorized and

unauthorized, many of whom were advertising at below MAP prices. Negative product reviews began

appearing online, authorized distributors and channel partners began complaining, and the brand

suffered as control over the distribution channel was slipping. Specifically, Purpose products were being

sold by resellers that the firm could not identify; and their products were being sourced overseas and

through unknown venues. Another major issue was that products sold on Amazon were not presented

and merchandised well by virtually all sellers, which was also damaging to the brand.

We describe the problems that Purpose faced and the solution ultimately chosen. Importantly, we

provide a broader framework for how firms can deal with the problem of rogue third‐party sales on

ecommerce platforms. We array a range of options that vary in the degree of control and involvement

required by manufacturers and trademark owners: wholesaling to Amazon retail, selling through specific

or exclusive third‐party sellers, and becoming a reseller are just a few of the possibilities. We describe

1 This name is a pseudonym.


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the pros and cons of these scenarios, and explain the constraints placed on manufacturers and

trademark owners due to the “first sale doctrine,” a legal rule that limits an owner’s distribution rights

after ownership is transferred through a legitimate first sale.

Critically, we explain exceptions to the first sale doctrine allowed via the Lanham Act, which provides

trademark liability claims for “materially different” goods. In addition to obvious physical differences,

whenever a trademark owner provides key services such as warranties, customer support, or provides

exclusive access to promotions or are willing to provide recall assistance, conduct inspections, institute

quality controls, and investigate or report safety incidents – all of these and more can constitute a

material difference in a court of law.

We recommend revising product policies, procedures and agreements to begin to differentiate products

from those sold by unauthorized parties. Critical steps include implementing services, benefits and

quality controls for the brand’s products that cannot be replicated by unauthorized sellers, and requiring

authorized distributors and retailers to maintain those benefits and controls. A graduated enforcement

plan can help firms to take back control of their channels and reduce MAP violations. Finally, we share

key metrics from a wide range of firms that have implemented our recommended plan of action and

provide more specific examples of how firms can get better prepared to win today’s channel war.


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WINNING THE NEW CHANNEL WAR ON 3RD PARTY PLATFORMS

There is a war afoot and it’s happening in your distribution channel. Many firms, like Purpose

Technology, who distribute their products and services through direct and indirect channels, are facing

off against rogue reseller activity. Purpose discovered that its products were being sold on the Amazon

marketplace by more than 200 sellers, both authorized and unauthorized, at below MAP (minimum

advertised price) policies. The explosion of web‐based buying alternatives and third party sales

accounts for as much as half of all ecommerce revenues and is expected to reach $40 billion by 2022. 2

But rogue reseller activities are ratcheting up channel conflict, creating pricing pressure, and likely

eroding your brand. Rogue resellers, grey markets and counterfeit goods have always been a sales

channel risk, but the rise of third‐party marketplaces means that these forces are likely besieging your

sales at an unprecedented rate and scale than ever before.

The actions of rogue resellers reveal a dark side of the new economy, different from the channel conflict

issues of the past, and with higher stakes. This is because B2B transactions are becoming like B2C

transactions; research by Forrester Consulting involving nearly 1,000 B2B buyers found that nearly half

preferred using consumer websites to make work related purchases3. Like consumers, B2B customers

demand fulfillment capabilities, inventory visibility and convenience; 78% indicated that fulfillment

options such as next‐day delivery were important or very important to their purchase decision. In other

words, B2B and B2C customers all value online convenience, including self‐service access to their

accounts, orders and scheduled deliveries. Against this backdrop, the proliferation of bad actors – i.e.,

rogue resellers are creating a new channel war that requires a competitive game strategy all its own.

As more and more commerce migrates online, every distribution intensive, B2B sales organization will

face the issue of unauthorized reseller activity, if they have not already. And most firms are not

prepared for the fight. Confronting unauthorized, often anonymous third parties marketing their goods

in competition with trusted partners requires a systematic battle plan in order to be effective. In this

article, we describe the new channel war that is at work and the forces that are fueling its development.

Importantly, we also provide a framework and solutions for defeating the enemy. The good news is that

the solution is effective. We have seen many firms regain control of their distribution channel,

strengthen their brand, and importantly, restore the faith of their authorized reseller network.

The Rise of Third‐Party Marketplaces

In recent years, we have witnessed the rise of numerous third‐party marketplaces such as Jet.com,

Rakuten, Alibaba.com, Walmart.com, and Inxeption join the ranks of veteran platforms such as eBay and

Amazon. Together, these online marketplaces accounted for $18.7 billion in revenues in 2017 and are

anticipated to double to $40.1 billion by 2022.4 This activity currently accounts for as much as half of all

ecommerce revenues, and the figure is expected to increase to as much as two‐thirds of all ecommerce

revenues by 2022.

Third‐party marketplaces differ in their target markets and product offerings. For example, Inxeption is

for B2B exchange and customers are organizations. Jet.com targets high‐income consumers and offers

curated assortments. Alibaba, Amazon and eBay focus on wide assortments and long‐tail goods for any


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type of buyer. Importantly, all of these platforms, even Walmart, involve third‐party sellers; put

differently, the products for sale are not exclusive to the platform brand.

Amazon. Amazon is the dominant third‐party marketplace platform in the United States, currently

accounting for 51% of all ecommerce revenues in 2017, and expected to grow to as much as 59% of all

ecommerce revenues by 20225 as indicated by the Figure below.

Figure 1

Amazon’s Growing Third‐Party Sales

Who is the Third‐Party Seller?

Historically, we have thought of sellers as being manufacturers or producers of the products and

services sold in a marketplace. However, many of the growing number of third‐party sellers on today’s

ecommerce marketplaces can range from small players and one‐off sellers to authorized distributors

and professional schemers.

One‐off sellers. One common type of seller is the individual who lists a single product or a small number

of products and removes the listing once the product is sold. These sellers list products they purchased

and no longer want or received as a gift and don’t desire to keep it. These sellers are mostly harmless

and their intention is generally not nefarious.

Professional resellers – another common type of third‐party seller is the professional who acquire

products in large amounts, often from authorized distributors and wholesalers and sell them online, as

in the graphic below. We refer to these individuals as “rogue,” throughout the manuscript, because

their activities are often unauthorized by the original product manufacturer and seller.


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Figure 2

The Professional Third‐Party Reseller

Rogue resellers purchase large volumes of items at local warehouse stores, distributors, or other

clearance outlets and then stores the items, often on personal property. The rogue then sets up a store

front on Amazon and sells the goods he bought on discount. While this type of activity seems

innocuous, it can cause downward pressure on sales when a company has hundreds of rogues reselling

their products.

Some rogues might even use software that is specifically designed to buy products from other stores to

resell at inflated prices. This was the situation faced by Fred and Natasha Ruckel, the owners of the

Snuggly CatBrand, who developed a product called the Ripple Rug, a cat toy which they sold on Amazon

in 20156. The Ripple Rug retailed for $39.99 and was being relisted on eBay for prices as high as $59.99.

These rogue resellers did not even buy the rug; when a customer placed an order, the rogue would

purchase it on Amazon and drop ship it to the customer. The rogues made a 33% profit margin by

simply listing the Ruckel’s product on eBay! While some might see the increased sales as beneficial for

generating product awareness and growing revenues, the downside of this activity is that when

customers received the product in Amazon boxes, they then discovered that they had substantially

overpaid for the product. These customers returned the products to eBay and re‐purchased on Amazon

because their Amazon purchase came with free shipping and returns. However, the returns did not go

to the rogue, but to the Ruckels, who had to pay fees to Amazon for the purchase, the shipping, the

return, and the restocking. Then the product was repurchased on Amazon and the Ruckels again had to

pay purchase and shipping fees. Sometimes, rugs were returned used, which meant they could not be


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resold. Within a span of two months, the Ruckels had to process over 200 returns, the equivalent of

$10,000 in losses.

Authorized distributors. Sometimes resellers might actually be from your own authorized distribution

channel. In fact, this is a common source of unauthorized sales. Some resellers may be unaware that

they are prohibited from selling products online, or some manufacturers may not have the policies in

place that prohibit this activity. Others, however, see the opportunity to list on Amazon and eBay as

opportunities to move more volume and cash in. In some cases, family members or other close

associates of authorized resellers might also sell the products online, often unbeknownst to these

resellers.

Professional schemers. There are also a group of professional schemers, often larger in size than

individual rogue resellers, who manage to gain substantially through unauthorized sales. These grey

marketers might contact authorized distributors and purchase a large quantity of products at a volume

discount. They then resell the products slightly below the retail price on unauthorized websites and the

authorized distributors receive what is effectively a commission from the sale.

Illegal reseller activities. The final class of actors are criminals; using stolen credit cards to purchase

products and have them shipped to the buyer. Unsuspecting customers thus pay for the product

legitimately, while the scammer pockets the entire profit. The use of a stolen card means that the

scammer never lays out any money, regardless of the price of the product and the firm is unaware that

the purchase was unauthorized until the product ships and the firm receives the chargeback from the

credit card.

The Impact of the Burgeoning Number of Third‐Party Resellers

It’s worth noting that distribution channels have always been prone to diversion tactics, unauthorized

sales, and grey market activities; in fact, a rationalization can be made that such activities are effective

for reaching customer segments that may not demand the services or benefits provided by higher cost

authorized channels. However, there are a number of downsides that accrue to the firms when

unauthorized sales are allowed to flourish. And in today’s ecommerce marketplaces, the scale and

speed by which these activities can and will accelerate might catch many firms by surprise. Thus, it is

important to recognize what can happen and has often happened to many firms.

Pricing pressure. The most observable indication that rogue resellers have overtaken your ecommerce

channels is the pricing pressure that their presence will place on your own (authorized) channel. One

large online retailer observed the following price pattern for one product over a three‐month period.


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Figure 3

The Pricing Consequences of an Unmanaged Amazon Presence

Price pressure clearly erodes profit margins in the short‐term and makes it difficult to raise prices in the

future as customers become increasingly price sensitive. In the long term, low prices can also signal low

quality to customers which is damaging to brand equity.

MAP violations and channel morale. Many manufacturers have a unilateral promotional policy, called

Minimum Advertised Price (MAP), which specifies the lowest prices at which retailers can advertise the

manufacturer’s products. Such policies are common in many industries including electronics,

housewares, marine equipment, motor sports, plumbing, and toys and they leave retailers free to set

their actual sales prices above or below the MAP level. Retailers who comply may receive benefits such

as co‐operative advertising funds or other monetary rewards, but those who don’t typically receive

graduated consequences. For example, the first violation might result in a stern warning that can be

legitimately backed up with action. A second violation could result in a product suspension (e.g., for 60

days), and a third might result in a six to twelve‐month suspension or even complete cutoff from the

manufacturer’s products. Of course, rogue resellers are not subject to MAP policies, and in subsequent

sections, we will describe some options for dealing with them. Nevertheless, MAP policies are

commonly violated; in fact, on average, 22% of authorized retailers and 46% of unauthorized retailers

have been found to violate MAP.7 Monitoring MAP violations, even in the absence of third‐party

marketplaces, can be difficult and time consuming but especially on third‐party marketplaces where

sellers of questionable origin can operate. Even online prices, which are pervasive and relatively easy to

find, can be a challenge to monitor over time.

More broadly, MAP policies are a means of motivating the distribution channel; such policies protect

retailer margins and allow retailers to profitably provide services or other ancillary benefits to the basic

product. MAP policies are effective in battling discount retailers who might offer the product at a low

price but without the services needed to maintain the brand positioning. When rogue resellers violate

the MAP policy, they not only undercut the authorized channel and create conflict, they essentially free

ride on the expensive authorized channel that the manufacturer has carefully created and invested in


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for many years. Firms that fail to respond to repeated MAP violations from dozens or hundreds of

unauthorized resellers on third‐party marketplaces can seriously demotivate the authorized distribution

channel from supporting the product as they should, such as offering ancillary services like education,

warranty support, and repairs that are valuable to customers.

Consumer dissatisfaction. Rogue resellers are typically not motivated by customer satisfaction, but by

profit maximization. Hence, minimal attention might be paid to how products are presented, and

information might be incomplete. They might respond erroneously to customer questions or post

inaccurate information about the product. Rogue resellers have little incentive to insure that the

transportation company handles products in a way so as to avoid a damaged or late arrival on a

customer’s doorstep. The box that the customer receives might not have the mix of goods that the

customer ordered, it may also include counterfeit or damaged goods. All of these factors can lead

customers to complain about the manufacturer and the brand to their personal and professional

networks both in person, via social media and by posting negative reviews.

Purpose Technologies: A Case Study in War

Together, the foregoing factors can culminate into a distribution nightmare. And in fact, this was exactly

the situation facing Laurel Zykes, the Senior Director of Global Channel Strategy, Programs, and

Communications at Purpose Technologies. Purpose Technologies provides a performance edge to those

on the front line of business through technologies and solutions that provide greater visibility and

actionable insights into key aspects of business operations. Their distribution strategy is to sell their

goods direct to distributors who in turn sell to both general resellers and value added channel partners.

Both of these communities sell to end users. Purpose instituted and governed a MAP policy to help

motivate its distribution network to effectively represent the brand.

Trouble began brewing as Purpose realized its products were being distributed on the Amazon

marketplace by some 250 different sellers, both authorized and unauthorized, many of whom were

advertising at below MAP. Purpose products were being sold on the US Amazon marketplace by rogue

resellers that the firm could not identify; and their products were being sourced overseas and through

unknown venues. Another major issue was that products sold on Amazon were not presented and

merchandised well by almost all sellers, which was also damaging to the brand. Negative product

reviews began appearing online, authorized distributors and channel partners began complaining, and

the brand suffered as control over the distribution channel was slipping. Collectively, these activities

were eroding the integrity of the Purpose brand. At this point, the firm faced several sobering realities:

1. Purpose‐branded products would be sold on the marketplace regardless of whether Purpose

wanted them there.

2. They had to decide how to manage their presence on Amazon to ensure third‐party resellers did

not erode their brand in the market.

3. They had to determine how to engage business and consumer users via the Amazon

marketplace for maximum benefit.

Purpose concluded that something had to be done – doing nothing and allowing rogue third‐party

sellers on Amazon and other marketplaces to run wild was not an option. Instead, the company needed

to actively manage or cut off supply.


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Additional Considerations

While Purpose mulled over its options, new research appeared that gave insight into MAP compliance.8

The researchers found that MAP compliance improved when retailers carried a broader assortment of a

manufacturer’s product line compared to those with smaller assortments. In other words, those that

had more to lose were more likely to comply with MAP policies. MAP violators with broad product lines

could have the entire line punished by the brand manufacturers.

Importantly, the research pointed to the difficulty of monitoring MAP compliance on an ongoing basis.

They described how one electronic goods manufacturer was only able to monitor just three SKUs for

MAP violations across all of its authorized retailers. This small fraction was all that could be managed

given the company’s current staffing and additional job duties. This situation is common, which is why

many firms now rely on companies such as Channel IQ or Market Track to assist in monitoring and

tracking internet MAP.

Another key issue in MAP enforcement is often referred to as the “grey‐market” problem. Many

companies attempt to apply MAP policies to their authorized sellers; however, there are numerous

rogue sellers who manage to acquire the company’s products in some fashion (liquidation, diversion,

purchase on sale, etc.) and will sell the products online at whatever price they may want. They ignore

MAP policies since they are unauthorized anyways and there are no consequences for them. These

sellers create serious problems for companies when trying to operate MAP programs because they will

typically sell online far below the MAP policies, which makes it impractical for the company to try to

enforce MAP against the authorized seller. Thus, if a company does not have a successful strategy for

addressing grey market sellers, it will not be able to operate a successful MAP program.

Battle Strategy

When war is being waged in your channel system, it is incumbent on you to take your channel back. It is

the manufacturer’s responsibility to eliminate price differences downstream and to enforce MAP

policies. This is especially worthwhile when the stakes are high. For example, when there exists an

opportunity for high margins or in industries where channel activities (such as service provision or

education or transportation) are critical to success. When the manufacturer’s commitment to its

channel partners is high or when the manufacturer plays a prominent and powerful role in the channel,

then the channel is worth fighting for.

Ultimately, Purpose decided to pursue to sell through an appointed third‐party reseller, and this would

be our recommended path of action for most firms. By constraining all sales through a single authorized

seller in the online marketplace, Purpose was able to better influence pricing and control catalog

selection through strict marketplace authorization requirements. This approach also makes the partner

liable for tax liabilities and any returned product. It also yields a partner who could help sellers get

ahead of the growing Amazon marketplace trend and be responsible for its brand presence there.

Recognize exceptions to the first sale doctrine. Along the way, Purpose learned about a key exception to

the first sale doctrine, which is that the doctrine does not apply when the trademarked good being

resold is “materially different” from the company’s genuine goods. Importantly, material differences do

not have to be physical differences and instead encompass any difference between products that


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consumers would likely consider relevant when choosing to purchase a product. Material differences

can include whenever a trademark owner provides key services, such as warranties or customer

support; provides exclusive access to promotions; or is willing to provide recall assistance, conduct

inspections, institute quality controls, and investigate or report safety incidents.

Resellers who fail to provide these services and benefits may be in violation of the Lanham Act, which

provides: “Any person who shall, without the consent of the registrant, use in commerce any

reproduction, counterfeit, copy, or colorable imitation of a registered mark in connection with the sale,

offering for sale, distribution, or advertising of any good or services on or in connection with which such

use is likely to cause confusion, or to cause mistake, or to deceive…shall be liable in a civil action by the

registrant for the remedies hereinafter provided…” 15 U.S.C. § 1114. Put differently, manufacturers are

now in a position to establish liability for trademark infringement by exercising an exception to the first

sale doctrine. The firm could now assert Lanham Act claims against unauthorized resellers whose

trademarked goods were “materially different” from those that sold by rogue channels – i.e., third‐party

resellers whose goods lacked the value‐added services such as pre‐sale consultations, storage

instructions, certain packaging, tracking codes, etc. that were bundled together with every physical

product.

Courts have also held that trademark owners have the legal right to control their product quality.

Unauthorized resellers who do not follow those controls are liable for trademark infringement,

assuming the quality controls are not “pretextual” and the company is actually enforcing them.

Differentiate your product. Begin revising product policies, procedures and agreements to support legal

claims against rogue resellers and differentiate your products from those sold by unauthorized parties.

Implement legitimate material benefits and quality controls for the brand’s products and require

authorized distributors and retailers to maintain those benefits and controls.

You should also require authorized distributors who sell your products online to sign agreements and

follow policies that require sales be made only on authorized websites and to provide all storefront and

seller names through which they will sell products on online marketplaces.

Appoint a marketplace seller. In order to best track products and MAP compliance through a third‐party

marketplace, we recommend that manufacturers designate a single seller who is exclusive to a

marketplace platform. There are many benefits of this approach. Ideally, this seller is an expert on how

to best merchandise and move products through that online platform. This approach also stops

comingling of products from other authorized resellers in your distribution channel. By simplifying the

number of potential resellers on the platform, it also allows better determination of the source of

reviews. However, firms should be prepared for the possibility that it will have to monitor this partner

closely and may have to subsidize some parts of their activities and resources.

If manufacturers choose to use multiple online sellers, require that these sellers be pre‐approved. In

this case it is critical that an online sales policy for product control is in place and that these sellers are

monitored for MAP compliance just like all others in your channel ecosystem. Test purchase their

products over time to insure that they are faithfully representing your brand. Track their scores and

customer sentiment and be quick to address quality issues that may arise.


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Introduce a graduated enforcement system. Enforcement is critical when MAP policies are violated. Our

recommendation is a graduated system that involves the integration of monitoring technology,

investigation and enforcement efforts with the goal of shifting the balance of risk from the product

seller to rogue resellers.

Begin with a monitoring company whose task is to identify all unauthorized sellers. Rank these sellers

from high‐ to low‐volume, based on the number of client products and total products each reseller is

selling. Then, cut off product supply sources to these sellers and put them on a “do‐not‐sell” list to be

distributed to your authorized channels.

Impose legal pressure on the rogue resellers by dispatching cease and desist letters; don’t hesitate to be

more aggressive about enforcement if you sell a substantial number of products. Strongly worded

letters from an outside law firm can be motivating. Follow up to insure that the storefronts and selling

activities desist. You might have to purchase your products at different sites in order to trace the

identity of the sender. Of course, there is always the option of a subpoena, if none of the foregoing

achieve results.

Table 1

Applying Legal Pressure

1. Dispatch cease and desist letters

These are usually sufficient for most unauthorized sellers. However, a more aggressive enforcement approach might be necessary for sellers offering a significant number of products. Some marketplaces, such as eBay, allow for private messaging of their online sellers; this can be a low‐cost vehicle for sending a large number of cease and desist letters online (eC&Ds).

2. Letters from a law firm

A strongly worded letter from an outside law firm is often most effective in approaching the highest volume sellers. This letter should include a detailed explanation of the illegality of the seller’s activity and why the first sale doctrine would not apply; an explanation that courts in the company’s state will have jurisdiction over the seller; and relevant case law, including citations to prior cases in which large damages have been awarded against unauthorized sellers. Your firm might also choose to send additional C&Ds to low‐volume sellers.

3. Monitor compliance

After legal letters are sent, the company and its enforcement team should track which sellers comply with their demands. Then, cyber investigators can investigate the identities of any sellers who do not remove the products.

4. Identify remaining rogues

Once rogue reseller identities are obtained, the outside law firm can send additional cease and desist letters to the unauthorized sellers’ physical addresses, effectively communicating that: 1) the company knows who they are and where they are and, 2) should they keep engaging in unauthorized sales, the company will pursue them legally. Rogue sellers are likely to comply when they realize a company (or its legal team) has taken the time and effort to identify them. Note that it’s often relatively costless for them to switch to other products and away from yours.


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5. Conduct market tests and sampling

A primary identifying technique is for investigators to engage in product purchasing. An investigator can purchase a product from an offending seller and potentially obtain his or her identity by way of a return address on a packaging label or payment processing information. Of course, identifying information might actually be traceable through search results just by searching the name of the storefront in question or based upon other information obtained through the various investigative techniques. Sometimes, however, a seller might have provided fake information, used P.O. boxes or perhaps the third‐party marketplace on which they were selling might have handled the shipping.

6. Subpoena the marketplace

If it is not possible to identify a non‐compliant seller through traditional investigation techniques, a company’s counsel can send subpoena records containing identifying information to the entity that owns the online marketplace on which the sales are taking place (or to the third‐party entity that handles payment for the marketplace’s transactions). It might also be possible to obtain information from private mail boxes, but this technique is typically not necessary.

7. Additional legal tactics

This can entail sending draft complaints to the sellers; obtaining temporary restraining orders to freeze online sellers’ PayPal accounts; obtaining injunctions to order online sellers to cease selling the products; obtaining injunctions ordering the transfer of the resellers’ website domains to the client; obtaining court orders that can be used to de‐index unauthorized sellers’ e‐commerce websites from Google; filing lawsuits and negotiating with the sellers; or preparing and executing settlement agreements.

This process should be repeated on a monthly or quarterly basis, incorporating any new rogue resellers

that arise with each inspection.

Communicate your strategy to your authorized resellers. Once your firm has committed to taking action

against unauthorized resellers, it’s important to communicate these efforts to the authorized

distribution channel. This is critical for assuring them that your firm is committed to fair competition

and their economic welfare. Communicate the improvement in MAP compliant sales with measurable

results. One toy company went from a 53% MAP compliance rate on Amazon in March 2018 to 96% by

September 2018. A healthcare product manufacturer went from 20% MAP compliance on Amazon in

December 2017 to 95% MAP compliance on Amazon in June 2018. And a cosmetics company’s monthly

authorized sales capture on Amazon went from 65% to 95% within six months. With these results,

brands are able to show their authorized sellers the data demonstrating that a small number of one‐off

sellers are not materially impacting sales.

Another key point to emphasize to your authorized channel is how your investment in product

differentiation benefits them. Demonstrate that products sold by rogue resellers are unreliable and

often do not come with certain services and benefits or do not have the quality controls that the

company has established. Getting serious about MAP compliance can also motivate your authorized

channel to be more aggressive. These measures and efforts to educate and remind your distributors

that you are aggressively enforcing your policies will significantly raise their motivation toward your


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brand, as they realize that unauthorized sellers eliminated from Amazon or eBay (or elsewhere) are no

longer harming the business and threatening them. One company went from selling 15,416 units to

37,173 after six months, a 141% increase in its authorized channel.

Communicate to customers. Don’t forget to communicate with the customers. They need to be aware

that there are benefits associated with buying from rogue resellers and that purchases through them is

simply not a reliable method of purchasing the company’s products. These products might not come

with certain services and benefits. They likely lack quality controls. And any products purchased through

unauthorized sellers could very well be damaged, expired, altered, counterfeit or possibly dangerous

(depending, of course, on the type of product). All of these communication efforts, whether done via

press releases, emails, presentations at distributor meetings, and videos are critical. Be sure that your

sales representatives are given appropriate talking points and your anti‐diversion policies are published

on your company’s website.

Thinking Through the Distribution Possibilities

There are other options that firms can take to deal with rogue resellers, and each have their own set of

benefits and tradeoffs:

Sell as a third‐party reseller on Amazon. This is essentially a form of vertical integration and requires the

highest level of a manufacturer’s involvement. By taking on the distribution function in a third‐party

marketplace, the firm is able to regain control of its brand positioning, enforce MAP policy and gain

more control over inventory positions, catalog selection, as well as minimize product stock outs.

Margins might be higher and there may be opportunity to do more customer education on the platform.

By being the first to engage directly with the end customers in this way, the manufacturer gains a

learning advantage over their competitors. There might also be opportunities to more creatively sell

product and service bundles of varying combinations. All that said, this approach also has drawbacks,

particularly for channel‐centric organizations. One is the direct competition that vertical integration

would pose to the authorized distribution channel. The second is the anticipated costs and key

resources necessary to set up and manage the distribution functions that are needed for customer value

creation; there might also be uncertainty as to the growth or cost reduction opportunities. Taking on

the role of a distributor may mean that manufacturers would have to deal with returned products and

other service issues; there also would be new tax considerations to manage.

Sell directly to Amazon. This approach has the obvious benefit that Amazon always wins the “buy box.”

Amazon might have capabilities and access to advertising and marketing tools that would always be

cutting edge and might not be available to competitors. However, there are many downsides. What if

Amazon is not motivated to support your brand and focus on it? There are also risks when partnering

with an 800‐pound gorilla. They might promise to carry all the product lines and grow sales but demand

more advertising dollars to make it happen. They might violate MAP if their algorithms found the

product at other sites for a lower price. They might introduce new fees and fines at any time and

occasion or refuse to use your suggested merchandising content if they believed they knew better. A

distributor with this much power could dictate terms, requiring high support minimums, demanding

substantial proofs of inventory levels, and ultimately focusing only how and where it desires to do so.


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Of course, this approach could also disenfranchise the current channel and upset key distributor

relationships.

One way to understand the options that firms face is to recognize that they fundamentally involve a

tradeoff between the manufacturer’s efforts and involvement for brand control. High involvement

equates to high control, whereas the converse is true. Conceptually, one can think of a manufacturer’s

options as the following:

Figure 4

Distribution Options for Brands in Third‐Party Marketplaces

Note: 1P = one party, 3P=third party

The right option for your firm will likely be a combination of the necessary brand control and your

willingness to make the effort to achieve this.

Post Script

Purpose implemented many of these steps and saw their listings below MAP drop from 903 incidences

in June 2018 to 196 by October of that same year. During that time period, they also observed a 53%

decline in unauthorized product listings, dropping from 693 to 322; moreover, the percentage of

products sold on Amazon at or above MAP jumped from 6% to 45%. Together with their legal team at


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Vorys, Purpose instituted the work process overviewed in Figure 5 for dealing with authorized and

unauthorized resellers.

For Purpose, it was a long journey to understand and identify an optimal and workable process for

dealing with unauthorized resellers and improving MAP compliance. The effort required executive

sponsorship and internal cross functional sales efforts; it cannot be successfully accomplished via the

efforts of a channel strategy team alone. The process was also a significant step in Purpose becoming

educated in and understanding the legal nuances related to MAP compliance and unauthorized

distribution activities. And the effort to educate both internally and externally continues to today.

Every firm can win the channel war against unauthorized resellers and improve MAP compliance in their

channel. Education about the options you face is the first step. Fortunately, there are resources to

assist, so that every firm can arm itself and win the current channel war.


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Figure 5

Online Seller Enforcement Workflow

Monitoring technology captures sellers and relevant data (e.g. pricing, sales volume).

Triage sellers (authorized vs.

unauthorized/anonymous).

Unauthorized/Anonymous Seller Enforcement Workflow

Vorysinvestigates and reports IDs to

Purpose

Transfer any authorized sellers to Authorized Seller Enforcement Workflow

Vorys sends C&Ds

Monitoring technology

tracks compliance

Vorys sends draft complaints

to non‐compliant sellers

Authorized Seller Enforcement Workflow

Is seller a Purpose partner?

Purpose sends notice to seller regarding

violation/breach of partner terms and conditions

Negotiation with seller

If not successful, terminate authorized reseller status and treat as unauthorized seller

Vorys contacts open reseller to address violation of product quality policy

Negotiation with seller

If not successful, terminate authorized reseller and treat as

unauthorized seller

Review Data and Identify Violations

Vorys and Purpose

Determine Next Steps for Non‐Compliant Sellers


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ENDNOTES

1 Israeli, Ayelet, Eric T. Anderson and Anne T. Coughlan (2016), “Minimum Advertised Pricing: Patterns of Violation in Competitive Retail Markets,” Marketing Science, 35(4), 539‐64.

2 Coresight Research, “Quick Take: The Boom in Marketplace Platforms,” https://www.fungglobalretailtech.com/research/quick‐take‐boom‐marketplace‐platforms/ accessed on 10/26/18.

3 Forrester Consulting, “Building the B2B Omnichannel Commerce Platform of the Future: B2B Buyer Expectations are Driving Sellers to Deliver Fully Functional Omni‐Channel Experiences,” November 2014.

4 Coresight Research, “Quick Take: The Boom in Marketplace Platforms,” https://www.fungglobalretailtech.com/research/quick‐take‐boom‐marketplace‐platforms/ accessed on 10/26/18.

5 Big Commerce, “The B2B Ecommerce Trends Report: Millennial Buyers, Payment Options and a Maturing Market” https://www.bigcommerce.com/blog/b2b‐ecommerce‐trends/ accessed on 10/26/18.

6 NPR Planet Money, “Cat Scam,” episode 724, September 2016, https://www.npr.org/sections/money/2016/09/14/493810206/episode‐724‐cat‐scam accessed on 10/31/18.

7 Israeli, Ayelet, Eric T. Anderson and Anne T. Coughlan (2016), “Minimum Advertised Pricing: Patterns of Violation in Competitive Retail Markets,” Marketing Science, 35(4), 539‐64.

8 Israeli, Ayelet, Eric T. Anderson, and Anne T. Coughlan (2016) “Minimum Advertised Pricing: Patterns of Violation in Competitive Retail Markets,” Marketing Science, 31(October), 539‐64.


Documents

Winning the New Channel War on Third Party Platforms