Unauthorized sellers on marketplaces pose an ongoing challenge for cutlery manufacturer Wüsthof-Trident of America Inc., says Todd Myers, vice president of sales for the company.
For Wüsthof, managing unauthorized sellers of its products on marketplaces, namely Amazon.com (No. 1 in the Internet Retailer 2016 Top 500 Guide), goes hand in hand with enforcing a minimum advertised pricing (MAP) policy. A MAP policy allows manufacturers to set a minimum price at which online sellers can advertise their product on a product page and in the shopping cart, says Gene Zelek, a partner at Chicago law firm Freeborn & Peters LLP.
In July, Wüsthof tallied 350 unauthorized sellers of its products on Amazon.com that collectively accounted for more than 1,100 listings of Wüsthof’s top 100 SKUs. Today, Wüsthof has chopped that number to 25 unauthorized sellers that only have one or two SKUs.
But Wüsthof’s minimum advertised pricing story begins long before the summer of 2016. For years the manufacturer has worked to force compliance among its authorized sellers and has stopped selling its products to distributors who were selling below MAP. “We have zero tolerance, and we are not afraid to walk away,” Myers says.
Wüsthof used a technology vendor to manage authorized and unauthorized sellers that were advertising its products for below the minimum price, however, the problem continued to grow with unauthorized sellers on marketplaces. “These third-party unauthorized sellers kept coming out of the woodwork,” Myers says. “We’d get one taken off, and another one would blossom.”
“People are breaking MAP and getting their hands on our product and we do not know how. We’re so frustrated and angry that we are willing to do everything and anything to police MAP,” Myers says about the previous glut of unauthorized sellers.
In July, Wüsthof switched its MAP management vendor to Potoo Marketing LLC and dedicated 1.5 employees to MAP enforcement. Potoo and Wüsthof use several tactics to combat unauthorized sellers on marketplaces, however, it’s arduous and never-ending, the companies say.
“There’s not a magic pill that would fix resellers,” says Potoo co-founder Fred Dimyan. “If there was, there wouldn’t be this problem.”
The main way Wüsthof enforces MAP and shuts down unauthorized sellers is by controlling product distribution. The manufacturer and its clients have an agreement that discloses the sites where a retailer or distributor sells the cutlery and under what names. If a distributor breaks that agreement, Wüsthof stops selling to them.
Wüsthof allows authorized merchants to sell on the Amazon marketplace, but it does not allow them to store Wüsthof products in Amazon warehouses or use Amazon’s Fulfillment by Amazon service. For example, if an authorized seller and an unauthorized seller were both selling on Amazon and using Amazon’s warehouses, the inventory could be commingled, Myers says.
Potoo and Wüsthof employees “mystery shop” products to find out which distributors are supplying sellers, if a distributor is selling Wüsthof products under a different name at a lower cost or supplying inventory to an unauthorized seller. Wüsthof will mark products—Myers would not disclose how—and then mystery shoppers will order products they find listed for less than the authorized price, and they will track packages to see where they come from. If suppliers were allowed to use FBA, mystery shopping wouldn’t sort out which sellers are authorized and which are not because Amazon would not keep Wüsthof inventory separated by seller.
Potoo also looks at the assortment of products offered by an unauthorized seller and tries to match that product assortment with Wüsthof’s distributors to see if there is any overlap. For example, if an unauthorized seller of a Wüsthof knife block also sells Samsung smartphones, Wüsthof will check to see if any of its distributors also distributes Samsung smartphones. Potoo manages 500 brands, so it gains insights from managing many accounts, Dimyan says.
“If we identify a source of inventory of one manufacturer, we’ve identified that source across all manufacturers,” Dimyan says.
So who are the 25 remaining unauthorized sellers and how do they get their hands Wüsthof’s knives? Myers believes half of the products are coming from Wüsthof’s overseas warehouses because packaging shows they’re not from a U.S. warehouse.
It’s not clear where the other half originates, but Myers has a few theories, including that some products show up for sale online after being stolen from Wüsthof or from a physical store. Also, it simply could be a consumer who received the product as a gift and wants to sell it, and Myers knows this group of minimum advertised pricing violators will be nearly impossible to eliminate.
“The bottom line is, we want perfection, but perfection is not attainable. But we’ll always have that as our goal,” he says.
Wüsthof owes it to its legitimate sellers to enforce minimum advertised pricing to the best of its ability, and to itself to protect its brand value, Myers says, and he is extremely pleased to have slashed the number of unauthorized sellers.
“Once we got our arms around it and reduced it by 95% we realized there simply isn’t much diversion going on,” Myers says. “We still work hard to find out where any leaks might be. We scrape for our top 200 SKUs and to realize only two or three [unauthorized sellers] have at least 10 SKUs nationwide shows us how minuscule the diversion volume is.”
Potoo charges clients a monthly fee that ranges from several thousands to tens of thousands of dollars, Dimyan says. The fee is contingent on how many unauthorized sellers Potoo removes. For example, if Potoo and the client agree that the vendor has to remove 40% of unauthorized sellers in the first month, and Potoo doesn’t meet that threshold, it halves its fee.