Why Brands Hate E-Commerce Sellers
Getting sued and lost profits.
If you’ve sold online and talked to a brand about opening a wholesale/reseller account with them, the conversation goes something like this.
“Oh yes, we’d love to open up a wholesale account for you!”
“Where do you sell?”
“Oh, you sell online…. Unfortunately, we don’t sell to online sellers.”
Eight years ago when beginning to sell online with little capital and no connections, my first few months were spent sourcing suppliers.
Let’s just say this view is shared almost universally among brands.
But why do brands hate online sellers?
Well, online sellers don’t have the greatest track record.
Online sellers are infamous for violating resale rules, such as:
MAP policies
Geo markets
Other resale rules(e.g. retailer classes and return policies)
Why are MAP policies important?
MAP stands for “minimum advertisable price” and is the lowest price you can sell a product.
MAP policies exist because….
When we see products at a low price or fall in price— we view them as less valuable.
Pricing gives a product value.
We buy things for their utility but decide which thing to buy because of emotion.
A woman needs something to hold their things, she chooses the Louis Vuitton purse specifically for the psychological effect.
A man needs(or used to need) something to tell the time, he chooses the Rolex watch specifically for the psychological effect.
People value a $1,000 product more than a $50 product even if they are the same, because of exclusivity and the perception that price is tied to value.
If tomorrow Louis Vuitton purses or Rolex watches sold for $200 you wouldn’t be interested anymore.
Brands want to ensure that their brand is desirable and use MAP pricing to drive people to perceive their brand as more valuable.
MAP policies thus, are a vital part of ensuring a brand remains valuable long-term.
Almost everyone desires products that are free.1
Everyone also desires products that are expensive— because they are expensive.
In fact, we desire expensive things more than free things.
Emo’s Theory of Desirability states:
Price x Scarcity x Story x Utility = Desire
So you should control the price of your brands’ products.
Why are Geo policies important?
Brands want to ensure that their products get to new markets or gain depth in specific markets— even if it’s not as profitable in the short term.
Let’s say you run a surfer brand.
You only want to sell to retailers that are in surf spots.
Places like Malibu, Tarifa, Cadiz, Taghazout, etc.
Your products being available in landlocked Kansas or Hungary doesn’t drive the image that you are a surfer brand, no matter how fancy the store you’re in is.
Yes, in the short term expanding to these other markets makes you more profit, but in the long term it degrades your brand, and thus, pricing power over time.
Price points are important, but also geographically where your products are available.
Price x Scarcity x Story x Utility = Desire
Geo policies are a vital part of telling a brand story & inducing scarcity because customers are only able to access products in specific geographic locations.
Other resale rules include everything from retailer classes(low-end to high-end) to return policies.
You can even be in the right geographic location, but if you’re in a low-end retailer…
Your brand will be viewed as cheap.
On the contrary, being in a high-end retailer drives the perception that your brand is valuable.
Even something as small as a retailer not accepting returns is projected onto your brand.
It’s tempting to make short-term profit-driven decisions, selling your products to everyone and anyone, but that comes at the cost of long-term profitability.
It may take years and it may not be clearly measurable, but you always pay the price for short-term decisions.
The day of reckoning always comes.
Today when brands sell inventory, they are unfortunately to some extent sending their products into the void.
So, who do you blame when your product ends up on Walmart violating your brand’s resale policies and hurting your brand?
You can order from the violator to trace back the product.
Trying to find the offending retailers’ operating address to send them legal notices, talking to the distributor involved in the selling process, and scaring all parties involved by threatening to pull your inventory….
But it’s like a Hydra, chop off one head and more just pop up.
It’s a never-ending battle.
It’s one of the many reasons why online retailers and retailers alike have left a sour taste in brands’ mouths.
The vast majority of sellers abide by resale rules...
But if even one online retailer violates a MAP policy and lowers prices…
Now everyone else’s sales just got decimated, because this one seller has lowered prices past the agreed-upon level to soak up sales.
That’s how you end up with a situation where retailers violating resale rules are benefiting and those that are honestly following the rules are the ones penalized.
It’s not always that retailers are bad guys out to break brand policies, often distributors themselves don’t inform sellers of resale rules.
Sometimes they do this maliciously because it allows them to get a better price.
Retailers say, “Wow! With this price, we’re getting a great deal!”
Little do these Retailers know, the reason the inventory is at that price is because other retailers have exclusive rights to be the only seller of the brand’s products on certain platforms or geos that you plan on selling into.
An important detail that this distributor conveniently “forgot to mention”.
But most distributors, like sellers, aren’t malicious.
More often, distributors don’t inform resellers of resale rules due to honest forgetfulness, system errors, or other reasons.
In a small resale chain where there are only five wholesalers with five retailer accounts each, there are at least 55 operational points between 31 organizations where mistakes can be made that will lead to the violation of resale rules.
I’ve had multiple $50,000+ mistakes with this, you can read in-depth about them here.
But no matter the violation reason, brands are the ones spending months fixing the messy problem— while in the meantime their brand reputation and image take a massive hit.
Resale rule violations are death by a million brand degrading cuts.
This problem is not exclusive to online retailers.
Physical retailers also have a history of not respecting resale rules for similar reasons and are arguably worse because there’s no way to check them.
The resale chain is not transparent.
We’ve tried so many approaches… policy scanning software, referencing seller listings, platform gating— but nothing works.
Distributors and Retailers don’t have a way to check resale rules and Brands don’t have a way to enforce resale rules.
Brands have increasingly gone direct-to-consumer in response, but this isn’t the right approach.
The upper class does not like free products unless scarcity is also in play. e.g. rich people love getting free tickets to a fancy and hard-to-access event because they know someone.