You recently received a call from one of your retail customers, not a pleasant conversation. The call is a complaint about your hottest selling product that the retail customer is selling. The same product is now available on Online Retail Marketplaces for lower than the retail price. These Online Retail Marketplaces are large e-commerce sites that allow third parties to sell products in exchange for a commission (typically 15 percent of the sale price). Amazon, eBay, Sears.com, Rakuten, and Newegg are some examples of the Marketplaces. Amazon is the leader and by far the most powerful and influential company, with almost 40 percent of people going there for their initial product search.
Your retail customer wants to offer the lowest price, but these Marketplaces are undercutting that retailer. The retailer wants you to fix your price on the Marketplaces immediately. However, you don’t know how or simply can’t, because in most cases, you have lost control of who is selling your product and for how much.
Your retail business is 90 to 95 percent of your business, while Online Retail Marketplaces may be 5 percent or more of your business. But the prices on Marketplaces are putting your retail business at risk.
Is the tail wagging the dog? Yes, it is.
How does your product show up on the Marketplaces at lower prices in the first place? How have you lost control?
- You sold your product to a Marketplace (some of these Marketplaces also act like a retailer). They bought the product from you (wholesale), and you did not or cannot get an agreement to a MAP (Minimum Advertised Price) price from them. Marketplaces decide the sale price to maximize their sell through. They want to minimize their storage cost and maximize lifetime value of the consumer.
- One or many of your distributors are selling your product directly or indirectly on the Marketplaces. Seller names on the Marketplaces are often an alias. You don’t know the real identity of the seller who is selling your products at a lower than MAP price.
- One of your retailers sets up a shop on Amazon under a pseudonym, and starts selling product at a lower price. You don’t know which retailer because the real identity of the seller on the Marketplaces is considered confidential and is not available to you.
How may this impact you?
When your biggest retail customer asks you to raise the price on the Marketplaces, you have no way of accomplishing it. Why? You don’t control who is selling your product, you don’t know the seller's identity, or the seller has not agreed on MAP pricing. You are stuck.
The magnitude of this problem is huge. If the retailer decides to renegotiate the wholesale price because the company cannot compete with the Marketplaces, you could lose a large amount of your profits.
What’s the solution? Make sure you are the one controlling the tail. After all, managing distribution and pricing on Marketplaces will increasingly become important to your retail business.
Ranjit Mulgaonkar will be presenting the Masters Series session, “Discover Your True Omnichannel MER,” during the D2C Convention in October.Photo by nixxphotography/FreeDigitalPhotos.net
Ranjit Mulgaonkar is CEO of DNA Response Inc.