Product diversion is a serious threat to any brand’s reputation and bottom line. This occurs when genuine products are sold through unauthorized channels, such as third-party retailers or resellers. The problem is particularly acute in the gray market, where products may be sold without the consent or knowledge of the brand owner. In this article, we’ll take a closer look at product diversion and explore strategies for preventing it.
Understanding Product Diversion
Product diversion can occur in several ways. For example, a distributor might sell products meant for one market in another market where the same product is sold at a higher price. Alternatively, counterfeiters might produce fake products and sell them as genuine. In either case, the end result is that consumers purchase products that may not meet the brand’s quality standards, and the brand owner loses control over how their products are marketed and sold.
Gray market sales are a particularly insidious form of product diversion. In these cases, unauthorized sellers obtain genuine products through channels that are not authorized by the brand owner. They may purchase products from liquidators or closeout sales, for example, and then resell them at a lower price than the brand owner’s authorized retailers. The result is that consumers are confused about the true value of the brand’s products, and the brand owner loses revenue and control over the sales process.
Preventing Product Diversion
Preventing product diversion (more here) requires a multi-pronged approach that involves legal, operational, and marketing strategies. Here are some key steps that brands can take to protect themselves from this threat:
- Monitor Sales Channels: Brands should have a system in place to monitor their sales channels and ensure that products are not being sold in unauthorized markets or through unauthorized channels. This might involve conducting periodic audits of retailers or distributors, or using software to monitor online sales platforms for unauthorized listings.
- Educate Consumers: Brands can help prevent product diversion by educating consumers about the risks of buying products from unauthorized channels. This might involve creating a consumer awareness campaign or partnering with trusted retailers to educate their customers about the importance of buying genuine products.
- Implement Brand Protection Measures: Brands can also protect themselves by implementing brand protection measures, such as holographic labels or serialized packaging. These measures make it more difficult for counterfeiters to produce fake products and can help consumers identify genuine products.
- Work with Authorized Resellers: Brands should work closely with authorized resellers to ensure that they are not selling products in unauthorized channels. This might involve setting up agreements with resellers that outline the terms of their relationship and the expectations for how products will be marketed and sold.
- Enforce Your Rights: Finally, brands should be prepared to take legal action against unauthorized sellers or counterfeiters. This might involve pursuing legal action through the courts or working with law enforcement to shut down illegal operations.