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High brand value is one of the most important intangible assets a company can have. It’s something founders give their heart and mind to create, work nights and weekends to improve and lie awake at night praying they can protect.
This is especially true for leaders at consumer product brands that have predominantly sold offline during the last 50 years. These leaders have invested immense sums over many years (often decades) to create a brand that captures the hearts and wallets of a consumer base in an offline world.
Then, almost overnight, the internet upended the traditional brand-building path and created utter chaos for leaders who now can’t seem to stay in front of the cancer-like plaque of rogue sellers metastasizing in digital channels and online marketplaces.
In this new reality, brands that held back from selling their products outside their “safe” ecosystem are finding that their products are being sold everywhere anyway, often for well below the minimum advertised price (MAP) — eroding brand value and leading to what is known as the profitability death spiral.
This tailspin is the nightmare in which many brand leaders find themselves. Fortunately, there are ways brands can regain control or even mitigate these risks entirely. And, once you are clear of the turbulence caused by brand erosion, true brand acceleration becomes possible. Here’s how to get and keep control of your brand:
Don’t be afraid of being the first to go digital
Many brands are reluctant to be the first in their industry to enter an online marketplace. They worry about degrading the value of their brand and helping other brands gain an advantage. However, if brands don’t take the leap, one of their competitors or buyers will.
This is especially true for brands that make premium products. Take, for example, the elite cycling companies. You won’t see any of them selling their bikes on most online marketplaces.
The problem is, one of those elite cycling companies will eventually list their products on Amazon. There is just too much money to be made for them not to go all-in on marketplaces at some point. When that happens, the brand or seller that enters an online marketplace first will gain all the search engine optimization (SEO) traction and become the dominant player in the space while everyone else tries to catch up. Additionally, if a buyer of a cycling brand’s products enters an online marketplace before the brand does, they can win the Buy Box — further eroding brand value.
A well-known game theory, the “prisoners dilemma,” illustrates the difficulty some brands may face in deciding whether or not to enter an online marketplace. Imagine the police are interrogating two suspects in separate locations. Each suspect has the choice to either confess and implicate the other or remain silent.
Both suspects individually know they will get favorable treatment if they confess when the other does not — better treatment, even, than if both remained silent. If one suspect confesses, then the other suspect needs to do the same to stay clear of the heavy punishment assigned to the holdout. This is the prisoner’s dilemma. In this situation, confession is the dominant strategy for both individuals.
Brands debating whether or not to enter an online marketplace face a similar dilemma. If a competing brand begins to sell its products on an online marketplace, and you don’t, your brand will miss out on the first-mover advantage.
Moreover, if a distributor begins selling your brand’s products on a marketplace without your permission, and you still hold out, that distributor will likely not adhere to MAP. This will pull potential customers away from your current selling channels (brick-and-mortar retail, direct-to-consumer websites, etc.), leading to an erosion of brand value, which will put your brand in the profitability death spiral. So, similar to the suspects in the prisoner’s dilemma, the dominant strategy for any brand is to make the first move.
Don’t believe the discount myth
Whether they realize it or not, every brand and seller has a strong incentive to maintain pricing and adhere to the manufacturer’s suggested retail price (MSRP). If one seller decides to discount their price on a given product, all other sellers must follow suit to compete. It becomes a race to the bottom.
Why? Most Amazon customers purchase items from the Buy Box featured on a specific product page. Winning the Buy Box means your price is the lowest at a given time. The Buy Box constantly changes, depending on which seller has the lowest price.
So, if your brand manufactures golf balls, and you sell a box of three balls on Amazon at $20, but another distributor sells the exact same box for $19, they will win the Buy Box. This will incentivize others to offer a deeper discount to retake the Buy Box. The discounting continues, sometimes below wholesale price. This is the death spiral in a nutshell.
While some level of discounting does occur on online marketplaces, you will often be more profitable without ever discounting — as long as you’ve got control of your brand. I know brands that have never discounted one cent, yet they have seen their online revenues grow from tens of millions to hundreds of millions of dollars a year. This is where maintaining brand value and getting control over rogue sellers is key.
Enlist help — and quickly
Having an ecommerce presence on global platforms means your brand is accessible to anyone, including bad-actor sellers who would like nothing more than to capture short-term gains on your goods at your expense.
Fortunately, you don’t have to fight back alone. There are consultancies that can help you build a strategy to mitigate the risk of rogue sellers and law firms that specialize in online seller enforcement and intellectual property infringement. Additionally, ecommerce accelerators have built technology to track MAP compliance and identify rogue or counterfeit sellers. If you’ve already lost control, partnering with one of these entities can help you get it back and keep it.
Losing control of your brand is like having a termite infestation in your house. Once the problem is there, it’s tough to get rid of it. It destroys the structure of something you worked hard to build. The sooner you identify the problem, the better. Conversely, the longer you wait to rectify the situation, the harder it will be to gain back control.
Selling online is essential today. If you avoid marketplaces and other digital channels, you’re essentially throwing away revenue and making it more difficult for your brand to grow. The dominant strategy for any brand is to move early and quickly to list your products on any and all marketplaces where your products might be listed. And if you work with the right partners early, you can build a strategy to control and grow your brand.