One of the most frustrating things for a brand is to find their product listed on Amazon or eBay by an unknown seller. Sometimes, this is a result of distributors selling to shady third-party resellers. Other times, it could be an authorized brick-and-mortar retailer who is just trying to stay competitive. But more and more often, brands are finding that the rogue seller is not a company with high inventory levels but an elusive individual, unloading a few units with no long-term plans to stay in the listing.
This individual in engaging in retail arbitrage, a practice where someone buys a product at a discounted price and sells it for a profit. To buy low and sell high is the goal. Increasingly popular and profitable, there are many blogs giving instructions and encouragement to those interested in making some money on the side. Those that are dedicated can even turn retail arbitrage into a lucrative, full-time career. We refer to this seller as Joe in his basement, a nickname that sounds friendly but can be very damaging to your brand.
How could retail arbitrage negatively impact your brand? Here are 3 ways:
1. Pricing
2. Damage to authorized sellers
3. Listing content
Joe in his basement wants to make a profit, so he won’t want to price lower than he paid for the product. But if he bought the product at a steep enough discount, he still might be able to sell at a lower price than your authorized sellers. This devalues your product and makes other sellers less competitive. When authorized sellers don’t make sales, they place fewer purchase orders. Finally, Joe might think that he has some better ideas for your listing content and make changes. The changes could be minor or they could be seller-specific, for example a bullet point that reads “Buy from discountstoredave for the lowest prices on the internet” or perhaps they change the listing brand name to reflect their seller name. While these examples are against Amazon policy, they still happen.
But here’s some good news: you can take action to reduce retail arbitrage for your products.
The most important step you can take is to limit your sales to a small handful of trusted retailers. These retailers will agree to your partnerships terms and respect your pricing because it’s in their best interest – we recommend a MAP policy. Once you have limited the number of authorized sellers, you can monitor your listings to see who is selling your products and how much inventory they have by using monitoring software, like Perispect.
Another option is to allow buy backs from retailers who are having difficulty moving your product. This could prevent your products from being sold at clearance level prices. If products aren’t available at low prices, Joe in his basement will be out of luck.