Forum Moderators: buckworks
Company A in the United States is granted exclusive distribution rights in the United States by Supplier A in the UK. Supplier A in the UK also sells wholesale to many other companies including Company B who is also in the UK.
Well, Company C in the United States decides to set up a website and approaches company B about purchasing products. Company C buys the products from Company B at a low enough price to retail the products at a lower price than company A.
Company A, who is supposed to have exclusive distribution rights, is now not very happy with Companies B and C. So company A is faced with either suing company C as well as trying to figure out the identity of company B. Also, sometimes company A can inform Company C of the situation and convince them to start buying from Company A instead of Company C. Or, if Company A can learn the identity of Company B, it can contact Supplier A and request they do something.
In this example, I am company A. I've already confronted this situation successfully on multiple occasions, but I'm curious to see what others have done. Maybe others have found themselves in the position of Company B or C. It seems like Company C's keep cropping up, so I'm always looking for better solutions.
My experience over the years is that one thing counts: sales volume. Manufacturers will make a lot of noise about shutting down gray marketers, but in most cases it's a smokescreen for "business as usual". Unless you are a large part of the manufacturer's sales, you have very little leverage. You'll get sympathy and promises, but rarely any action. Often, it's the small dealer who's complaining about the practices of someone who's doing ten or twenty times his volume - who's the supplier going to value more as a customer?
Beyond straight volume concerns, big distributors or mail order outlets are often important safety valves for suppliers. If the manufacturer is approaching the end of the quarter with too much inventory and too few sales, he knows he can make one phone call and move a big chunk of product by offering special pricing or incentives. (Of course, there will be screams from dealers later when the cheaply priced merchandise hits the street, but hey, that's NEXT quarter...:))
Having painted that grim picture, not all hope is lost. If you really have clout with the manufacturer, lean on them - if not to cut off the offending firm, then try to get pricing or financing concessions, or special coop ad money. Hammer away at the fact that your exclusive deal is meaningless when this cross-selling is allowed. If you are persistent, they should at least throw you a bone... Good luck.
That brings me to another point: Price Structure
If you are selling a product with an established wholesale price and an established retail price, it is much easier to feel confident your margins will stay profitable. When there are no controls in place, the various resellers of the product are more likely to have price wars. The end result: the product has a lower value and both the supplier and the reseller lose.
So a little advice:
If you are planning to build a website to sell products as a reseller, make sure you understand the price structure, and also see if you can find other websites selling the same product to see if the pricing is consistent.
Would you be able to profit if you sold the product for the lowest price offered by other websites? What is your supplier doing to maintain the "suggested retail price""
"Suggested Retail Price" can have more than one meaning. Be careful.
you and company B have perfectly valid "exclusive" deals with Supplier A, and company B is perfectly at liberty to supply anyone they choose. if supplier A were to impose trade restrictions on company B (ie, do not supply outside your region), supplier A could be held in breach of free trade / competition laws. there are severe penalties for imposing such restrictions.
i think you need to negotiate bigger orders and better prices from supplier A - you can lean on them slightly with the "if i'm being undercut, i'll be better off switching to another product from supplier B".
you are also free to play company B at their own game - supply other companies in the UK and Europe. set up company D as a US based company. buy from supplier A, sell direct (bulk) to company D, then company D can supply other UK / European retailers, undercutting company B. the shipment you order never needs to leave the UK.
>>Would you be able to profit if you sold the product for
>>the lowest price offered by other websites?
yes and no. one of my clients is a sole distributor to the UK and Europe for a number of products. most retail websites around the world sell the main product for about £24 (about $35). my client (despite a lot of advice from a lot of people) sells direct to the public at £16 - he is the cheapest retailer in the world. despite being top ranked for the main product, he sells less than more expensive retailers.
i've spoken to some of his wholesale customers in the UK (they also his competitors) and some of his competitors abroad. he has a poor reputation he is seen as being "out to screw everyone" - he's not, he's just stupid. customers think the items he sells are "inferior" in some way (smaller, lower quality etc) because he sells them so much cheaper than anywhere else. it appears that his low prices are losing him sales rather than making him more sales.
wholesalers can buy in bulk from him for £10 and they would be looking to sell to retailers for about £15. of course, that wouldn't leave retailers very much margin, so he makes hardly any wholesale supplies.
the few retailers and wholesalers he has sold to complain that their customers have later found they could have bought direct a lot cheaper and they return the products. therefore, wholesalers and retailers simply don't buy from him. some actually import goods from the US at higher cost because they object to his trading terms - they just won't deal with him. the imported goods have different packaging so the customers think it's a different product.
what he should really be doing is running two separate companies, one for wholesale and one for retail. he should also be retailing at around the same price as other companies.
i have another client with bucketloads of money and we're thinking of going direct to the manufacturers to take over the exclusive distribution contract. we're confident they'll supply us and that we can get the goods on the shelves up and down the UK and Europe ....
