Keep brands close online and in control

Manufacturing News, Source : The Manufacturer US
Published : 18 Jan 2007 18:01

A guest editorial in response to our January cover feature, from Adam Southam, Chairman and CEO of Reshare Corp.

Counterfeiting and product diversion are the bane of every legitimate manufacturer and are on a rampant increase with the advent of the Internet.

Brand value is under attack by e-tailers who sell diverted or counterfeit products, whether knowingly or not. Piracy of intellectual property is at an all-time high. In an effort to reduce costs, manufacturers are sourcing goods in countries that do not honor or enforce U.S. intellectual property rights. Those goods are often then counterfeited or diverted. Manufacturers across virtually every industry are affected.

Counterfeiting refers to the illegitimate manufacturing of products for which the manufacturer does not hold intellectual property rights to manufacture. This includes extending production runs beyond purchased quantities by contract manufacturers working for brands and by branding inauthentic product with legitimate brands.

Product diversion refers to legitimate merchandise that is distributed into markets other than originally intended in violation of a contract, law or regulation. Supply chain partners and distributors exclusive territorial rights are diluted and opportunity costs increase; brand value and cache are eroded and profitability of all channel partners is endangered. With product diversion, third parties can undercut MSRP or MAP pricing and reap huge profits. Product diversion (also sometimes referred to as "gray market goods" or "parallel distribution") severely disrupts the channels of distribution established and supported by manufacturers and authorized distributors.

The solution to these problems lies in manufacturers taking control of their own destiny by controlling distribution and selling online at the brand website.

Counterfeit products sold through unauthorized distribution channel and retail outlets are devastating to manufacturers’ revenues and reputation. By offering product at the brand website, customers are assured product quality, performance, reliability, authenticity, service, support and warranty.

Ironically, product diversion usually begins in response to customer demand. Diverters look for the opportunity to serve the market in a way that is currently not being served. This initially begins by offering product through underutilized channels, however, as diversion increases, price competition does also, resulting in lower market prices. Diverters then seek even lower cost of goods through salvage, liquidations and counterfeit product.

When distributors and retailers offer branded products for sale on their websites, the branded experience becomes theirs. They do not have the same interest in the brand as the manufacturer does and are rarely able to represent the brand as well as the manufacturer can. Distributors and retailers can use brands to elevate the appearance of their websites, or represent a product in a manner that is inconsistent with the brand, both of which degrade the brand and affect its value.

To thwart counterfeiting and combat diversion, manufacturers have to sell online at the brand website. There are a multitude of channel management solutions available today that enable manufacturers to sell online without circumventing their distributors, retailers and other channel partners, while maintaining control of distribution and brand value.

Adam G. Southam is Chairman/CEO of Reshare Corporation, a Minneapolis-based technology company founded in 1999, which offers patented channel management solutions.

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