Using Pricing Policies to Solidify Channel Management Both Online and Offline with Gene Zelek of Taft Stettinius and Hollister Law Firm
June 2, 2020
Here’s a glimpse of what you’ll learn:
- What Gene has seen brands do to evolve in how they manage their online channels over the last 20 years
- The challenges in pricing discrepancies across channels that Gene Zekel saw while working at Quaker Oats
- The long-standing tension between retailers and manufactures and how online selling has aggravated that tension
- Gene talks about the process of removing unauthorized third party sellers from Amazon and how brand control on who gets their products can mitigate these scenarios
- How Gene assists brands whose salesforce don’t implement their brand pricing policies
- Addressing pricing transparency and controlling pricing across different online channels
- Best practices for brands in enforcing pricing policies externally among distributors and retailers
- The importance policy enforcement is important and the consequences of not enforcing pricing policies
- Gene’s advice on the best way to get people to make changes
In this episode…
There has been rapid growth in the use of online selling channels by brands over the last 20 years. While their views and management of online channels have evolved, there is still work to be done to ensure brand policies are followed across these channels. And these online channels offer greater transparency in pricing which poses benefits and disadvantages to brands and to an extent, to consumers as well.
In this episode, James Thomson interviews Gene Zelek of Taft Stettinius and Hollister Law firm about using pricing policies that solidifies channel management both online and offline. They talk about how pricing transparency brought about by online marketplaces has impacted brands, the various challenges brands face due to pricing discrepancies, and best practices for enforcing pricing policies. Stay tuned.
Resources Mentioned in this episode
- Buy Box Experts
- Taft Stettinius & Hollister
- Gene Zelek on LinkedIn
- Pricing Policies that Protect Your Brand: How to Prevent Unauthorized Discounting by Ayelet Israeli and Eugene F. Zelek
- Establishing and Maintaining an Effective Resale Price Policy: A Colgate How-To by Eugene F. Zelek and Brian R. Henry
Sponsor for this episode
Buy Box Experts applies decades of e-commerce experience to successfully manage their clients’ marketplace accounts. The Buy Box account managers specialize in combining an understanding of their clients’ business fundamentals and their in-depth expertise in the Amazon Marketplace.
The team works with marketplace technicians using a system of processes, proprietary software, and extensive channel experience to ensure your Amazon presence captures the opportunity in the marketplace–not only producing greater revenue and profits but also reducing or eliminating your business’ workload.
Buy Box prides itself on being one of the few agencies with an SMB (small to medium-sized business) division and an Enterprise division. Buy Box does not commingle clients among divisions as each has unique needs and requirements for proper account management.
Learn more about Buy Box Experts at BuyBoxExperts.com
Welcome to the Buy Box Experts podcast we bring to light the unique opportunities brands face in today’s e commerce world.
James Thomson 0:18
Hi, I’m James Thomson, one of the hosts of the Buy Box Experts podcast. I’m a partner with Buy Box Experts and formerly the business head of the selling on Amazon team at Amazon. I’m also co author of the controlling your brand in the age of Amazon book and the co founder of prosper show one of the largest continuing education conferences for Amazon sellers in North America. Today’s episode is brought to you by Buy Box Experts. Buy Box Experts takes ambitious brands and makes them unbeatable. When you hire Buy Box Experts, you receive the strategy optimization and marketing performance to succeed on Amazon. Buy Box experts combines executive level advisory services with expert performance management and execution of your Amazon channel service. Go to buyboxexperts.com to learn more.
Today we are joined by Gene Zelek, a partner with Taft Stettinius and Hollister law firm. Gene focuses on marketing law, including antitrust pricing and distribution and brand protection. Since 1989, he has helped design, implement and enforce more than 470 successful policies addressing minimum resale price, minimum advertised price and their variants in diverse industries for both consumer and industrial products.
Gene is co-author of the seminal 2003 antitrust article ‘Establishing and Maintaining an Effective Resale Price Policy’ as well as the 2020 Harvard Business Review article, ‘Pricing Policies that Protect Your Brand: How to Prevent Unauthorized Discounting’. So Gene, thank you for joining us today on Buy Box Experts podcast.
Gene Zelek 1:55
No, thank you, James. It’s a pleasure to be with you.
James Thomson 1:58
I’d like to start today’s discussion by Getting your thoughts on what you’ve seen brands do to evolve the way they manage themselves in online channels over the past 20 plus years?
Gene Zelek 2:10
Well, first, I think online selling in general caught a number of people by surprise in terms of its rapid growth and its implications. On the beginning, I think people were feeling their way around. And they thought it was the greatest thing in the world. And they’ve learned that just like anything else, there, there’s some downsides associated with it. I think on the consumer side, that things have moved much more smoothly and are more developed. On the industrial side, there are plenty of b2b sellers who are waking up to find out that they’ve suddenly got a problem. And so we’re seeing a lot of things going on a continual evolution, continuing to learn what the implications are and how to cope with And I try to stay on the curve. You know, I think about it . As you mentioned, I’ve done a lot of pricing policies. And some people ask me, well, what’s the average life of a pricing policy? And we’ve done so many of them that now we’ve got some history, and we’re finding most of our policies get updated, either on roughly a five year cycle, which means they last for five years before they’re updated for developments. And we just did one that was 12 years old. That updated it. And I guess that’s because we try to focus on getting it right right out of the box and providing plenty of language that contemplates flexibility. I’m not so sure that’s answered quite answered your question. But we again, we’ve seen a lot of developments. A lot of people are trying to cope with this. I think the realization that and I’ve heard you say this, Amazon is not necessarily your friend, and you have to understand what you’re getting into. It can be very Helpful can be a very good place to be. But at the end of the day, be careful.
James Thomson 4:06
Let me go back to you coming out of law school you started your professional career as a brand manager Quaker Oats. I’m curious if you got to see firsthand any of the challenges of pricing discrepancies across channels.
Gene Zelek 4:21
Yes and no. First, when I came out of law school, I actually practiced as a marketing lawyer at a big firm, and then moved over to be an in-house lawyer at Quaker Oats. And then from there, I became a brand manager and then went back to the law. But one of the things that we did see and this is in the early days, were quicker historically sold in grocery stores and there was a new channel that cropped up. Mass merchandisers, yes, and mass merchandisers originally sold only what’s known as dry grocery, meaning things like patches of dry dog food or change. dog food or other kinds of products, they were not into refrigeration refrigerated products or frozen products yet. And that was an issue with the outset, which was okay, how do we deal with these folks? And the argument that was made, and we still hear this from time to time from a legal point of view is, it’s a different class of trade. And it turns out that that is not a justification at all for charging different prices. Under the Robinson patman act,
with the standard is who competes against whom the law requires you to treat competing customers alike, unless you have a good reason to differentiate. So we had to dig into it and we had to say, Okay, first you can’t say that if I buy my bag of dog food at Target. I won’t buy it at all. It doesn’t compete with Safeway, but that same sale on that same bag of dog food, so they do compete against each other. And then secondly, though, our differences in doing business, the grocery stores that Then typically advertised once a week on best food day in the newspapers, where the mass merchandisers ran rotos once a week, with a much longer lead time, well, obviously you had to take some of those things into account and deal with them in a different way, and find a good way to justify the differences. There are also different payment terms, all of which could be incorporated and dealt with appropriately. But you couldn’t just blanketly say, oh, different class to trade, therefore, we can treat them differently. Now you have to find some justification for treating them differently, which wasn’t so hard when you dig down.
James Thomson 6:33
When did you first start to see the pain that brands were experiencing when dealing with retailers that were playing pricing games with them?
Gene Zelek 6:44
Well, there’s always been a tension, I think, between retailers and manufacturers, and it seems to ebb and flow depending on economic conditions. It seems like when times get tough, that retailers and manufacturers put their arms around each other and embrace each other And when times are pretty good, particularly some manufacturers are getting aggressive on prices, then there seems to be more of an adversarial relationship. So I think there’s always been some tension in that regard. You know, as I think about it, going from a different area, namely industrial distribution, one of my consulting clients says you have to understand that resellers and manufacturers come from two different places. Manufacturers want to run their factories, 24 seven, turn out lots of products and sell it, where resellers are interested in turn. And it’s a different ball game altogether. And so that
so there’s always been some kind of tension is, at least to a certain extent. I think one of the things that’s really changed is particularly as we’ve gone to online selling, prices are more transparent. And that’s really caused all kinds of issues. It’s very good in some respects, lots of very bad in some respects, but for a long time. I think it may be since the inception of retailers and manufacturers, there’s always been some tension over how the size of the pie and how it’s cut. And I think with transparency and pricing and other kinds of pressures, it’s just become all the more immediate. And it’s harder to play games. I mean, another thing that’s changed a great deal and you know, going back to my quicker days
back in the the last century, but particularly like the 80s, there were no national sellers of grocery products. You have very large regional players like Kroger, but there were no national sellers, which allowed a manufacturer to set up separate trading areas with different pricing for each I’m talking about buy prices on the part of the girls. Yes. And also different promotions. And then of course, what happened was, Walmart target are now no natural sources of grocery products and all that Falling down because they compete against everybody. And of course, Amazon is also a national seller of grocery products and in other online sellers, so that that whole concept is gone and it gets the transparency that has really made all the difference.
James Thomson 9:14
So let’s let’s talk about Amazon for a bit here. Obviously, I have a vested interest in Amazon, we work with brands that are trying to figure out the best way to get their products position on Amazon. When I look at brands, first becoming exposed to the Amazon channel. You know, the first thing I think a brand needs to learn is there’s two types of third party sellers. There are those that are authorized by the brand to sell on the channel. And then there’s everybody else and there’s a whole world of unauthorized seller activity out there. Huge sophisticated authorized sellers, who have figured out how to source products and how to make a living selling these products on Amazon without any oversight from the brand. you specialize in putting pricing policies together for brands, much of the benefit of those pricing policies. We’ll certainly be around policing authorized sellers. Tell me what you think about the process of removing unauthorized sellers from the Amazon channel.
Gene Zelek 10:08
Well, pricing policies can be very powerful. They’re not necessarily the only solution to price erosion, or of course price erosion is what anytime there’s a disparity, usually an acquisition price, you have channel conflict that creates price erosion, and certainly a very potent tool is a pricing cost. It wouldn’t be a minimum resale price or a minimum advertised price. But that’s only half the puzzle. It’s to your point and you’re exactly right. You know, the world’s greatest policy and usually the people who want to follow it are the authorized because they really care about the brand and they have a brand so I thought the unauthorized aren’t supposed to have the product anyways, so threatening to cut them off for policy violations pricing policy violations, is someone were just gonna shrug and say so what I mean I’m not supposed to have it anyways. So the the other
side of things is not only a pricing policy, but it’s controlling distribution. That’s key. absolutely key. And there are a variety of different ways to do that. But the least expensive and probably the most effective. And I’m not saying it’s easy simply to be very careful about who gets your products. Those brands that sell to anybody with a pulse, no wonder they have problems with everybody on authorized sellers and the inability to enforce their pricing policies and other policies for that matter. So carefully controlling who gets products and in the, for those people that have historically sold doorbells, consumer durables, electronics and on the automotive aftermarket and things like that. They have a deeper history of being selective in terms of who gets their products where The consumer packaged goods companies, which are the subject of much price erosion right now online, are a red hot area for development.
They’re used to intensive distribution, they want to sell their products every place, they want to sell everybody, not so much of a problem, or at least somewhat of a lesser problem when it’s just bricks and mortar, but online that creates all kinds of problems. And it is internal, perhaps it’s easier said than done. But the whole idea of controlling as much as possible who gets your products, and what they do with it makes all the difference in the world. And you never need to control 100%. But you really do need both sides, the things you need up, you have price erosion to pricing policy, that’s good, and you’re prepared to enforce it and so on. But also you’ve got to control distribution. And so that’s certainly the case in a
James Thomson 12:49
number of brands that we’ve worked with. The executives will put together some sort of an online policy or pricing policy, and then they won’t pay any attention to the types of incentive. substructure they haven’t placed for the sales team, or any type of meaningful enforcement of the policies that they are asking the sales teams to actually implement for themselves. And as a result, the sales team do what they do best, which is sell as much stuff as possible without any long term concern about the brand. You know, the brand being bastardized by people who shouldn’t have the products. How have you been involved with brands, who put the legal work into place, but don’t necessarily implement internally what needs to be done, the hard choices around telling the director of sales that the game is gonna change?
Gene Zelek 13:39
It’s a really common problem. And oftentimes, we’ll work with the e-commerce folks. Other times we work with those salespeople or the marketing people. But at the end of the day, you need senior management coordination to say that this is the way it’s going to be. Because it’s your point. People do what they’re incentivized to do and if you have a sale force that’s largely incentivized on volume. In terms of compensation, it’s going to do just what you said. It’s going to sell, sell, sell, sell, sell, and that may be absolutely the opposite of trying to carefully protect the brand. So you need somebody instead of just siloing the function and say, Well, this is just a e ecommerce issue. No, it isn’t. If it has implications in other areas within the company, and you really need everybody to climb on board a few years ago, we did a minimum resale price policy for a company that sells sporting goods. And it’s a pretty good sized company, but we dealt directly with the CEO. And there was some pushback from salesforce. The last thing on earth, the Salesforce wanting to do is cut somebody off for policy violations.
And the CEO set up a call and then I was on with the senior sales management and he said, Look, we need to do this price policy for the long term preservation of our brand. And as a result, we’re going to have to enforce it. And that means cutting some people off. But I’m telling you right now, I will adjust your numbers downwards. So none of you gets hurt. If we have to cut somebody off. Suddenly, Salesforce embraced it. So it wasn’t an issue. Now, we don’t see that or at least we’re not directly involved like that very often, but you really do need a kind of a macro view to understand what the implications are. And in a more subtle way, one of the things that we see all the time too, when we create these pricing policies, very common are three strikes and you’re out.
Often, there’s pressure from the Salesforce to make four strikes or five strikes or six strikes, because again, they don’t want to be in a position where they actually cut somebody off in any meaningful way. And you have to fight that because at some point, you don’t have a policy if you give somebody bites at the Apple Store. We’ve had some conversations recently, which I think we were six muscling in in shooting down these concepts. But one was what we’re going to penalize the first mover. So the one who takes the price down first, we’re going to penalize that first mover much more harshly than the ones that are second or third or fourth or fifth. And my response to that was, and again, say Salesforce. Salesforce was, first how are you going to know who moved first? And secondly, you realize that you’re necessarily going to be tolerating a lot of violations. And you really have a policy at the end of the day. I mean, the way we write the policies, it doesn’t matter whether you’re the first mover or the third mover, yes, if you break the policy, it’s a violation. And either you kind of keep your finger in the dike or you don’t. Another thing that we’ve seen is pressure to give retailers so many bites of the apple. So even in our Pre strike or for striking Iran environment, instead of aggregating violations across all the skews that are covered, treat each skew on a standalone basis. So that would mean in order to lose access to a particular skew, you’d have to have three or four violations on that skew. Well, if you have 100 skews, and if you look for two or three strikes, and you’re out, so that would mean if I do my math correctly, more than 200 violations
Unknown Speaker 17:30
cut off. So yes,
Gene Zelek 17:32
yeah, exactly. And at the end of the day, if you have a policy or you don’t say if the fight back in those things, and I’m not by any means I’m not criticizing folks like the Salesforce, again, if you’re incentivized to do certain things, that’s the way you’re going to operate. But these kinds of programs, the pricing policies, and the distribution control is really a high level issue that goes to protecting the brand ultimately, and it’s a long term play, which is also difficult for a lot of companies to swallow. Particularly public companies that are used to short term, relatively short term focus. And that is, you, you do these policies to preserve your brand, so that you spend a lot of time, money and energy differentiating yourself. Building up brand equity and so on. You want to preserve what you want, even enhance it over a period of time. And you also do it to preserve a diversity of channel members. If it’s important for your brand, for example, to be distributed, not only in bricks and mortar, but also online and even online, you don’t want one or two online sellers, you want a dozen or you want 15 or 20, and so on. You want to preserve those people, you’ve got to create an environment that is attractive for them. And some of that may mean in the short run. You’ve got to get rid of some people who shouldn’t be selling your product. You may have to do some other things that are unpopular. You may have some attractive retailers who want to test you to see absolutely yes, yes. And you have to show them that you really mean it and those of our clients we’re serious about this. And by serious I mean they have a real commitment and they’re willing to break a few eggs. It paid incredible dividends, we wouldn’t claim not in the consumer area, but in the b2b area of making automotive aftermarket parts that actually has an audit function. And they will periodically go out and audit distributors and dealers to see if they’re upholding their policy. They don’t do it every day, they do it a couple times a year, they’ll pick somebody at random or maybe they’ll pick a troublemaker. And they’ll hire an accounting firm and go in for half a day and pool invoices at random to see if they’re upholding the policies. And this is apart from the normal online monitoring, right and so on. And while it was very popular at the beginning, now people really understand they have a policy they mean it and they get a lot of applause. And they’re very popular because they stand behind and they take care of the people who uphold the policy.
James Thomson 19:57
You talked about pricing transparency, being at All Time lie all sorry all time high now that we’ve got online channels, at Buy Box Experts we consistently are surprised by how many brands aren’t working to control their pricing across channels, meaning they’re doing promotions in one channel, whereas they’re not doing it another channel. Amazon has the tools to very quickly identify if walmart.com is cheaper if target.com is cheaper. I’m curious about your thoughts, as brands focus their efforts on brick and mortar channels potentially more than online, or they focus more on one particular channel than another. Not understanding how pricing in one place is going to most likely lead to pricing changes to align in other channels. How have you seen brands grow up and learn that, as you say this transparency not only makes everything visible, but you have retailers that are very happy to follow quickly, to match those prices that other other channels have lowered?
Gene Zelek 21:00
Well, you know, there’s a lot of dynamics, a lot of things going on here. And there, there are a number of different ways to address them. I think your point is well taken, though, that nobody is really cool, because things are so transparent. And by the same token, controlling expectations can sometimes be helpful. And what I mean by that is, I think probably all of our clients who’ve had issues with Amazon and just about all of them have is, you know, a common refrain when Amazon is caught violating a pricing policy is, oh, we use an algorithm we monitor prices in the market, we find a low price we lower it. Well, the correct response is sorry, Amazon, we predicted when Amazon says, By the way, don’t enforce the policy against me. You gotta get everybody else’s price up and we’ll get ours up. Well, but the correct response is, hey, Amazon, where’s it written that we enforce our policy last against you? You’re too big or too visible. We take our violators to refine them. We This is a violation there. There’s no opt for price matching. That’s the correct response. And probably the strongest one, the fallback is to engage in a dialogue with Amazon say, look, we know you’re in a competitive world, Amazon, and we enforce our policy uniformly. But you tell us, who are the half dozen or so if there are that many key competitors, and we will work extra hard in terms of enforcing our policy against them. But by the way, Amazon, you don’t need to meet the price of somebody selling onesies. twosies on it. Yes. Yes. They don’t compete against you. Yeah. So you know, you may throw with your algorithm, you may throw a very wide net, but somebody selling onesies twosies on eBay is really no threat. Why are you focusing on that? He’s one of our clients in the pet products area, said we did a map policy for it. First, the client said we had written off the online channel. All this, we thought that it was just unmanageable into our great surprise. So Matt policy has been very, very successful. So the second thing we learned is that we don’t need to control everybody’s price in the market. There are a half dozen players that are significant. And if we get them on board, everybody else pretty much follows. Yeah, there are few outliers here and there. But moreover, those half dozen understand that as long as their major competitors are playing ball, they don’t worry about the outliers.
James Thomson 23:30
So as brands get their pricing policies in place, talk to me about some of the best practices you’ve seen with companies rolling out the enforcement externally, to their distribution and their retailers. Their clever nuances. You’ve seen brands use that that have really helped them, do enforcement and quite frankly, other companies should follow their leads.
Gene Zelek 23:53
Well, all the policies we draft have a lot of flexibility in them and we contemplate them. Not only a company doing some self monitoring, but also using outside services to do that, and then we add another nuance that some people, at least some lawyers believe you can’t do. But as far as we’re concerned, there’s no issue and that is one of our clients calls the snitch network, and that is we write our policies to allow our clients to take complaints from the field. So one retailer can call up and complain about other retailers. So pricing, and the law says, as long as there’s no agreement with the complainer on the actual resale price charged, you’re okay, so we set it up in such a way that we accept the complaint and we say thank you very much. We’ll look into it and if warranted, we’ll take action. And if we do take action, by the way, or don’t we never get back to the complainer because we keep things confidential. But that snitch at work is pretty good at augmenting some of the other monitors’ efforts. It is so that that is an important component and kind of a fill in because think about it. All monitoring is essentially a sampling process. And is like any sampling process, you’re not catching everything, you’re going to miss some things. And so this will augment it up to a certain extent, that hasn’t been said, of course, there’s always the possibility of some false negatives or false positives. people calling up all he’s doing this, he’s doing that. In fact, one of our clients told me that they investigated complaints that they received and found out that one dealer had photoshopped the screenshot of another dealer to make it look like they were in violation. So you get some kind of nonsense but nonetheless, that helps. I think the other thing is, when we draft policies,
ours usually run maybe five and a half, six pages and and we get clients to say, Well, wait a minute. Why can’t we do what GoPro Does the GoPros not a client but GoPro, maybe it’s changed recently but had maybe a page and a half policy? Well, their policy is is very vague. It doesn’t really deal with realistic situations against a very broad, it’s sort of like, we’re going to decide what it means when it’s in front of us. But we like to do is lay out situations that our client feels strongly about either positively or negatively. So for example, one of them would be that you might feel positively about it when you think about, well, it doesn’t matter when somebody resale price policy or math policy. You, you have to say, Okay, what do we compare when we say the minimum price on this as x? What do we compare that against? Well, we compare it against something we call the net adjusted price, which is the price that’s offered by the retailer. net of all discounts, allowances, rebates, you name it, either now or later. So one thing that our clients feel positively about them. Is that free shipping should not constitute a discount. That’s almost universal. Why? Because it’s so common on the internet. So we specifically accept free shipping things that they may feel negatively about our bundling all of our clients except one, they have strong feelings about bundling, it’s a way to cheat. And bundling is, of course, combining more than one product into a package. And it might be a product of the same manufacturer or of different manufacturers, it doesn’t matter offering a bundle price within the individual price. And most of our clients feel pretty strongly about that. And we either take two approaches, we ban all bundles, except for those that come from the manufacturer or are authorized by the manufacturer or we use an arithmetic test that says we’ll take the bundle price, we’ll subtract the minimum price for our product if the remainder is less than the fair market value of the other products that are included easements that are not our manufacturer, and we determine what that fair market value is. But if the remainder is less than the fair market value, then it’s a violation
James Thomson 28:11
doesn’t make it very interesting to do bundles at that point. So yeah, you’ve accomplished that.
Gene Zelek 28:17
No, but if you are you, we always have an out, we can still approve one if we want to. So well, and that goes back to earlier point.
I mentioned we write our policies with flexibility. And we allow for a couple of broad exemptions. One would be of course, across the board relaxation, so sometimes called a map holiday, where a manufacturer may say, during the month of May, that the minimums on these 10 skews are reduced by 10%. But June 1, they go back up and this is across the board. So it’s not super specific. We have some clients who just say they’ll take off their map or their resale price program completely for a certain period and we usually recommend against that for fear of a free fall in prices. So we think it’s better to announce a new minimum during that period. But anyway, there’s across the board, but we also offer one offs. Now one off sort of the idea where let’s say a retailer comes to us and says, you know, we want to do a 50th anniversary sale for the store. And we’d like to include your products where you give us some special dispensation, or we want special Black Friday pricing, or we want to show specials at a particular show. And we allow for all of those, and again, it’s done unilaterally, and there’s no agreement, but it does open the door for price matching. So Amazon or somebody picks up a black friday price that we offer to a particular retailer, and Amazon is doing the same thing. And so you have to be careful, it could be a slippery slope. Or the other way, it’s not so much the selling price matching but to the retailer saying wait a minute, how come this guy can go lower? Point to the language in the policy that says see this, you come to us with a good concept. If we think it has merit, we’ll allow one off for you.
James Thomson 30:09
So let’s say a company does get its pricing discrepancies removed. And they’ve done this through the right implementation enforcement of policies. Talk to me, Jean, about some of the unexpected positive benefits that you’ve seen brands create by putting these types of policies in place.
Gene Zelek 30:27
Well, I think, among other things, if you look at the brand as a platform, we’ve had situations where gonna think of one very clearly, we’re a manufacturer wanting to introduce a new product under a particular brand and hit a certain price point in mind, but because the price for that branded, we’ve been down too low, it needed to be raised. So we did a minimum resale price policy that facilitated getting it back where it is. So that’s another way of more directly answering your question would be if you have a Strong platform was the a good price that helps you with respect to introducing new products under that, where you can maintain the price that you’re looking for if you’ve already established one more or less than the ballpark for that brand. In other words, if you’ve got a prestige brand, and it’s marketed as one and you’re getting a price for it that is consistent with that, you can introduce other products under it and price them as prestige products. So I think that’s that’s one of the upsides of doing this. I think another upside is, remember as part of controlling distribution to knowing who’s selling where, and let me explain that a little bit.
A lot of manufacturers don’t know who’s selling their products. Yes, they know who is selling online or who they sell directly to, but particularly those who buy through distributors, they have absolutely no visibility of them. We think it makes a lot of sense to know selling your products and where. And so in those cases where it makes sense, we’d like authorization programs that you can only get our products if you’re authorized. Yep. And we require our distributors to totally sold authorized customers and not sell anybody who’s on our do not sell list.
And yeah, I mean this percolates into pricing policies themselves. For some years now, we’ve been putting in most of our pricing policies to say that it’s a violation of our policy to sell online, except on those websites that we approve in advance and subject to our continuing approval and other those business things we approved in advance. So in other words, we want to know when we’re selling a particular retailer, is selling on their own website, fine, no problem. They have to come to us and say, well, we want to sell on eBay. We want to sell on Amazon and we might say, we’ve already got 21 sellers on Amazon. We don’t need a 22nd one or Yeah, okay, fine, Amazon But now we know where people are selling. And we know who it really is. And we know the various names that they’re using. There’s a variation on that theme, which we call the negative option, which is rather than get approval up front, and let’s face it, there’s some accounts that would just be grandfathered in. You’re not going to require PetSmart to apply, or anything like that. But anyway, there’s the upfront approval or the other alternative negative option is they can fall in place they want to we told them, they can’t. Now the problem with that is, well, it’s less administratively intense up front. You’re attacking the problem after it occurred. And he so it’s not preventative, and you’ve got to find them. You’ve got to figure out who they are.
James Thomson 33:45
At the end of the day enforcement is going to be part of the game forever going forward for any brand that’s serious about what its brand looks like and how it’s priced. So you know, as I talk to brands today that haven’t really evolved the way they think about online marketplaces, and The impact on the overall brand. It’s amazing to think that they can think they can write a check, get a policy or get somebody to do some cleanup. And then it’s one and done. We’re all done. Go back to doing what I was doing before because you clean up the problem.
Unknown Speaker 34:15
No, you’re exactly right. It doesn’t.
Gene Zelek 34:18
We’re still seeing some of this. But I can think of one example we hit with a client in the audio area. And you’ve hit a map policy This was before we got involved with it and we’re serious about it, but it enforced it about once a quarter. And
so not continuously, but just periodically to put their head off, they find some violations, they will go after them and so on. Well, after a holiday selling season, they got a letter from Qatar center, one of their biggest accounts, and the person has been very aggressive about pricing policies. and Qatar center said hey, you have a map policy, but you Want to get away from you during this holiday selling season? enclosed as our invoice for lost margin? Yes. And it was many hundreds of thousands of dollars. And now our clients credit, it didn’t pay the invoice. But suppose Guitar Center instead would have debited a payment, and then we’d have to chase them to get the money back. But I mean, it gets, it gets pretty bad. We, you know, you get to that level and people get pretty impassioned about it. But you’re right. You can’t just say, Hey, I wrote a policy. In fact, we, we not only write new policies, but we are often asked to revitalize existing ones and use other ones that we didn’t write somebody else did, where the company isn’t themselves. And you’re exactly right. There’s this phenomenon where under pressure, usually from various retail accounts, companies will save money, they’ll go online, find somebody’s policy, they’ll copy it and maybe make some edits or maybe cobble a few together and then it’s free. Use it and they’ll say, see we have a policy or advisable, some goodwill for maybe a month until the retailer’s find out, it’s not being enforced. And, or it doesn’t work because it’s just cobbled together, it doesn’t necessarily suit that particular company and what it’s willing to do. It’s it, it causes more problems than it solves. But there is, I think, an ongoing issue. And that is, particularly with smaller companies. They want to play and needless to say, online gives me the ability probably to get greater distribution than they would otherwise. And that’s, that’s, that’s a great thing, particularly for some very good products. But by the same token, there’s a substantial cost associated with developing a policy, controlling distribution and enforcing it. And for a lot of smaller companies. It’s very difficult for them. And there’s just no easy way to do it. If you’re going to do it right. that haven’t been said. We have plenty of clients that are small and medium sized companies that take it very seriously. And they’ve been very successful. In fact, we’ve got two clients that told us that the policies that we helped them, sign and implement, save the company. And that’s good news. But they really want to do it, and they’re not huge companies, but they need to do it, and it helps them a great deal. You know, I’m reminded of something else that you don’t see this very often. But we did the minimum resale price policy for a company that makes musical instruments and most of its competitors had math policies. Well, this is a minimum resale price policy where we set the actual selling price as well as the advertised price. And this company actually ran ads in a trade journal. I think the trade journals called music merchants or something like that are for dealers of musical instruments. That said MRP does not equal a map and then the copy that was the headline the copy said, you will Unlike our competitors that have math policies, we have a minimum resale price policy, we protect you better, we were more comprehensive in our approach. And they actually use it as a recruitment tool to get better dealers. Interesting to see how, you know, once you get your act together, it’s easier to
James Thomson 38:17
get other companies and other retailers interested in carrying your brand. So that totally makes sense to me, Jean, I want to finish our discussion with a question around. When you look at what you do, once you’ve been doing professionally, you’re very much in the business of helping people to change the way they do what they’re doing. And getting people to make changes is a difficult task in and of itself. I’m interested in advice you’ve received from your professional mentors, specifically around how do you get people to make changes
Gene Zelek 38:51
or it’s tough and either you have the situation that can fall together. too common is people make changes when their backs to the wall and they have No choice. And I think because most people are deadline motivated. And they have many pressures on them to react when they do, it’s just that when they need to react and there are many fewer companies. I think they got out the crystal ball and they said, Well, we need to do this because it’s going to become more important later. So how do you get change to happen? You’ll get it started at the top, there has to be somebody in a fairly senior position who says we need to do this. And somebody who takes the long view is one of the things we found fairly successful is particularly in a company that has divergent interests. So you’ve got marketing that may have different point of view, then sales and finance, senior management than legal. We’ve been successful in getting all those people in a room and doing a half day workshop, yes, that we labeled as best practices. So we’re not there to tell them They have to do things a particular way. We told them what best practices are. And just getting everybody in a room and having them exchange ideas. And sometimes they’re very heated discussions of friendly, but heated,
allows people to talk about, you know, what their perspective is, understand where other people are coming from and so on. And it’s not uncommon at all that rather than you’re not gonna have people coming out of there saying, hallelujah, I’m saved. But more importantly, there’s usually a consensus in terms of direction. And then there’s a smaller working group that takes the next step to try to implement things, or to implement things to put things together and so on and so forth. But that’s a pretty good way to do it. I mean, get people together. So they discuss what’s needed. One of my consulting clients in the industrial area, talks about a situation where they were very upset because the distributors were not doing all the things that the manufacturer wanted them to do. And so this consultant got everybody from the manufacturer in a room who had anything to do with these distributors. So it was the warranty claims people, the marketing people, the salespeople, the finance people, the training people because the capital, and a bunch of other things. And they went around the room and several times they said, Okay, well, what do you expect the distributor to do? And training people said, we will train their people treating their customers and so on and so forth. So they made a list. And they kept going around the room when they pulled together something like 150 different things that they expected them to do. So the consultant looked at him and said, How many of you in this room would do this for 12 points, so their margin was only about 12%. I’m gonna do it and they all looked at me and said, Can I do it? You know, that was the reason that they were disappointed with the distributor there. were simply asking too much and paint too little. So it’s the same kind of thing, I think to get those ideas out front and then The other thing again, some of it may require a holistic position, we have to say, Well, you know, why did the Salesforce Why are they so resistant to this? Well, they’re resistant to it because a big chunk of their compensation is volume. And this threatens the volume, what we need to do about that. We’re not suggesting changing the compensation system completely, maybe volume is still important, but add some other benefits that get them to get on board and do this. I think one other thing and maybe this is a good way to close again, near closing, is sometimes companies expect the sales force not only to sell but to be their police officers. The wrong role if the wrong wrong role. And so in all the policies we do we divorce the Salesforce from any involvement with them. I mean, to the point that and we had the salesforce of one particular client actually applaud this. So we said we gave them all what the client calls Miranda cards. Excuse me, where the Salesforce is told look, anybody asks you or complaints about the policy. You tell them I’m sorry, I can’t talk about it. You’ve got any questions, comments or concerns, call the policy administrator. So completely turn on the Salesforce hand, they could commiserate with the account and say, Oh, yeah, I hear you. That was love.
Unknown Speaker 43:12
I love it. Great, great idea.
Gene Zelek 43:15
But they’re not police officers. You don’t want them going in there and saying, Okay, you’ve got to follow this now or whatever. No, no, no, no, no, you completely divorce it. It also allows the Salesforce to play good cop and bad cop
James Thomson 43:24
teen, I want to thank you for joining us today. For those of you interested in learning more about jeans organization, please visit Taftlaw.com.
Gene Zelek 43:32
Thank you very much, James. It’s a real pleasure. And you know, maybe you and I together will continue to fight the good fight.
James Thomson 43:39
Thanks for listening to the Buy Box Experts podcast. Be sure to click subscribe, check us out on the web, and we’ll see you next time.