Internet Lawyer Blog
Product diversion is when an unauthorized seller sells a product outside of authorized distribution channels. The product goes through various unauthorized channels in order to reach the shelves or listings on a website. This is a common practice with high end and expensive beauty products.
The way these unauthorized retailers and e-commerce sites obtain these products often involves reaching out to an authorized seller of the product. For example, many manufacturers have a contract with various salons to exclusively sell their products. These salons, in turn, sell the products per their contract. However, there are salons that work in the gray market. The ones that are in the gray market enter into deals with a third party that offers to buy the items in bulk. The third party then sells the item to an unauthorized seller. The unauthorized seller then sells the items on websites such as eBay and Amazon.
The danger of diverted products going through these unauthorized channels are high for both the consumer and business. For example, products can be tampered with during the process. Products can change bottles, be diluted, and more. It could cause health problems for those who are sensitive towards certain ingredients. It can also be dangerous to businesses because it will hurt their profits. The businesses will lose their cut of product sales from the authorized seller and can receive negative reviews from the public. For example, if a consumer, who has used Brand X body wash for years, buys the Brand X body wash from an unauthorized reseller because it was cheaper on Amazon than in store and has a severe allergic reaction to it, then he/she may be tempted to post a negative review. The problem is that the blame is not on Brand X, but on whoever tampered with the product before it was sent to the consumer. Although, the blame is on someone else, Brand X will receive the negative review that will discourage other consumers from purchasing its product.
There are various ways a business can protect itself from product diversion. The first way is to place a tracking system on the packaging itself. By placing an obvious or discreet tracking sticker on the packaging will allow the business to track what channels it went through and where it ends up. This sort of tracking can occur with just a simple connection to the Internet. A tracking sticker can also authenticate the product if the business conducts an investigation. Another way is to inform your consumers of the authorized resellers and to be aware of diverted products from unauthorized resellers. The business can do this by putting a list on its official website listing authorized sellers. Lastly, the business should consult with an attorney to implement anti-diversion policies. The attorney can conduct an investigation and advise the business on what legal claims can be made against an unauthorized seller. The business can also have a claim against an authorized reseller who sold its product within the gray market.
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