Product Diversion — What It Is and How It Works
The product diversion business characterises itself in two forms:
1. Online retailers that specialize in obtaining products — sometimes in large volumes — and re-selling them online at lower costs. These unauthorized sales are commonly taking place on eBay, Amazon and among other third-party websites.
2. Reselling products offline by salesmen who look to undercut the official sales channels. This can often be as simple as cold calling known buyers of a manufacturer’s items.
According to a Deloitte study cited nearly 10 years ago in a 2009 Bloomberg article, this practice of unauthorized sales — not limited, of course, to internet sales — “siphons as much as $63 billion of U.S. industry sales.”
Product diversion as an opportunity arises from the variances in pricing structures, which brings about a situation whereby a product maybe sold at differing prices in different markets and circumstances. Companies looking to scale their global business has led to an increased risk and allowed more opportunities for product diversion to happen.
An example of how this works is as follows:
Step 1: US company “Whizzy Gadget” is planning to move into the European market and forecasts sales of 100,000 gadgets. To successfully enter the market a low price point is required.
Step 2: At a trade show, Whizzy Gadget meets with a local distributor, “Eurosales” who believes they can sell more, and purchases 150,000 gadgets.
Step 3: Eurosales takes delivery of the units but secretly diverts 50,000 units back to the United States where they can undercut Whizzy Gadget’s price and make a substantial profit.
It is imperative that companies stay proactive when it comes to the unauthorized sale of products online and offline. It is equally important to develop measures to distinguish the business’s genuine products from those being sold elsewhere and to attempt to prevent future product diversion.
Strategic Tracking provides consultancy, technology and tactics to identify and investigate product diversion. We have developed a 4 phase approach that familiarises us with a client’s business, products and networks so we can produce a long term plan to reduce product diversion.
