Preventing Product Diversion

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Product diversion is a major issue that can catch companies off guard when it comes to their supply chain. It occurs when an unauthorized party sells a product outside of authorized distribution channels, leading to a significant loss of profits for the manufacturer.

One of the ways that these unauthorized retailers and e-commerce sites obtain the products is by reaching out to an authorized seller of the product. For example, many manufacturers have a signed contract with various salons or shops to exclusively sell their products. These salons, in turn, sell the products according to their contract. However, there are salons that don’t respect the deal, and instead work within the “black market.” These salons or shops 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, who then sells the items on websites such as eBay and Amazon.

Apart from the profit loss, the danger of diverted products going through these unauthorized channels is high for both the consumer and manufacturer. For example, products can be tampered with during the process and the quality level on those diverted products can change. This could cause serious health problems or high damage accidents in consumer hands. In addition, the manufacturer can receive negative reviews from the public. For example, if a consumer, who has used Brand X cosmetic product for years bought from store at $10 per unit, and then suddenly found the same Brand X cosmetic product sold at $8 per unit on Amazon, cheaper than in store, and has a severe allergic reaction to it, 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 the product. Because of product diversion. The impact on the brand can be significant in many respects as it relates to product diversion.

How to prevent product diversion ?

Implementing measures to combat and prevent product diversion is essential for businesses to safeguard their financial success and credibility. To effectively address the issue of product diversion, companies should adopt a strict zero-tolerance policy within the organization and among authorized vendors. This policy should be reinforced by imposing financial penalties to deter authorized distributors from engaging in such practices.

Preventing unauthorized distribution of products, known as product diversion, is essential for any business looking to safeguard their financial success and maintain a strong reputation. One effective method of combating this problem is by enforcing a strict policy of zero tolerance within the organization and among authorized sellers. This approach should be reinforced by imposing actual financial penalties to deter any deviation from this policy.

To begin, it is important to identify the potential risk of product diversion within the business distribution channel and provide internal education to personnel on the impact that product diversion can have on the organization’s profits.

One effective method for tracking products and preventing diversion is through the use of a discreet tracking system on packaging. This can include a tracking sticker that can be easily connected to the internet, allowing the organization to track the product’s journey and determine if any unauthorized parties have obtained it. Additionally, this type of tracking system can also assist in authenticating the product if an investigation is necessary.

Another approach is to inform consumers of authorized resellers and educate them on how to identify diverted products from unauthorized parties. This can be done by posting a list of authorized sellers on the official website.

Regular on-site surveillance is also recommended at the manufacturer in order to evaluate the prevention systems in place and assess the actions of both authorized and unauthorized sellers. This can include focusing on the implementation of anti-diversion policies, selection of sellers and distributors, and agreements to prevent diversion.

Pro QC International offers on-site product diversion evaluations that can be tailored to meet specific objectives. For more information on how to prevent product diversion, contact Pro QC International.

Written by: Jean Champlain, Supplier Development Manager

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