Preventing Goods from Being Diverted
Product diversion is the process of products getting sold through channels outside the intended platform, or in other words, goods that are diverted from their intended sale channel. It is a common issue for a lot of companies, and can come from a variety of sources. It could be as a result of underhanded dealing, but in general, it is often the result of poorly-structured sales channels which have created the opportunity for diversion to occur.
Product diversion can have a damaging effect on a business, and understanding the dynamics of it is essential for avoiding it. It’s important to build an effective strategy for preventing goods from being diverted, and it all starts with understanding the motivations and incentives that are driving the diversion.
There are three main drivers behind product diversion, and all companies should understand what these motivators are and how to combat them. First, there is retail arbitrage, which is when a third-party reseller or middleman purchases a product from a company’s retail channel at a discounted price and then resales it at a higher price to maximize their profit margin. This can be combatted by pricing products intentionally so that it makes it difficult for retailers to mark up prices before reselling them.
Second, there is geographic arbitrage, which is when retailers or customers purchase goods from a different country so that they can take advantage of lower pricing or more relaxed regulations. This can be combatted by distributing goods more evenly throughout the world so that customers in all regions have access to the same products and prices.
Third, there is channel arbitrage, which is when a company sells their goods through an unauthorized and unregulated sales channel, such as a wholesaler, eBay, or Amazon. This can be combatted by setting up a proper and comprehensive distribution system so that all goods are sold through approved channels.
Having awareness of the drivers behind product diversion is essential for avoiding it. However, it’s not the only strategy needed. Companies need to create a comprehensive system for preventing goods from being diverted. This starts with strict policies in place to prevent unauthorized sales channels from occurring. Companies should also have stringent monitoring systems in place to ensure that only authorized sales channels are being utilized.
In addition, companies should create a customer segmentation strategy to identify and monitor customer behavior to help identify any suspicious activity. Companies should also make sure that they keep track of their pricing both internally and externally so that customers do not have an incentive to purchase goods from a different channel. Companies should also use analytics systems at the point of sale to gain visibility into customer purchase patterns which can help detect any unusual patterns or spikes in sales.
Finally, companies should enact measures to stop the products that have been diverted from reaching the customer. This could include robust traceability protocols and return policies or providing customers with incentives to remain loyal to their brand rather than switch to an unapproved channel.
Taking all these measures will help to prevent goods from being diverted and help make sure that value is properly captured by the business. Having an effective strategy in place to prevent goods from being diverted is essential for any company. Taking the necessary precautions and having the right visibility into customer purchase patterns will help ensure that the company is able to capture the value from the sales and ensure that goods are not being diverted.
