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How Suppliers Are Filtering Wholesale Buyers To Control Online Sales
In a recent eBay Online Business Index survey, many online retailers reported experiencing a growing variety of problems in their relationships with suppliers, often aimed at reducing online sales.
Prohibition on discounts
Forty-five percent of respondents said that suppliers tell them what to charge and prohibit discounting beyond a minimum set by the supplier. Many suppliers are engaging in this behavior to protect their bricks and mortar customers from being undercut by online retailers. Retailers who maintain a physical presence and stocked shelves have much higher costs than online stores and need the extra margin to cover those costs. But online retailers argue that eliminating the ability to compete on price takes away a fundamental value associated with online sales.
This conflict has not remained between retailer and wholesaler either. The U.S. Supreme Court rendered a decision in 2007 in the Leegin Creative Leather Products Inc. vs. PSKS Inc. case that gave greater legal protection to minimum pricing policies. But, the Court stated that the issue should be decided on a case by case basis. At the same time, a number of U.S. states have threatened to pursue suppliers and online retailers who engage what they refer to as price fixing and collusion. Similar cases are sprouting in Europe.
Complicated Display Criteria and Other Red tape
Thirty-two percent of respondents said they are frequently faced with such complicated display criteria that it is hard to comply. The report cited examples such as dictated the number of pixels for photos of products. Forty-two percent said that there were many logistical roadblocks to selling products from some manufacturers such as requiring dedicated websites.
Supply Problems
Thirty-nine percent of respondents said that they had experienced supply problems that they strongly felt were connected to their status as online sellers. It has been particularly suspicious when a bricks and mortar seller opens an online channel for product sales and suddenly finds that the product is no longer available to him.
Shipping Restrictions
Twenty-four percent of retailers have been prohibited from selling goods to overseas customers by suppliers.
These and other restrictions really do place severe hardships on online retailers because so much of their product supply comes from wholesalers (fifty-four percent) and direct from manufacturers (forty percent).
Solutions
Although strong solutions to this problem are few and far between, there are some steps an online retailer can take to protect his business.
Search out suppliers whose first priority sales are to the online community.
Many new suppliers have emerged as the economy has gone global. These suppliers may not necessarily have the same connections to the bricks and mortar retailers. It makes sense to develop relationships with suppliers who value your business and either make a switch or split ordering so you have a backup in case of problems. (It makes sense in any case to have at least two suppliers for major products.)
Deliver customer discounts in other ways
If you cannot directly discount the price of a product, you can try a buy two, get one free promotion or free shipping, paid for by those higher prices you are forced to accept.
This dilemma does not have an easy solution anywhere in sight, especially now that the courts are becoming involved.
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