Case Study

Detecting and Managing Diversion in Luxury Goods Markets

A major international distributor of precision watches and other jewelry suspected that the Internet was negatively impacting revenues in the United States. They suspected that legitimate products were being diverted from authorized distributors to online discounters.

A major international distributor of precision watches and other jewelry suspected that the Internet was negatively impacting revenues in the United States. They suspected that legitimate products were being diverted from authorized distributors to online discounters.

The client has an established dealer network with explicit terms and conditions that prohibits diversion. Still, legitimate products were regularly appearing online on different websites that were not part of their network.

The Challenge

A quick assessment confirmed that the problem was significant. The client’s brand appeared on nearly 150,000 sites and products were sold on nearly 150 sites, even though there were only 10 sellers authorized to offer products online. The majority of the sites were not authorized distributors.

Worse still, even legitimate retailers had compliance issues. Improperly advertised goods were bundled with downstream products, further eroding the premium price point and reducing brand value. The authorized distributors were complaining that they were losing sales to e-tailers.

There was a major problem in developing and managing a comprehensive project of this magnitude. The activities must include internal and external stakeholders, such as legal and marketing departments, all within a focused budget. Uniquely situated to analyze this, PeopleForce recognized that the program must begin by identifying the scope of the problem and then providing prioritized management of cases, surveillance that would track the product through the network, and finally a feedback loop to keep the ‘barn door closed’.

PeopleForce’s patented approach to research and analysis enabled us to create a sample of the sites and to confirm quickly that inappropriate discounting represented better than 50% of the products listed. Further research into those sites identified several that had the hallmark signs of fraud.

The Solution

PeopleForce developed and conducted an audit that identified legal names and addresses of the retailers. We identified whether a site was simply an information sharing site, referred customers to retailer, or sold products.

The client is currently working with one of our channel partners to create a marker that will enable the successful tracking of the product throughout the channel. Secret shoppers will purchase product and they will be examined to determine where and when they entered the network.

For companies that were the most illegal distributors, appropriate legal action has been initiated.

The Results

As a result of PeopleForce’s research and consultation, the distributor has initiated one of the first proactive, systematic campaigns in the industry to combat the damages already done, and to protect their business in the future. Anticipating the avoidance of millions in losses, they will continue to avail themselves of the brandWatch benefits.

They are well on their way to managing their problem – where are you?


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