Every MLM business knows that selling products through third-parties such as Amazon or eBay should never be allowed… but is this actually the case? What if MLM companies did sell products in big box stores or on Amazon? This blog post considers the legal and practical consequences of when an MLM company does exactly that. It also considers the prevalence of unauthorized reselling and the risk it can pose to your business.
Generally speaking, products sold through multi-level marketing companies are sold through independent direct sellers affiliated with the business. Prohibiting sales on e-commerce platforms or through third-party retailers (such as Walmart) can help an MLM control the flow of goods. This restrictive approach can help push sales to independent distributors.
With the boom of e-commerce platforms and the continuing relevance of large retailers, you may wonder, however, if there are other means of sales that can complement the work of your independent distributors.
Unauthorized reselling
Historically speaking, MLM companies have barred distributors from selling product online or in chain retail stores. Blocking distributors from online sales helps to protect the brand identity, ensure regulatory compliance, and protect the customer experience. Despite these bans, products sold by MLM companies continue to be listed on e-commerce platforms by distributors looking to increase their sales. This activity can put the company at risk. Social media is often used to promote these products and listings. Regulators may use these listings and social media posts to identify violations of various laws, such as the Competition Act in Canada.
Why consider e-commerce platforms?
Platforms like Amazon and Shopify have grown their sales wildly over the last decade. During the twelve-month period that ended August 31, 2021 the number of Canadian sellers on Amazon who surpassed $1 million USD in sales grew by more than 38%[1]. This can be a tempting proposition.
I would suggest that MLMs carefully consider if listing their products on these platforms themselves is a right fit for them. This could increase both sales and brand awareness… while heading off concerns over compliance violations or damage to brand identity. Executed properly, doing so could benefit both your balance sheet and your distributors.
Exclusivity and price
If you decide to sell online rather than solely through your distributors, you may consider only making certain products available via these channels. This can protect distributor exclusivity for other products and push consumers who newly engage with the brand to seek out your affiliates in order to purchase other products. You could consider adding samples of products only sold by independent distributors to products sold online on e-commerce platforms. You may also consider keeping prices higher on e-commerce platforms to help protect your distributors.
Third-party retailers
Many of the same considerations set out above in the context of e-commerce also apply if you choose to negotiate contracts with retailers to sell your products. It will still be in your interest to protect your distributors using exclusivity and price, but retail sales too could offer a complement to the sales force. Products sold in brick-and-mortar retail environments are visible–consumers who may never have engaged with an independent distributor or heard of the brand may see the product on a store shelf and take an interest in your company. Shelf space is advertising, in a sense.
Earmarking profit
Accompanying direct selling as an MLM must be done with an eye to your distributors. You should keep in mind what your independent distributors think here. One way to increase buy-in could be earmarking the profits garnered through these alternatives and explaining clearly to distributors how they money will be invested back into them and the business. There is a case to be made that by increasing brand recognition, exposure, and purchasing options you can push more sales to your distributors – providing them a net benefit. Optically, care must be taken, lest it appear that you are undermining your distributors by selling online or through third-party retailers. By earmarking profits gained through your own sales for reinvestment into the business and your distributors you can address these kinds of concerns.
Affiliate hybrid option
Alternatively, you may consider selling products consumer to consumer using an affiliate link. Distributors could be provided with their own unique link to share with family, friends, and prospective customers. Sales initiated through the use of their unique link would then provide the distributor with a portion of the sale. This way you can manage the content an online storefront while providing distributors a way to capitalize on the growth of online shopping.
Privacy and data
When people purchase product from you, you may wish to collect personal data about the purchaser to feed back into the business. Doing so can help to create repeat customers. If you intend to collect information about purchasers, you must ensure that your privacy policy allows for this data collection and that all statutory requirements–such as the ones laid out in PIPEDA –are followed. Products sold in a retail environment for example could be packaged with a form that provides buyers with the information needed to connect to a local distributor should they wish to purchase more products or other selections not being retailed at a third-party.
Main takeaway
Selling products on e-commerce platforms or in retailers may be a savvy way to increase sales, but proceed with caution. Care is needed to protect the crucial role of your independent distributors when choosing to pursue these sales routes. Siskinds’ MLM team can help you determine how best to best strike that balance.
Should you have any questions, please contact any member of the Siskinds MLM team.