Shadow Hierarchy – The Infrastructure Behind Successful Grey Market Sales

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The biggest problem facing Amazon brands and even Amazon enforcement companies is that they do not know the true hierarchy of unauthorized sellers. They underestimate the intelligence of those that run these shadow operations.

Most companies believe that unauthorized sellers work like this:

  • Seller purchases product through an authorized or unauthorized channel (brand, distributor, retailer, friend or family).
  • Seller ignores distribution agreement or MAP pricing agreement by selling the product on Amazon.
  • Seller masks identity behind multiple names and keeps opening new accounts after receiving Cease & Desist letters.
  • Once seller is identified and threated with legal action, unauthorized sales stop.

Now, for many sellers this is true and this is the extent of their enterprise. But what about the people making 6 or 7 figures a month through unauthorized sales channels? Are these sellers really becoming millionaires with such a basic and obvious business model?

The big boys and girls work like this:

  • Wealthy financier starts an ecommerce business and hires multiple employees that he/she can trust.
  • These employees hire dozens of warehouse/logistics employees that are unaware of what’s really going on.
  • The guys at the top of the business find multiple middlemen that specialize in recruiting ringers to purchase product from brands, distributors, or retailers.
  • The ringer purchases the product at distributor pricing, using the middleman’s finances, in their own name. The product is received at the ringer’s home or place of business and then delivered to the middleman unbeknownst to the brand or distributor. The ringer is then rewarded with a payment for facilitating the transaction.
  • The middleman now takes the product and sells it at wholesale price to the established ecommerce business. The business begins selling the product behind dozens of established Amazon accounts they possess. If one is suspended, they have dozens more to switch to.
  • Now, when the brands or enforcement companies buy the product from one of these Amazon accounts, it points them to the ringer via the serial number. The Amazon account receives C&D notices but ignores them since they can afford Amazon lawyers to combat account suspension (often using the same lawyers that claim to remove unauthorized sellers).
  • The brands and their lawyers begin sending legal threats to the ringer who can’t stop selling the product since it is not in his possession, nor is the Amazon account it is sold from.
  • Since many of these ringers are low-income, they are technically judgement proof if they are sued, and the only legally viable option is Breach of Contract, which is civil, not criminal, and can be wiped easily with a bankruptcy. Regardless, most of these cases are lost since they cannot prove the ringer is the owner of the Amazon account (since they are not), and the ringer can just claim the Amazon account is a random reseller who received his product through one of many means. And to top it all off, there are state jurisdiction questions that can get the case dismissed immediately.
  • Worst of all, the brands, their lawyers, and the enforcement companies think they nailed the problem and, as soon as the ringer’s supply runs dry, they can move on to the next violator, not realizing the true hierarchy. They are unknowingly chasing the same seller, thinking there are multiple sellers.
  • Now that the original ringer has been caught, the middlemen recruit new ringers who begin purchasing from the same brand, and the process repeats itself. If the original ringer is smart, they will start recruiting their own ringers and now we have a new middleman to add to the mix and one more layer to the pyramid to cloud the money trail. Quite a game of whack-a-mole, huh? And for the Amazon brand, a very expensive game.

Now I want you to take a step back and absorb everything I just wrote. Companies are paying thousands and thousands of dollars to supposed “experts” with law degrees and MBAs who talk a big game but have no actual idea how these unauthorized sellers and MAP violators really work. These are complex and intelligent grey-area enterprises tricking multi-million dollar businesses into following red herrings, all the while continually milking money from them while staying invisible and making these companies think they are doing a good job removing violators. There’s not enough venture capital funding and software development in the world to track these grey market sellers down if you don’t know what’s really going on. Smart criminals require smart law enforcement.

Brand Alignment is aware of these unethical practices and we start off all our investigations by drawing out the potential hierarchy of identified violators. We focus on targeting the head, instead of the arms and legs, bleeding their supply dry. Now, not all violators have this type of complexity, but it is often the largest violators who take the most money from brands that have these types of enterprises. The Pareto Principle is always in effect: 80% of unauthorized sellers will have simple enterprises, but the 20% that have complex enterprises will take 80% of sales and merchandise.

Please contact Brand Alignment for a free consultation about your online marketplace presence.