Product diversion is a term used to describe the unauthorized distribution of products intended for one market or channel to another. This can happen when products are sold to unauthorized distributors, who then sell them in unauthorized markets or channels. It can also occur when retailers purchase products intended for one market and sell them in another market to make a profit. Product diversion is a serious issue that can harm manufacturers, distributors, and consumers. In this article, we will discuss what product diversion is and how to prevent it.
What is product diversion?
Product diversion is a type of fraud that occurs when products are diverted from their intended market or channel. For example, a product may be intended for sale in the United States, but it is diverted to a market in Europe. This can happen for several reasons, such as:
- Profit: Unauthorized distributors may purchase products at a lower price from manufacturers or authorized distributors and then sell them in unauthorized markets or channels to make a profit.
- Demand: Retailers may purchase products intended for one market and sell them in another market where there is higher demand for the product.
- Availability: Authorized distributors may sell products to unauthorized distributors if they cannot find buyers in their intended market.
Product diversion can harm manufacturers, distributors, and consumers. Manufacturers may lose control over their products, and their reputation may be damaged if products are sold in unauthorized markets or channels. Distributors may lose revenue if products are sold to unauthorized distributors instead of their intended market. Consumers may receive products that are not intended for their market, which can be unsafe or ineffective.
How to prevent product diversion
Preventing product diversion requires a multi-pronged approach that involves manufacturers, distributors, and retailers. Here are some ways to prevent product diversion:
- Conduct due diligence
Manufacturers should conduct due diligence on their distributors to ensure they are authorized to sell their products. This includes checking their business licenses, financial stability, and reputation in the industry. Manufacturers should also require distributors to sign contracts that prohibit them from selling products in unauthorized markets or channels.
- Implement tracking systems
Manufacturers should implement tracking systems that enable them to track their products from the point of manufacture to the point of sale. This can help identify when and where products are being diverted. Manufacturers can also use unique identifiers, such as serial numbers or barcodes, to track their products.
- Monitor distribution channels
Manufacturers should monitor their distribution channels to ensure their products are not being sold in unauthorized markets or channels. This can involve conducting audits or mystery shopping to identify unauthorized distributors or retailers.
- Enforce contracts
Manufacturers should enforce their contracts with distributors to ensure they are not selling products in unauthorized markets or channels. This can involve legal action or termination of contracts.
- Educate retailers
Manufacturers should educate retailers on the importance of selling products in their intended market or channel. Retailers should understand the risks of product diversion and the potential harm it can cause to consumers.