August 5, 2014, 2:48 PM

How a manufacturer gets a better grasp on retail pricing

With a mix of policies and technology, Leatherman Tool Corp. has greatly increased the percentage of authorized resellers who cooperate with its branding and pricing strategies.

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Founded 31 years ago by Tim Leatherman, Leatherman Tool Corp. manufactures multipurpose tools that include the functions of pliers, screw drivers, knives and other devices, and are often sold by retailers of camping and hiking gear.

The privately held company has spent decades building up its brand of multipurpose pocket tools and establishing strong selling relationships with well-known retailers like L.L. Bean Inc. and Dick’s Sporting Goods. But a few years ago it got a wake-up call: “We realized we didn’t have control over how our brand was being positioned,” says Kevin Gleason, head of online management of channel initiatives. “The clearest signal of that was on the pricing of products—they had eroded from online marketplace sellers.”

Leatherman’s multi-purpose tools range in retail price from about $20 to more than $200, but Gleason says the company in recent years has seen its products listed at sharply reduced prices from online sellers the company did not know. In some cases products turn out to be counterfeit copies, he says.

“Our brand is strong and our products are widely used and sold across diverse market channels, including sporting goods, military and law enforcement, and consumer goods,” he says, “but they’re also small and easy to ship—a perfect storm for a lot of marketplace sellers to get in a race to the bottom of pricing.”

And while such individual sellers may operate only temporarily, they can have a lasting effect on established merchants that have long invested in supporting the Leatherman brand. “The corresponding brand erosion can pretty soon cause our best channel partners to lose demand to these unintended distributors,” Gleason says.

Leatherman, which makes all of its products at its own factory in Portland, OR, has devised a legal and technology-backed strategy designed to flush out unauthorized sellers as well as wayward authorized sellers. It  then takes steps to bring them into line, or cuts them off.

Leatherman operates with a retail pricing policy it devised with attorney Gene Zelek at Chicago law firm Freeborn & Peters LLP, which sets for all authorized sellers a unilateral guideline of maintaining minimum prices both in advertisements of its products and in the final retail selling price paid by customers—“both inside and outside of the online shopping cart,” Gleason says. Some brands that have pricing policies allow e-retailers to show a lower price in the shopping cart, much as they might allow a bricks-and-mortar retailer show a lower price in a store than in an ad.

To find unauthorized sellers, Leatherman works with Channel IQ, a company that uses software to crawl the web and learn where a client’s products are being advertised and sold, and at what prices.

Leatherman then takes a series of steps to enforce compliance with its policies. It’s a graduated approach, with each step imposing tougher sanctions if a seller fails to comply. The company may initially reduce the cooperative advertising funds it provides a retailer, then block the retailer from selling its most popular products, and finally completely cut off the seller’s supply of goods. “It’s three strikes and you’re out,” Gleason says.

The payoff can be significant, making the costs of his strategy well worthwhile, he says.

Using Channel IQ, for example, can cost an annual fee from under $10,000 to “up to six figures,” or about $100,000 based on the scope of the gathered web data, according to Channel IQ CEO Wes Shepherd. In addition, says Gleason, there’s the inevitable cost of losing sales from some sellers if a manufacturer trims it ranks of distributors and retailers. “But it is well worth the investment over the long term” for a strong brand like Leatherman, he adds.

“We get incremental revenue from those partners who support our brand the best,” Gleason says. He adds that in the several months that Leatherman has been using Channel IQ since early this year, it has reached a point where about 95% of its distributors and retailers are authorized and cooperate with its branding and pricing policies. He declines to give a prior percentage, noting that before this year it was too difficult to identify the universe of sellers and know how many were in compliance.

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