Picture the scene: your favorite brand advertises a drop of limited-edition trainers that will hit their site at midnight. There’s huge hype around the launch and as a loyal customer you are ready and primed to place your order the second the product is released. But, when the moment arrives, the site sells out in seconds. You have been beaten to the buy, and your only option now is to pay a premium to purchase the trainers from a reseller site. You’re disappointed and feel short-changed by the brand.
This scenario has become increasingly common in recent years, as individuals have grown increasingly sophisticated in how they swoop in to purchase popular, trending items from high-profile retailers to sell on at vastly inflated prices. Fashion, technology, events and travel are just some of the sectors that prove highly attractive to resellers.
COVID-19 lockdowns accelerated the trend – particularly in the fashion and technology sectors. With consumers unable to visit physical stores, resellers stepped in to satisfy demand. According to 2021 research from enterprise marketplace SaaS platform, Mirakl, the top 25% of sellers contributed 88% of GMV to enterprise platforms, and resellers also outperformed ‘traditional’ retailers in customer service. Consequently, marketplaces have grown at double the rate of digital commerce over the past year.
At first glance, the rise of resellers doesn’t seem to pose a major threat to retailers. After all, they get to sell the expected volume of their product, and the service third-party sellers are providing to customers seems to be sound. But this revenue and profit-focused perspective is too simplistic and short-term. To understand the true risk posed by resellers, we need to look at the methods employed and the effect these have on merchants’ relationships with customers, and overall brand perception.
Shopping with bots
The key to the most sophisticated operations is the use of bots to monitor and automate purchases from retailer sites; it’s frequently automated systems competing against ‘traditional’ consumers for the most sought-after items. Bot-powered monitoring systems, together with collaboration among resellers in online communities, alert resellers when new releases are imminent. Bots are then tasked to make bulk purchases the instant the product goes live. The bots can circumvent conventional fraud detection systems by allowing their users to input multiple email addresses and shipping addresses – typically by making many minor alterations to the actual address. They are configured to use proxies, so retailers cannot identify that multiple orders are coming from the same IP address. Anti-bot solutions such as CAPTCHA are bypassed.
After that it’s simple. Once the reseller receives the goods, they set their price and promote the availability of the sought-after product, often on marketplace sites.
Some bots are configured to make the activity even lower risk for the reseller and avoid the need to physically handle and store goods. Bots automate the purchase process by providing the buyer with login details for the shopping cart that the bot has secured on behalf of the reseller. Once the reseller has sold the cart, login details are provided, giving the buyer a 10-15 minute window to login to the retailer site and complete the checkout process.
Such is the sophistication of the reseller market that the tools themselves are commoditized. Bots are available to rent and how-to tutorials offer step-by-step guides on making a success of a resale operation. Good news for entrepreneurs, but bad news for retailers.
Retailers risk losing relationships to resellers
When retailers experience bulk product purchase by resellers, there are several negative effects on the customer relationship.
First, the genuinely loyal customer is disappointed when they attempt to buy a product that immediately goes out of stock. The insult is compounded when they see the product offered for sale by third parties at an inflated price. Furthermore, when purchasing from third-party marketplaces instead of directly from the brand, there is a risk that what they purchase will not be genuine, i.e., counterfeit items.
All of the above significantly harms brand reputation and creates the perception that the brand doesn’t care about protecting its customer base, or ensuring the quality of its items.
Next, the customer may decide to purchase the product, nonetheless, accepting that high demand equates to higher prices. However, this means they form a relationship with the reseller, not the brand, which leads to lifetime value creation for the reseller, rather than for the original retailer. This is an enormous lost opportunity.
Retailers are prevented from creating personalized customer experiences and rewarding loyal customers with special offers. Considering the level of marketing and promotional resources committed to devising customer incentives, abuse by resellers is a significant loss to the brand. Ultimately, in today’s retail environment, the way brands measure customer experience and reward genuine loyal customers is a key currency in the battle for relevance and reputation.
Performance issues arising from reseller targeting
Reseller abuse can have an operational impact, too. A site that is being heavily targeted by bots can be significantly slowed down and, in a digital-first world where customer expectations of speed and ease-of-use are sky-high, even a one second delay in a site loading can affect conversion rates. In extreme circumstances, bot activity can have a similar impact to that of a DDoS attack, slowing sites down and even knocking them offline, leading to immediate revenue and reputation loss.
As well as website issues, vigorous reseller activity makes it harder for retailers to accurately gauge demand for products and manage their supply chain accordingly. Excess inventory can result, which can generate waste and unnecessary environmental impact to add to the catalog of problems.
Combating reseller abuse
Effectively, reseller abuse unfairly punishes the customer for their loyalty to a brand. It artificially inflates prices and impacts the entire customer experience by limiting retailers’ ability to reach customers with loyalty rewards. As such, tackling reseller abuse should be a priority for retailers.
However, as we’ve discussed, the sophistication and automation employed by resellers means that basic fraud and abuse detection solutions don’t work. As a result, retailers find themselves having to increase protection, but often these solutions require more verification by the customer. While this may weed out some of the resellers, it also adds friction to the customer experience, meaning customers and retailers are still suffering the effects of serial reseller activity.
What’s required is an intelligent way to identify the fingerprint of reseller transactions, and AI-powered fraud decisioning tools offer the solution. By analyzing user behavior across the customer journey and using machine learning to link this to a global network of data in real time, retailers can discover hidden identity links, such as those slightly modified shipping addresses and multiple email accounts.
Doing this ensures that genuine customers have the best possible experience, and allows retailers to control their brand reputation, pricing policy and stock availability from resellers. By making bulk purchases harder to automate and by blocking serial offenders, retailers can make reselling less profitable and deter actors from targeting their brand. It means retailers can refocus on creating personalized, valued experiences for genuine customers without risking the relationship when they do.