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The Secret World of Social Commerce: Facebook Co-ops

When a handbag manufacturer started hearing from her retail customers that her products were being offered at or near wholesale prices on Facebook, she was taken aback.

The retailers weren’t too happy, either, seeing the merchandise readily available on the Web at prices well below what they had been charging for the same products.

The manufacturer, who spoke to EcommerceBytes on condition of anonymity, began poking around Facebook and quickly discovered that invitation-only co-ops are proliferating on the social network. In the following months, the manufacturer said that she “infiltrated” many of these co-ops to monitor the movement of her merchandise, none of which she had authorized for resale on Facebook.

She said that she has succeeded in removing her products from a few co-ops, but that the monitoring is a very manual process.

“They’re sprouting like weeds,” the manufacturer said of the co-ops. “It’s very time-consuming to sort these people out because they don’t want to be found. They want to be hidden.”

Indeed, most of the co-ops on Facebook are closed groups, with administrators approving new members on a case-by-case basis. The manufacturer theorizes that one, maybe more, of her channel partners who buy from her at wholesale has been abusing that buying privilege and, instead of distributing the merchandise to retail venues as stipulated in the contract, has been selling directly to the consumer through the co-ops.

According to the manufacturer, who herself also sells at retail, the unauthorized sales on Facebook have the potential to dilute her brand and undermine her pricing strategy.

“Most people are not aware that this is happening,” she said. “Those customers have already been stolen from the retail sector, is what’s happened.”

For consumers, co-ops can present an alluring proposition. They are designed to offer deep discounts from what a shopper would pay at retail by leveraging the buying power of the group, so pricing at or just above wholesale is common. Many shoppers, particularly moms buying for their kids on a budget, sing the praises of the co-op model, though some bloggers have acknowledged drawbacks such as shipping delays, no product guarantees and, of course, the potential for fraud.

The secretive nature of the co-ops on Facebook makes it difficult to estimate their scope. One (closed, like the rest) group, Co-op Deals and Reviews, serves as a sort of hub for co-op hosts to post deals and shoppers to hunt for bargains.

In a typical exchange, a host will put out a blurb about the deals the co-op is running, accompanied by some pictures of the merchandise, ending: “Leave your email for an invite.”

Alternatively, bargain hunters might post a message inquiring if any co-op is running a particular product or brand, say wooden jigsaw puzzles or mesh toy nets.

As of this writing, the group had more than 11,700 members.

Debbie Walton, the main administrator for the group, did not respond to a request for comment, though in a post to the group’s page from May 13, she acknowledged that the proliferation of new co-ops was creating challenges. Walton reminded co-op hosts that they need to sign a new set of rules circulated earlier this month, and to register with a Facebook group called the Better Co-op Bureau, a more specialized, online version of the Better Business Bureau where buyers can give feedback about their shopping experience.

The bureau, which compiles a set of co-op ratings based on those comments, explains the importance of its mission as follows:

“Co-Op Groups can be the most wonderful and yet the most horrible thing that you come across! Wonderful because you can save tons and tons of money and find cool and interesting items, yet horrible because all too often members are taken advantage of by scamming hosts.”

Walton said in her post that only co-ops with a grade review from the Better Co-Op Bureau will be permitted to advertise listings on her group page. Additionally, hosts must have at least six months experience hosting a co-op, and the co-ops themselves have to have been operating for the same duration before posts will be accepted.

“I’m doing this to protect my group members the best way I can,” Walton wrote. “There are way too many new groups popping up with hosts who have zero experience hosting a co-op. There are also way too many “boutique” groups showing up. Trust me, there is no need for the new groups.”

Facebook, through a representative, declined to comment for this story, instead referring EcommerceBytes to its policies and guidelines for ads, which do not specifically address co-ops.

Historically, Facebook and other online venues have been more concerned with the trafficking of counterfeit merchandise on their platforms, as anyone familiar with eBay’s VeRO program can attest. But the merchandise moving on the co-ops, if they’re not fakes, isn’t likely to provoke an intervention from Facebook, according to Fred Felman, chief marketing officer at the brand-protection firm MarkMonitor.

If the operator is misrepresenting itself as the brand in question, it might be a different story, but in the cases of co-ops, the hosts aren’t pretending to be anything other than resellers.

“In this case, if it’s legitimate goods, you’re probably not going to have recourse with Facebook,” Felman said. “If the goods are legitimate, their only recourse, frankly, as in any distribution model, is really with the reseller or the channel partner themselves.”

Therein lies the challenge. If a manufacturer is suspicious that her wholesalers are abusing their buying privileges and reselling through an unauthorized channel like a Facebook co-op, an obvious solution would be to cut ties with the offending parties.

The manufacturer who spoke with EcommerceBytes explained that it’s not that simple. For starters, she deals with a multiplicity of channel partners, so the pool of potential suspects is large. But rogue wholesalers looking to set up shop on Facebook wouldn’t, presumably, do so under a name familiar to the manufacturer they are trying to scam.

Instead, the wholesaler would be more likely to partner with a co-op host unknown to the manufacturer. Or, to go it alone, they might give the co-op a sufficiently generic name, and carefully screen the people who apply to join the closed group.

Felman suggested that a preemptive remedy for manufacturers worried about their merchandise appearing on co-ops – or any unauthorized channel – would be to revisit their contracts with channel partners to ensure that they are “tightly crafted and exclude this type of sale.”

He also advises them to keep close tabs on partners’ buying patterns. A wholesaler with a long history of buying a couple cases a month who suddenly begins ordering by the pallet could be a red flag, for instance.

For smaller operations that can’t afford to staff a dedicated loss prevention division, he suggests that they can crowd-source some of their brand monitoring functions, discretely asking trusted distribution partners to keep an eye out for suspicious activity.

“Especially if you’re a smaller company, you may have to find a way to broaden your detection network,” he said.

MarkMonitor also advises brands to implement distinctive packaging markings that, in the event that their merchandise ends up for sale in an unauthorized environment, can help them trace the product back to a specific distribution partner.

Absent any hard data about a loosely controlled, secretive segment of the ecommerce world (the administrator of the Better Co-Op Bureau did not respond to questions about the extent of the co-op activity on Facebook), it’s impossible to say how many of the sales on the co-ops are legitimate and how many fall into the category of a black or gray market.

A spokeswoman for the North Face, one of the big-name brands shown for sale on co-ops in screenshots reviewed by EcommerceBytes, said that managers at the outdoor apparel line have dealt with co-ops on occasion, but that “it has not become significant for the business.”

Still, a manager with VF Corporation, North Face’s parent company, made it clear that any of the firm’s branded merchandise that appears on Facebook is unauthorized.

“We do not sell through it and any product on there would not carry our standard guarantee,” said Evan McWilliams, VF’s loss prevention and safety manager.

MarkMonitor’s Felman, though he admits that co-ops are “a new vector for me,” nonetheless advises brands to regard the channel with caution.

“Right now it sounds a bit like a support and control nightmare, because built into distribution channels is the idea of support and service,” Felman said. “It sounds like this channel offers very high discounts on goods but without providing the service.”

He added, “I’d be hard pressed to find any value in it for brands.”

Comment on the EcommerceBytes Blog.

Kenneth Corbin on Linkedin
Kenneth Corbin
Kenneth Corbin
Kenneth Corbin is a freelance writer based in Washington, D.C. He has written on politics, technology and other subjects since 2007, most recently as the Washington correspondent for InternetNews.com, covering Congress, the White House, the FCC and other regulatory affairs. He can be found on LinkedIn.