Anti-Diversion Q&A with Gerardo Ludert, Director of Legal Department at Moroccanoil
What, if anything, can you tell us about the progress of the pending lawsuits against the retailers selling diverted product?
First I would like to say that legal battles are always painful and grueling exercises for companies and we take every case seriously. However, our commitment to these cases is not based on obtaining monetary compensation or any other type of benefit for Moroccanoil, but rather on the principle that it is our responsibility as a manufacturer to protect our industry and the salons and hair stylists that depend on it. This ethical approach is, in my view, what has led us to succeed in many of these cases, and probably what will always give us an advantage over our counterparts.
In terms of progress in the cases, many are still pending, and others have settled under confidential terms. However, I can say that we are very satisfied with the results we have obtained from all the cases so far, and the proof to these results is on every shelf at every retail store across America.
Every time you enter into a retail store that has a big section of professional hair products and you do not see any Moroccanoil, it means another battle we have won on this crusade.
Your company has instituted a three-step approach to fighting diversion. The first step is the implementation of a proprietary tracking system. How do you mark bottles in a way that can’t be altered or tampered with?
We print in all our products one visible matrix code that contains all the information about the entities responsible for that product every step in the chain of distribution.
In addition to the visible code, our products also have many hidden codes all over the packaging, and those invisible codes contain the same information as the visible ones.
When we find diverted products where the visible code has been removed/altered/covered or in any way diverters have tried to disable the codes, we use proprietary software and equipment to decipher the information out of those hidden codes.
Is this technology unique to Moroccanoil?
Although matrix codes are not unique to Moroccanoil, the technology we use to hide codes and to read those invisible codes out of diverted products is unique to us. This technology was developed by a company in Israel, and we are the only company in the world with access to it.
The second step is market monitoring. In the case of Moroccanoil, the market is huge – not just in brick-and-morter stores, but online. How is your Anti-Diversion team able to ferret out instances of diversion in such a far-flung and varied market?
Online diversion is certainly a challenge for us, but like everything we have done so far, we intend to change mindsets, and to prove to everyone that, if you have the will there is always a way.
Our three-step strategy also applies to the online world, and we are already implementing this every day. Particularly, we have created a dedicated team of online market monitors that scour the web in search of diverted product -and the results are very encouraging.
The number of hits on the major search engines related to unauthorized sales has decreased substantially, and even the number of vendors offering Moroccanoil product on auction sites has gone down from many thousands at one time to just a few hundred. Even our international distributors have taken note of these efforts and are now requesting that we create preventative local online anti-diversion teams to deal with this issue in their markets.
In any event, as noted above, this is very likely one of the biggest challenges the industry faces, but we continue to work relentlessly in the hope that we can stop it.
The third step is legal action, including non-diversion contracts that all salons must sign to be authorized to sell your products. Are these agreements legally binding? What are the consequences for breaking the agreement?
Not only are these contracts legally binding for the stylist and salon, but they are also binding for Moroccanoil and for the distributor servicing this account. So far, we have received close to 100,000 signed salon contracts from every salon and stylists that have bought Moroccanoil products in North America.
Each salon is made aware of its commitment and responsibilities when they start buying products from distributors and sign on the salon contract. At this point everyone in the industry understands that we stand by our word that we will take actions against anyone that diverts Moroccanoil, including dishonest salons and stylists.
Unfortunately, the tracking system has shown that some salons and stylists continue to divert products even after signing the salon contract. Our philosophy still applies on these cases, and to that end we have already filed several lawsuits against those salons we have found diverting product for the breach of their contract with us, and we expect to file more in the future.
How long has the program been in effect? Do you have any data yet about its effectiveness?
The tracking system was first implemented in the summer of 2010, and since then the effectiveness of the system has been impeccable.
To date, we have processed more than a thousand cases of diversion, and in all of them we have tracked back the source of the product. In every case, we investigate the circumstances and the people involved, and ultimately we take the necessary actions to stop the diversion through these sources for good.
Moroccanoil is successful but certainly not the biggest manufacturer in the business. How have you been able to devote the resources and manpower to this effort?
In every aspect of our business, when we discuss about the philosophy of the company, we have set the protection of salons and stylist as top priority.
From the way we develop our products, to how we instruct our distributors to service the salons and stylists that buy from them, to how we tackle the diversion issue, our final goal is always to help the stylists and salons have a prosperous business, and to enjoy their profession every day. In the end we see this as a business strategy, and we hope our approach is recognized by the stylist that ultimately decide which manufacturing company deserves their trust, and which ones do not.
Why is stopping diversion such an important issue to Moroccanoil?
As I explained, we see ourselves as partners with all the other players in this industry. Although some may think that diversion does not hurt the manufacturers, we think that anything that hurts our partners will ultimately hurt us as well.
Every bottle that is diverted into unauthorized channels strips salons and stylists of important revenue. This can be the difference between flourishing as a business or closing down the salon. For us, this is unacceptable, and we are committed to ensure that all revenues produced from dealing in our products at the retail level go to the hands of professional stylists and their families.
Is there anything else on the subject of diversion you’d like the industry to know?
We are working very hard to stop diversion of Moroccanoil products, but we only have so many eyes to see what is happening in every market. We need our partners – the salons and stylist to report back to us when they find diverted products. This is a battle that we cannot fight alone and we need the help of everyone in the industry. Our team is ready to take on this challenge and we hope to have all salons and stylist on our side.
To report instances of diversion to Moroccanoil:
Dedicated Anti-Diversion email: [email protected]
Call Toll-free phone: 888-700-1817
— Karen Ford, Editor of American Salon's Annual Diversion Supplement