Protempo CEO Gerry Fay had an informative talk with Lynn Fosse, Senior Editor CEOCFO Magazine.
Gerry provided details about Protempo’s business, including more information on Ordian, a SaaS that empowers brands with the data and tools to expose and dismantle grey market networks.
Ordian is the primary solution within the Protempo ecosystem of services that allows CE brands to grow and protect their businesses.
Read the full interview below.
CEOCFO: Mr. Fay, what is Protempo?
Mr. Fay: Protempo is a consumer electronics distributor that really helps brands stop the disruption to price and margins caused by unauthorized sellers in the
marketplace. As gray market and data experts, we help brands identify and stop the flow of products to unauthorized sellers, so they can build a healthy and profitable ecosystem.
CEOCFO: How common is the problem?
Mr. Fay: It is huge. The estimates from KPMG are that there is about a $100 billion annual market for IT products which cost brands over $20 billion of lost profits each year. This is just the tip of the iceberg.
CEOCFO: Has that always been the case?
Mr. Fay: It has become more the case as marketplaces like Amazon and Ebay have become more ubiquitous and they do not do a very good job of controlling where the source of product comes from. This has become a big problem for brands because it creates issues of brand integrity with consumers and animosity between retailers. Brands pay for this eventually brands because of unauthorized sellers on Amazon where it used to come out of retailers’ pocket.
The retailers got smart and created contracts where they had guaranteed margins from the brands so that if they got to the point where they did not care if somebody broke what we call minimum advertising price (MAP) online because they would just match and the profits would come out of the brands. Over the last couple of years, a lot of brands have gotten serious about trying to figure out how to at least slow down if not totally eliminate the issue.
CEOCFO: How does Protempo help do that?
Mr. Fay: We have a SaaS product that we call Ordian, which empowers brands with the data and tools to expose and dismantle the grey market networks. We have an ecosystem of solutions which replaces existing providers. What happens a lot of times is you can have where a brand does a promotion and they lower the price for a certain period of time, well that is really meant to benefit consumers. However, you have people that will buy a lot of that product and when the price goes back up then they put it online and sell it at a discount. You also have people who are supposed to be either recycling or refurbishing products, so they get back pristine product from a retailer and they set up an online persona someplace like Amazon and they sell that product as new product at a low price because they got it basically for free.
We identify where those leaks come from, then we identify the provider who is the ultimate source. An analogy I like to use is with drug dealers, where you start busting the dealer on the corner and you work your way up to the supplier. That is what we do. We find where all these different sellers are getting their products from and then we create reporting that we send back to the brand so that either they can take action against that seller who is the ultimate source of the leak and in a lot of cases that takes multiple unauthorized sellers out.
In the cases where the brand needs a trusted source after discovering the leaky supply chain partner, we end up taking that business up because we have an ecosystem where we provide refurbishing, remarketing and ecommerce marketplace management for these large brands. What that does for us is for every dollar of Ordian SaaS fees, we get somewhere between $30 and $50 of product sales, all in more profitable terms due to trust built by our Ordian SaaS product.
CEOCFO: Are most brands actively looking or trying to do it themselves; how do they find Protempo if they are looking?
Mr. Fay: One of the good things about our product is we do not need the brands permission or data, we go out to the marketplaces and we are able to figure out how big the problem is for each of their SKUs (Stock Keeping Unit) that they sell and then we proactively go to them and we say, “you don’t know us but here is an analysis we have done and here is how much you are losing in profit each year and this is what we will charge for our service so we can help you identify and give you the data you need to close these profit leaks.” What is good about that is we can quickly show them that they are not really paying for our service, it is coming out of the lost profits that they are recovering. The service is almost free because it is coming out of the lost profit leaks that we help them close. That is really in a lot of cases how they find us.
“I think what we have learned is that many brands do not really understand the size of the problem. Some of the actions they take they think are good for the marketplace and actually cause them long- term problems… The other thing that a lot of people do not talk about is that in a lot of cases these problems cause damage to their brand.” Gerry Fay
We also have brand relationships; those are the first people we sold to. We productized Ordian in November of 2020, and our first three customers were Google, FitBit and Garmin. We are now out trying to get a bigger customer list for Ordian. We started in the grey market so that is how we understand how it works.
Adam Brown, our founder started Protempo as a daily deal site in New Zealand in 2005 and fast-forward he built relationships in the US, came here and started with a trading business. As time progressed and we started building brand relationships, we understood this was a problem they were trying to solve so we created a solution for that problem.
CEOCFO: What were the challenges in coming up with a solution or was it that when you saw the problem the technology was available?
Mr. Fay: Once we identified the problem, we are providing a consultative sale because not only is it just the data that we pull from the websites but we actually do something called, “Test Buying,” where our algorithms identify somebody who has a price or quantity or both that does not make sense in the marketplace. Then we buy a product from them. That gives us a lot of information on where that product was originally sold from and when.
We started this by just doing it manually. Since the company started in New Zealand, IT resources are very good in New Zealand and they are much cheaper than the US, so we built a team to build out the Ordian infrastructure and the SaaS product and we productized that in November 2020, and have been out proactively selling it. The biggest problem was getting it to a point where it was easily repeatable and automated. We are also working on a self-service model for brands who cannot quite afford our full-blown concierge model.
To your earlier question, there is a lot of companies out who do pieces of our solution, such as MAP monitoring, there are law firms that will help you send cease and desist orders but nobody in the market as we have found, has a closed loop system like we do. We can teach a customer how to do it, we can do it with them or we can do it for them. Through that we are able to provide a full closed loop system not only identifying the problem but helping to resolve the problem, then when they need to find their partners that they can trust, we are there to help.
CEOCFO: What have you learned from the concept to today?
Mr. Fay: I think what we have learned is that many brands do not really understand the size of the problem. Some of the actions they take they think are good for the marketplace and actually cause them long-term problems. As they get more educated on how to do, for example, promotions, they can start to control who that promoted product goes to and at what quantity. I think another thing that we have learned is the problem is much bigger than the brands anticipate it is, so we are able to clearly show them that with data they cannot dispute. In a lot of cases that opens their eyes.
The other thing that a lot of people do not talk about is that in a lot of cases these problems cause damage to their brand. For example, if a recycler takes a consumer electronics product and they repackage them and resell them as new and brand authorized on Amazon, and it does not work, it is not Amazon that gets the black eye, it is the brand. A lot of the things we do actually create value for the brand or help the brand keep its value in the marketplace.
CEOCFO: How do you get a foot in the door?
Mr. Fay: In many cases we start with people who are responsible for brand protection at a brand, or we have business development folks that have long-term relationships with the brands we are targeting that can help us get a meeting with the high-level finance people or the high-level operations people so that we can expose what we found about what is happening to the product marketplace. We have never had a customer yet that we have presented this to that would say they did not see value in the product or that they did not want to find a way to engage in the product, so that tells us that we are on to something.
From the early work we did at Google which we started with our data version, we have learned quite a bit and learned what brands we are looking for and how they wanted the data presented to them, how they can use the data, so that helped inform us on how to productize it so that it would be easy to use for the other brands we went after.
CEOCFO: Would this at some point be applicable for other products?
Mr. Fay: Absolutely! Basically, anything that is serialized we can leverage. Not only for real product that gets in the wrong hands but people that are counterfeiting. If you think about very small items that are very expensive, like a perfume or watch, as long as things are serialized, we can track the information and provide the same information to any of those companies whether it is in the cosmetics industry or the jewelry industry. What we are really trying to do since we know the consumer electronics markets so well, is to focus now on getting it right there before we roll it out to other industries.
CEOCFO: Are you seeking funding, investments, partnerships, as you move ahead?
Mr. Fay: Yes, actually we are in the middle of an equity raise right now. We are looking for $10 million of equity investment to continue to evolve the Ordian platform, build out our business development teams and provide additional work in capital to expedite the growth for our business. We are projecting to be $300 million by 2024.
CEOCFO: What might the investment community miss when looking at Protempo?
Mr. Fay: The biggest thing is although we have very good reference clients for Ordian, it has only been productized since November. In a lot of cases investors are either SaaS investors or distribution investors. We are a hybrid as we are selling an ecosystem, so when we have management meetings, we have to clearly articulate the value of the ecosystem as a whole. That is why having the ability to do refurbishment, remarketing and eCommerce marketplace management is important because when brands do have to shut down a bad actor, they begin to ask who they go to now to take over this business. This is where our ecosystem is a differentiator. That is the biggest thing when we talk to investors, is that at first sometimes they see it as two different businesses and you have to spend time with them to get them to understand why having it together is important.
CEOCFO: Why pay attention to Protempo?
Mr. Fay: I think as ecommerce and online buying continues to grow, investors should be interested because our product is only going to become more valuable. I think that consumers should pay attention to us because we are helping cleanup the marketplace on their behalf. I think that some of the stats I gave you earlier point that out because at the end of the day, all of these issues wind up negatively impacting the brands.
I think the brands and consumers want to know that they are getting authorized product, the right product, and that it has not been tampered with or gone through hands where they do not understand how the product has been treated. Therefore, as online buying continues to increase, our services are going to become even more important.
Interview conducted by:
Lynn Fosse, Senior Editor CEOCFO Magazine