April 2021 | by Lili
50 shades of grey markets
Table of contents
Grey market 101
A grey market is when a product is sold outside its authorized distribution channels. It’s a genuine brand product, however, its seller is not an authorized distributor but a person or entity that has no legal relationship with the brand for the sale of its products.
How do grey markets arise
This can happen more often than you’d think: boxes fall off trucks accidentally on purpose, a business partner goes rogue, or even a robbery at a warehouse can contribute to products leaking out of your distribution network and landing in the hands of unauthorized sellers.
“Professional” grey marketers go even further. They purchase significant quantities of your products in a country where your prices are lower (e.g. in China), and offer them to customers in regions with higher prices (e.g. USA, or Europe).
Because the products are genuine, grey marketing is often thought to cause less harm than counterfeits. In many countries, grey marketing is not even illegal, and authorities have no power against it (aside from the robbery case, of course).
However, grey marketing can be just as damaging to brands as counterfeiting.
The dangers of grey markets
Grey marketing provides for the paradox situation where your own products compete with, well, your own products. But unlike in the case of two authorized distributors, grey marketers cause uncontrolled competition because they tend to pop up unexpectedly and usually offer lower prices than your authorized sellers.
A grey market thus erodes the price structure on a market, crushing your brand’s prices and diminishing your revenue. Don’t think of this as pennies; serious grey market problems can cause brands significant losses.
Graphic: Price erosion of a branded product due to grey markets
But it’s not just your brand that suffers. Grey market dealers also damage the cooperation and trust within your authorized distribution network while destroying vendors’ margins. This may lead to discontent amongst your business partners, causing rifts in the network that can lead to even bigger problems.
Another issue to think about is representation. If a customer buys your product from a grey marketer, that seller basically acts as the representative of your brand without you having any control over their actions. Also, since grey marketers aren’t exactly known for their excellent customer service, your general reputation may suffer through no fault of your own.
Contrary to what people may think, grey marketing harms even customers. While it’s true they may get a genuine brand product for a lower price, they’ll receive subpar (if any) customer service during and after shopping. Among other issues, this means that in case of a defect, warranties won’t necessarily apply to them and they may not even be able to turn to authorized dealers for repairs.
Solutions to grey market problems
There are a few things you can do yourself to try and keep your brand safe from grey marketers. However, be aware that in most cases, these DIY solutions are nowhere near enough to stop the problem and you’ll need the help of online brand protection experts.
Keep a close eye over your distribution network. Be up-to-date about who your partners are, where they’re active, the volume of products they sell, and how they comply with your distribution agreement. This will help you notice any leaks in the network.
Make sure to have good volume control and price targets in all markets your products are offered by your distribution partners. Keep in mind though that this task can get significantly harder as your distribution network grows and you enter new markets.
While these tips can help keep you in charge of your distribution network, they’re most likely not enough to counter your grey market issues. No wonder: just as in the case of counterfeiting, brands usually don’t possess all the equipment, training, and know-how to get their grey market problems under control. Online brand protection experts like globaleyez are ready to step in and help you combat grey marketers that damage your company.
Here’s a little taste of what we can do.
Gathering data
We monitor markets all over the world, collecting data about unauthorized sellers. Thanks to our services, you’ll know exactly who and where is selling your products, their country of origin, volume of sales, and their revenue. We’ll also calculate the damage this causes to your brand, so you’ll be able to decide which sellers to take immediate action against.
Taking action
Our extensive monitoring services are complemented by another essential step in our effective action plan against grey marketers: test purchases.
We conduct test purchases from all around the world, both online and offline. Our test purchases help us determine if the sellers involved are grey marketing or in fact, counterfeiting your products. The test purchase service is essential as well because it creates a trail of documentation of the transaction that is very often missing in case of counterfeiters and grey marketers.
Armed with all this information, we create a strategy to help your brand combat malevolent sellers. Obviously, all of our documentation is admissible in court, which means that if you decide to take legal action against the sellers, you’ll have all the proof you need to help you win your case.
As an added bonus, our extensive information-gathering also serves as a basis for a potential market-entry strategy. If a grey marketer is successful in a country your brand has no authorized seller yet, why not make the leap and enter that market yourself? Our data can help you determine if there’s a demand for your products and contribute to a successful market-entry strategy.
Conclusion
Grey markets, just like the colour they’re named after, have a tendency to blend in with their surroundings and can go undetected for a long time. Make sure that doesn’t happen to your brand; reach out to us and let us help you devise an effective strategy against grey marketers