Grey market

According to Matt Ellsworth (2019), the Grey Market is characterized by the marketing of authentic products through distribution channels, physical or digital, not made official by the companies. In practice, companies establish contracts with certain distributors in order to export their products to specific markets. However, there is the possibility that these products may be resold, by entities not authorized by the producer, to destinations where the company has an official presence, as well as to destinations where it does not enjoy this feature.

Problems of Grey Market

This phenomenon contributes to the emergence of several problems affecting all parties involved: producer, distributor and consumer.

1) According to a study developed by Sanjeev Sularia (2021), Forbes Councils Member, the Grey Market favours the development of the counterfeit market insofar as, with easier access to official products, the production of replicas becomes increasingly frequent, infringing the exclusive rights of the brand.

2) Most consumers are unable to verify the authenticity of products, which proves to be a major concern for them, since, if the product is counterfeited, it could be harmful to their well-being. As a result, an environment of uncertainty and dissatisfaction is created, compromising the quality of companies' official distribution channels (Alberts 1992) and their sales (Sularia 2021).

3) Another problem associated with this market is the fact that unauthorized distributors may charge a price different from that charged by companies (usually lower), negatively affecting the profit margins of authorized distributors.

How to combat the Grey Market?

In this way, it is crucial for companies to implement strategies that prevent the advancement of the Grey Market.

1) Thus, companies must control, in a more rigorous way, their distribution channel to prevent the entry of unauthorized distributors, through the implementation of software that allows associating a digital ID to each product, containing information regarding its destination and their official distributor. With this, the company can inspect the entire route of the product and understand whether or not it is in the intended market, being able to act effectively in the fight against the Grey Market (Scantrust 2021).

2) In addition, companies can choose to create different product names and packaging, depending on the market in which they operate, allowing this market not to be recognized in different markets, thus not having incentives to purchase products sold there (Wiser Market 2019).

3) Finally, companies must equalize the price of products worldwide to eliminate the sales incentive on the part of unauthorized distributors, since they would have to charge a lower price than that marketed globally, thus being harmed (Wiser Market 2019).

Conclusion

In conclusion, despite implementing all the strategies mentioned above, the Grey Market will never be completely eliminated since it entails higher costs for companies to combat it; therefore, many of them prefer to continue selling their product to official distributors regardless of their final destination.

References

Alberts, S.J. (1992). Trademarks and gray market goods: Why US trademark holders should be held strictly liable for defective gray market imports. The George Washington Journal of International Law & Economics, 25(3), 841–873. Carrigan, M. (1998). Segmenting the grey market: the case for fifty-plus “lifegroups”. Journal of Marketing Practice: Applied Marketing Science, 4(2). Gunter, B. (1998). Understanding the Older Consumer: The Grey Market. Routledge.

Author: Ana Inês Jorge Gonçalves, Inês Espregueira Guerra Teixeira de Morais, Marta Gomes Ribeiro