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Last updated on: March 2, 2023
There is no question that gray markets diminish brand identity and value, but they also adversely affect business revenue.
Because of this, it is crucial that every brand owner understands the gray market, its repercussions, and ways to actively monitor it. Today, we are going to answer the following questions:
Gray market is the term used to refer to any unauthorized trade of goods, securities, or any other commodities. It is a marketplace where goods are sold outside the company or brand’s authorized distribution channels, usually at a rate much lower than the item’s official market price. While the gray market technically pertains to the scene where the unauthorized trade occurs, sometimes, the term is also used to refer to the products themselves.
Because gray market products are traded outside the brand’s authorized channels, there can never be a guarantee that the item is genuine.
To reiterate, sellers in the gray market secure the goods from elsewhere–not through the brand’s official distributor or retailer. With their sources unknown, it is impossible to determine whether gray market products are authentic or not. In fact, this is also why gray market products often do not include warranties, product manuals, and certifications; most unauthorized dealers sell the item “as is,” without any of the documentation and/or authentication that would help establish genuineness of the item.
Nonetheless, it must be noted that there are, indeed, authentic items being circulated in the gray market. Sometimes, these are excess or old stocks of authorized distributors or retailers. They choose to sell to other (unauthorized) dealers at discounted prices, just so they can dispose of these excess stocks to make space for other or newer items. These unauthorized dealers will then make the sale to the end-user in the gray market, where the latter would have then bought the item below official market price.
At times, too, authentic gray market items are those bought at a much lower price abroad, and then imported into the country to be resold at mark-up but still lower than actual market price. These are what we call parallel imports. In some instances, these goods are exported and then imported without payment of appropriate custom rates and taxes, which thus enables unauthorized retailers to sell at discounted cost.
Here are the most common effects and reasons why monitoring the gray market is important:
An increased presence in the gray market impacts sales across your official distribution channels. Instead of your authorized retailers making the sales (and you earning the full and expected profit for each sale), it would be the unauthorized dealers who are to unjustly benefit from your market. Basically, gray market sales divert your revenue.
Presence in the gray market also means devaluation of your brand image and identity. With your products becoming too accessible, you are unable to control how they circulate in commerce and what they are actually worth. Further, it also affects how your target customers think about your brand–most will have the impression that you do not take product/sales regulation seriously. In addition, it also harms your brand’s relationship and reputation among your official distributors and even suppliers.
In addition to the previous point, remember that in the gray market, customers receive unregulated and unscreened items–items which are, nonetheless, labeled and associated with your brand. Uncontrolled sales conditions, without a doubt, heavily affects how consumers perceive your brand and products.
With now a clearer understanding as to why the gray market is a serious concern to your brand or business, here are effective ways to protect against its negative effects:
As a brand, it is your responsibility to educate your consumers against the gray market. It is best to emphasize that certified products may only be purchased from your authorized retailers, and that it is only these goods that your brand authentication and warranty, if any, cover. Relatedly, it is also advisable that you provide your customers with a list of your authorized distributors, so that they know from whom they can legitimately get guaranteed authentic products.
Active monitoring entails keeping track of gray market goods in different marketplaces, social media, and websites. Note that active monitoring does not only mean expanding where you monitor (i.e., various online and offline platforms), it also means regular monitoring. This includes developing a system that produces accurate monthly reports and updated data about gray market presence and sales. This helps you, as revenue owner, keep track of your progress and make adjustments accordingly.
Of course, monitoring the gray market requires the removal of your brand in the gray market. If you are doing the takedown manually, you may proceed by contacting the provider or host of the webpage that contains the gray market listing, if directly contacting the unauthorized dealer is impossible or futile. Admittedly, however, this is a time-consuming process, as much as it is so when you also do the monitoring manually.
Gray market monitoring is a crucial step in protecting your brand and all the products you have worked so hard to develop and trade. It helps guarantee your business revenues and boost your brand reputation in the market.
Red Points can help monitor and eventually remove your presence in the gray market. Given that having to do this manually is a long and tedious process, Red Points’ automated software can find and remove gray market listings automatically for you, so that you can put a stop to unauthorized entities unjustly profiting from your business.
Protect your business and products against the evils of the gray market through Red Points. Contact us or request a demo today.
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