What are Grey Markets and How Do They Function?

What is Grey Market?

A grey market is a scenario wherein products are sold outside of the ambit of the authorized distribution channels specified by the product manufacturer or by the business that owns the product IP.

It is a nightmarish scenario for the product manufacturer as it disturbs the fundamental ecosystem of the product and complicates things. Let us try to understand this market and how it fundamentally affects the business of the OEMs who manufacture and distribute the product. 

It is important to understand that in the grey market, legal sales of authentic goods happen, and so the authenticity of the goods are not compromised in any way. However, this sale happens at an entity or marketplace which is not approved by the original manufacturer. Let us look at some common forms that grey marketing takes.

Unavailability of goods

If the goods manufactured by a producer is not available in a country (separate from the country of origin), then it is common practice for sellers or e-commerce websites to import the product and sell it on their own platforms for good margins. What this does is complicate the delivery and warranty service for the original producer, and harms the end customer. 

Competition

It is very common to see products that are priced higher in one country than it is in another, due to various reasons such as higher tax rates, governmental duties, profiteering on the part of the producer and so forth. This opens up avenues for grey marketers to come into the market, importing the same product via their own means of transportation and selling the same, authentic product at a cheaper cost on their own platform, than what it is available at the official producer’s e-commerce or offline store. This allows for the grey marketers to make a hefty profit on the same product, because of the increased business volume,

Rules and Regulations

Restrictions put in place by a governmental agency on the opening and functioning of a large outlet by the original producer do not apply to smaller establishments or to e-commerce platforms, thus giving them the advantage in dealing with original producer based products on a grey marketing basis. This gives them the impetus to go ahead with grey marketing.

Convenient distribution channels

Sometimes original goods which are distributed by product manufacturers, are not available at local locations and it becomes difficult for consumers to get them delivered. Grey marketers exploit this situation by opening up unauthorized distribution channels which get these products delivered to the consumers easily. 

For a producer a grey market causes a conundrum because they would like to maintain the quality and reliability of their own distribution network. Professional brand protection services can help producers to gain control of the distribution network by weeding out bad actors from the chain. 

Grey markets thrive because the official producer does not properly utilize the means available at their disposal to deal with such marketing tactics. Using a proper service to get rid of such markets will help strengthen the distribution network and increase profits for the original manufacturers.