Strategies to Combat Gray Market Sales
One of the biggest concerns brands have is Gray or Grey Market selling. What often occurs in a gray market is that unauthorized sellers who have purchased genuine goods from authorized sellers in one territory, proceed to sell them in another territory. To illustrate the magnitude of this issue, in 2016 the gray market accounted for 20% of the global market for luxury watches (Jon Cox, analyst, Kepler Cheuvreux). E-commerce platforms and marketplaces have made gray market selling easier than ever, as unauthorized sellers can purchase their goods online from an authorized distributor in one country, and sell them online elsewhere.
Gray market sales directly affect the brand and its authorized distributors, as gray market sellers often offer genuine products at significantly lower prices than the authorized agents, reducing the revenues of the authorized channels. Moreover, they undermine the relationships between the brand and the authorized distributors, since the exclusivity of the channels cannot be enforced.
Gray market sellers ride on the marketing and advertising efforts of the brand and the official channels, and may also harm the reputation of the brand, since they do not adhere to the service and shipping standards of the brand. In addition, due to the low prices of gray market goods, consumers may suspect they sell counterfeits, and may lose confidence in the genuineness of the brand’s products in general.
Common Mistakes Brands Make - That Encourage Gray Market Selling:
Different transfer prices for authorized channels in different territories
Brands tend to have different transfer prices for different distributors to take advantage of territories that are willing to pay higher prices. While it may be rewarding for the company in the short term, this policy encourages gray market sellers, as they can easily purchase the product in one country where the transfer price is low, and sell it in another country for lower prices than the official distributor.
No control over end-user pricing
Many brands control the transfer prices for their channels, but have no formal policy for end-user pricing. In these cases, some distributors may cut end-user pricing, while others keep it very high. Gray market sellers take advantage of this gap.
Worldwide support policy
Companies provide worldwide support for their products, no matter where they were purchased. Thus, a customer will receive support even though the product was originally sold in another territory.
In order to avoid these mistakes, the company should adopt global sales strategies.
Major Strategies to Fight Gray Market Goods:
Have one transfer price for all territories
You may lose some revenue in the short term, as you could have received higher prices in some territories. However, in the long run this will be a rewarding strategy, as it will help you to keep a unified worldwide pricing policy that will significantly lower the proliferation of gray market selling. Control your end-user pricing - Your distribution agreement must contain an end-user pricing policy, where you set a minimum and maximum price for your products. Thus, there will be no motivation for gray market online selling, as pricing arbitrage will no longer be possible. In addition, end user price policy will have one transfer price for all territories.
Control your end-user pricing
Your distribution agreement should contain an end-user pricing policy, where you set minimum and maximum prices for your products. This way, there will be no motivation for gray market online selling, as pricing arbitrage will no longer be possible. In addition, end-user pricing policy will result in higher credibility with consumers, as they will not encounter lower priced products suspected as counterfeits.
Have different packaging
different designs or different names in different territories
When you package and name your product differently in different territories, you make it harder for gray market sellers to offer products from one geo to another geo, as consumers will not recognize the package or the product name, and will be less willing to purchase a different product than the one that appears in local advertising and marketing materials.
For products that require support, have different serial numbers for different territories
An important measure against gray market selling can be support options. For products that require support, e.g. electrical devices, the company should create different serial numbers for different territories. Thus, a product sold to one territory is only eligible for support in that territory. This can be enforced through serial number verification by the local distributor, or by the company itself with a simple online application to confirm product territory registration.
Have online brand protection service
While the above strategies will help to reduce the problem of gray market selling, they will not completely eliminate it. An online brand protection company can help you further fight against gray market sellers, find their sources and take countermeasures in order to ensure that your brand is protected.
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