There’s certainly a grey area when it comes to the distribution and re-sale of products. While the grey market isn’t illegal, it can be a cause of frustration for manufacturers and have significant impacts on business profitability, brand integrity and perceived quality. We take a deep dive into what the grey market is and the effects it can have on your brand.
What is the grey market?
The term ‘grey market’ refers to distribution channels that are not authorised by the manufacturer. While products are sold legally, they are sold outside of the control of the brand, which poses threats to the quality and legitimacy of the products. Unlike the black market, which involves the illegal sell and trade of goods and services, the grey market runs parallel to official channels.
How does the grey market work?
The grey market is built by unofficial resellers that can range from large corporations and small businesses through to individuals. Products are put into circulation and can be purchased by consumers on ecommerce platforms such as eBay or Amazon, or via local listings on Facebook Marketplace or Gumtree. Oftentimes websites are set up to cater to specific niches, such as cameras or shoes, and consumers may fall into the trap of thinking that a specialist store is an authorised distributor.
Repercussions of grey market products
Changed perception of value to the consumer
The channels available for a consumer to access a product, as well as the price point, can have an impact on its perceived value. There are few incentives for customers to purchase from authorised retailers if they can buy an identical product at a cheaper price elsewhere. Consumers may feel that the low price reflects the quality of the product, and become so accustomed to grey market prices that the recommended retail price appears inflated.
Damage to the quality of the supply chain
In an ideal scenario, a manufacturer will sell their products to a distributor, who then sells them to authorised outlets where consumers can purchase the product. However, the grey market isn’t as linear. As there’s no direct connection to the manufacturer, grey market items aren’t covered by a manufacturer’s warranty and can often come with incompatible chargers or foreign user manuals. This can damage the brand’s integrity both from a consumer and distributor point of view.
Flow-on effects for authorised resellers
If a product consistently sells for cheaper on the grey market, authorised resellers may be met with unhappy consumers looking for a better deal. They may feel inclined to price match or offer a discount, or risk losing the sale altogether. Ongoing disputes can cause an authorised reseller to distance themselves from the brand.
Examples of grey market items
Almost every type of product can be found on the grey market. Some common examples include:
- Wine and spirits
How do I protect my brand from the grey market?
Identifying unauthorised sellers is a great place to start. This can also help you determine if you’ve fallen victim to business identity theft, or take appropriate steps to protect yourself from piracy. Educating consumers on the risks of purchasing from third parties can not only prevent a decline in revenue, but ensures that your brand’s reputation and quality are upheld.
Speak to FraudWatch about protecting your brand from the grey market
Don’t wait for your products to end up on the grey market. Contact FraudWatch to learn more about the grey market and how to protect your brand.