How To Address the Grey Market
You work hard to promote and protect your brand. The last thing you want is an unauthorized reseller bringing it down. If you are a brand and don’t know about the grey market, you don’t want to miss this info.
We’ll answer the questions, “What is the grey market?” and “What are grey market goods?” and explain how to protect your business from the grey market.
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What Is the Grey Market?
The grey market (or gray market if you prefer) is a legal yet unethical trade involving products being sold by unauthorized resellers or through unauthorized distribution channels. It’s described as a grey market because it’s somewhat less problematic than the black market (which is typically illegal) but still causes no shortage of problems for the legitimate businesses whose products are being traded.
This is more than a passing concern. Grey market sales cost companies significant amounts of money. More than a decade ago, grey market sales were estimated to cost brands as much as $63 billion in the US alone. As eCommerce continues to grow exponentially, this market will likely grow alongside it.
Brands rightfully expect their products to be sold through authorized channels, with all of the appropriate checks and support provided, so grey market sales can be extremely concerning. These sellers might offer products at unsustainable prices, dilute your brand name, or cause customer service headaches for brands and marketing channels, among other negative consequences.
It’s no wonder, then, that brands often seek out ways to stop them or prevent them from starting in the first place.
What Are Grey Market Goods
Nearly any sort of product can find its way into the grey market, but some of the most common include pharmaceuticals and medical devices, electronics, cars, software, shoes, and watches. Here are a few examples of grey market goods and the problems they may cause:
Electronics meant for the Japanese market but imported to the US and sold there. These may have instructions or warranty information in Japanese and may not even have US-compatible power cords.
High-end watches sold in bulk by jewelry dealers to clear out inventory. These may be sold at deep discounts on the grey market, causing pricing problems for authorized dealers.
Cars moved across borders and sold in countries other than their origin. These vehicles may not be in compliance with local laws and regulations relating to safety or emissions.
Grey Market Distribution
The question, then, is where these products are sold and how they make their way out of legitimate distribution channels and into the grey market in the first place.
Years ago, you would typically find grey market goods sold to unsuspecting buyers in large cities. You’d have to physically go to a store or kiosk to purchase these goods, so many people would probably never have access to such channels. Today, the internet has changed all of this.
Legitimate websites like Amazon, eBay, and even Walmart.com offer marketplaces for third parties to sell goods through their platforms. Most sellers on these sites are legitimate and are simply looking for a way to get their goods in front of consumers, but there is a subset of sellers who are selling grey market goods, as well as fraudulent knockoffs.
How do grey market goods wind up on these sites instead of being sold through their normal, authorized channels?
In a typical authorized distribution model, a manufacturer sells products to a distributor, who then sells to an authorized retailer, who sells to the consumer.
Goods taken out of this system at any point wind up on the grey market. This can happen because distributors have too much of a given product and choose to offload it online or through another means. It can happen because retailers are looking to turn over their inventory so they liquidate goods that aren’t selling. No matter the reason, these goods are now being sold outside of legitimate channels and that can cause no end of trouble for the brands affected.
How Do Grey Market Goods Impact Brands?
The negative repercussions of the grey market can be detrimental to nearly any brand. Here are just a few of the ways these sales can harm brands:
Since these goods are often sold at discounts, it can become difficult for legitimate retailers to sell the same products at or near MSRP.
These sellers typically don’t offer the same level of customer service as authorized retailers. Customer service problems that crop up from the grey market can give a brand a bad reputation, even though they had no control over these third party sales.
It is not uncommon for grey market sellers to make unrealistic promises or hype up “new” products that may actually be several generations old. When this happens, consumers who don’t understand the situation will be unhappy with their purchases, which often leads to negative reviews and poor word of mouth.
How To Protect Your Business From the Grey Market
There are some very large online sellers of grey market goods who do a good job with fulfillment and customer service. These sites can be even more problematic for brands because they bring high seller ratings and can be very enticing for buyers trying to save money.
The truth is, going after grey market sellers often feels a lot like playing whack-a-mole. No matter how many cease-and-desist letters you send, no matter how many lawsuits you file, these ill actors will persist, often by simply registering a new seller name and carrying on uninterrupted.
Instead, you must find ways to keep your products out of the reach of the grey market as a whole. You can also attack the problem from the opposite end by educating consumers to the risks surrounding purchasing products through unauthorized channels.
To keep your goods out of the grey market, consider a buyback program for excess stock at any level of your distribution. You’ll then want to partner with an online reseller who can liquidate your goods in a responsible manner, using authorized marketing language and providing appropriate support. Offer consumers high-end service benefits that unauthorized resellers simply can’t match. And finally, limit the sale of your products to a select group of resellers who agree to abide by the terms and conditions you set forth.
As an example, one of our clients was facing such a problem. Peacock Alley, a manufacturer and seller of fine bedding and linens, sells their goods wholesale and also, historically, through discount channels. This led to a number of unauthorized listings on various online marketplaces, including Amazon and Walmart.com.
As Peacock Alley's eCommerce business grew, it became difficult to claim their ASINs on Amazon because grey market sellers had already staked claims to popular SKUs. This made it difficult for Peacock Alley to control the end consumer's experience with their product outside of Peacock Alley’s own website. Without the ability to manage its Amazon listings, Peacock Alley was left with limited control over the product imagery, descriptions, and product titles.
Eyeful Media referred Peacock Alley to a law firm - Vorys eControl, a division of Vorys, Sater, Seymour and Pease LLP - to assist in addressing the grey market. With the help of Vorys, Peacock Alley put new reseller agreements and iMAP policies in place that would allow them to enforce against unauthorized grey market sellers. In addition, we helped them to broaden their direct-to-consumer sales channels, which also helped to combat the problem.
At Eyeful Media, we have helped several of our clients combat grey market issues, offering insight and actionable tips to help them maintain control over their sales channels.
FAQs
Is It Good To Buy in the Grey Market?
No. While consumers may find significant discounts through unauthorized sellers, they may be offered substandard versions of a product or left without proper support in the case of a problem.
What Is the Grey Market vs. the Black Market?
The grey market involves goods sold by unauthorized resellers. The black market involves illegal sales of banned or stolen goods. While the black market is illegal, the grey market is simply unethical.
Is eBay a Grey Market?
eBay itself is not a grey market. Many of the goods offered there are legitimate sales. For instance, used vintage items sold on eBay and identified as such are not considered grey market sales. However, eBay is often used by grey market sellers, since anyone can create an account and sell any product they choose. eBay offers an Authenticity Guarantee.
Is the Grey Market Illegal?
No. Technically grey market distribution is not illegal, though it is certainly immoral. That said, it can move into the illegal realm if a brand has a cease and desist order in place.
Eyeful Media is a digital marketing agency built for today’s landscape. We help businesses accelerate their sales and sales leads through all aspects of digital, including websites and retail marketplaces.