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Grey markets leave brand owners in the dark

GRAY MARKET
ONE PAGER
August 9, 2022

Discover how brands are suffering from product distribution in grey markets and why unauthorized sales are becoming harder to detect as e-commerce grows.

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Grey market (or gray market) occurs when official products are sold outside of the official brands third party distribution agreements. Whilst it is not considered illegal, it leaves brand owners with a lack of visibility of who is selling their products, in which channels or territories, in what condition, and for how much. 

Monitoring product sales within grey markets is becoming an ever greater challenge as the digital world continues to expand. Yet, the importance of which cannot be understated!

What scenarios are considered a grey market? 

A grey market can occur when an unapproved reseller trades official products without the brand owners consent. It is also considered a grey market if the distribution channel used to facilitate the sale of the original products has not been approved by the official brand owner. This can include well-known digital marketplaces or social networks.   

Grey market situations are also created due to the territory in which a product is sold. For example, a reseller may have approval to trade official products in a marketplace in the U.S. but not in Japan. If that reseller begins selling in the Japanese marketplace then they are breaking their distribution agreement and a grey market situation occurs.

These resellers, channels, or territories in which official products are traded may be unknown to brand owners, often in countries where the official brand is not present, which can make grey market monitoring an overwhelming process for brand owners. 

 

What are grey market products and how do they differ from counterfeits? 

As we have explained, gray markets products are authentic items sold through unauthorized resellers and / or through unauthorized channels and markets. Counterfeit products on the other hand are fakes, designed to look and feel like official items through the misuse of intellectual property such as brand name, logo, shapes, colors, and design. Counterfeit products are not produced by the official brand and are almost always made of lower-quality materials. These fakes can pose a danger to end the user due to the use of untested parts or ingredients. 

Why do grey market situations occur?

Grey market situations often occur due to an approved third party attempting to clear excess stock, or last season's stock, or even stolen goods in an attempt to recoup their initial investment or clear items which have been obtained in an unlawful manner. 

 

It can also happen when popular branded products are not distributed in certain regions or territories, distributors who make the product available in other regions might sell the products in those regions, taking advantage of differences in the value of currencies, or charge inflated prices.

Is the sale of grey market goods legal, and how are supplier - distributor relationships impacted? 

 

Grey market trading happens outside of the official brand owner´s distribution agreements, so it is unofficial. However, contrary to widespread belief it is not considered illegal as the goods being traded are genuine. 

 

The sale of products in the grey market has risen significantly due to the globalization of the world economy. Literally anything can be sold online, including raw materials, items of clothing, electrical goods, beauty products, even vehicles or vehicle parts.

 

Once a brand owner distributes products online, they have little control over where the goods are resold. This is a concern when we consider how grey market sales damage the connection between brand owners and distributors, putting the reputation of the original products at risk. This is detrimental to commercial sales strategies, leading to the loss of sales and revenue.  

 

Control is lost in terms of the price brand owner’s products are sold for, in what quantity, the quality of service, or what condition the product is in when the client receives the item. This is of great concern when we consider that the product is clearly marked with the official brand name leaving their reputation at stake. 

 

Supply chain integrity should be a key objective in the business strategy of today’s brands, and they must be able to trust their commercial partners. However, new, and underserved markets will appeal to distributors looking to increase sales and revenue streams. For this reason, a monitoring strategy can help brand owners control their entire supply chain, especially when working with multiple resellers - a crucial factor when their brand has a national, international, or global appeal. 

Why do grey market goods appeal to consumers? 

Consumers see the official brand name, product images, and descriptions promoting the item for a reduced price, and this attracts online shoppers. These low prices are achieved by buying in bulk and selling individually, or by buying end-of-line stock for knockdown prices. 

 

Many consumers do not pay attention to whether a seller is authorized, especially when tempting discounts are on offer. However, purchasing goods which were made in other countries where safety standards are low, or where less stringent labeling requirements are in place can put the consumers at risk.

 

For this reason, brand owners must take steps towards educating consumers in relation to where they can find their certified products through authorized resellers, and in which channels the legitimate products are available. This can be achieved through an authorized distributors list containing direct links to their official websites, or through sales and advertising campaigns aimed at raising awareness of trusted sources. 

How do grey market situations impact my brand?

The sale of official branded products, outside of your contractual agreements, means that you have no control of where your products are being sold (channel or location), by who, and for how much. This can have serious implications on your sales, your revenue, and the consumers experience when buying your official branded goods.

 

Unauthorized sellers may be selling your genuine products in local markets (where your authorized resellers are active) at lower prices. This inevibibly damages sales for your approved distributors, harming your revenue, and supplier relationships / commercial agreements.

Grey market situations which are not dealt with in new channels or foreign markets can also have serious implications on your future growth. You may discover that your products have been distributed here without your prior knowledge or consent. Perhaps they have been sold for higher or lower prices, or under conditions which may harm your commercial sales strategy, making it harder to expand your business into new and emerging markets. 

 

The risk of receiving negative reviews and ratings due to uncontrolled sales conditions is high. Products may not support the requirements of the end user within certain markets such as unsupported languages, plug shapes, ingredients, or safety measures can all have an impact on your sales and the consumers perception of your brand and products. 

How can I monitor and control grey markets?

Monitoring various channels is a time consuming and complex process to manage alone, largely due to the growth of e-commerce and to the globalized online economy.  

 

Our Smart Protection Grey Market service monitors and detects goods which are sold outside of the authorized distribution channels. Our service supports those brand owners who have a distribution model with contractual sales restrictions. 

 

Our technology identifies existing Grey Market cases online and presents customers with the corresponding links, online distribution channels and seller names (authorized and unauthorized), all through our secure platform.

 

We monitor more than 25 of the most popular online marketplaces worldwide, searching for potential infringements. Our technological platform, combined with our team of cybersecurity analysts process huge amounts of data searching for: 

 

  • Product names and descriptions 
  • Suspicious price differences 
  • Keywords related to the official product or brand 

Powerful data and insights at your fingertips

Our clients receive monthly reports which specify corresponding links, online distribution channels and sellers' names, all through our secure, user friendly platform. The data can also be filtered and downloaded from our platform in Excel format.

 

At Smart Protection we don´t stop at providing intel, after collecting information about the unauthorized online channels and distributors, we can issue communications to both platforms and sellers, requesting them to cease unrightful actions and withdraw the sales. These actions are pursued by our team of legal tech experts and are proven to be 70% effective. Nonetheless, if the unrightful issue(s) prevail you can take further legal action using the evidence we have gathered.  

 

Our Customer Support team is available 24/7 to support our clients, solving any issues which may arise throughout the service in a timely manner. 

Do you want to know if your brand is at risk online?
Talk to an expert
Download our free Grey Market One Pager
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