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Preserving your image: How to avoid the grey market

The grey market costs manufacturers much money, time and nerves: Brand development, after all, is a long process whereby customers should recognise your products right away. The image of your brand forms the foundation for successful pricing. If, however, your items appear on the grey market, in other words unauthorised sales channels, and are sold at a dumping price, this not only damages the value, but also damages your image. Customers receive operating instructions in foreign languages or software updates do not work properly. Anger will be inevitable here. The risk that customers will buy their discounted products on the grey market is very real – since the use of comparison portals is rapidly growing.

The Alliance for Gray Market Counterfeit Abatement (AGMA) published through KPMG its KPMG Gray Market Study in 2008, which quantified damage from the grey market. AGMA found that the damage to technology products alone averaged 58 billion US dollars. This corresponds to sales of six to eight percent. To blame here are internationally operating groups, which often obtain price reductions by, for example, false information or bribery. At which juncture these groups engage can rarely be identified, since the distribution chain of products can be extensive.

Value of Gray Market (GM) Product

Through KPMG, AGMA published in 2008 the estimated loss for technology products on the grey market as an average 58 billion US dollars. We must assume that the losses per annum have grown since 2007. (Image source: KPMG Gray Market Study, 2008, P.30)

To compensate for losses retrospectively would amount to an enormous task for retailers. This is why you should take preventive measures to avoid the grey market altogether. The renowned senior investigator Bastian Moritz (Corma GmbH) has for years been investigating the grey market, as well as product counterfeiting, and shares here his valuable tips:

Tip #1: Protect yourself contractually with partners

Before working with your distribution partners, you should draft a contract that exactly regulates the framework agreements. Among these are not just the actual distribution: They should oblige your partners to document transactions, grant auditing options, and, where appropriate, punitive payments also. This is the way to protect yourself.

Tip #2: Inform yourself about your customers

You cannot seal contracts with customers, but a little research does help, and which you should endeavour to employ in the case of larger projects. Consider whether the company size and the order volume are compatible. In most cases, illegal companies have only recently been on the market – research how long the company has been established. Potential structures that point to the grey market activity become evident in this way. In addition, you can recognise whether your products end up in the grey market with random test purchases and serial number tracking.

Tip #3: Make your employees aware of the grey market

The product price varies markedly between different regions. This is due to factors such as product requirements, warranty claims or the distribution costs that vary in scale in different countries. If, in the context of a discount campaign, your product is sold in Eastern Europe and subsequently appears in the inventory of a reseller in Germany, then the Eastern European operation will profit. You will suffer the damage. These events are predestined by the fact that the employees of a manufacturer only supervise their local sales. Make your employees aware of the grey market. Make clear that global results are more important than regional ones.

Tip #4: Use an intelligent software for monitoring

To identify if your own products have entered the grey market, you will require comprehensive information. Start by examining price trends at online marketplaces. These retailer observations are hardly possible to perform manually in view of current data volumes. Tools for monitoring, such as the blackbee Business Intelligence software help you to evaluate this data. This will make illegal networks obvious, which will allow you to prevent from the outset trading with offenders.

Consider these four tips and the likelihood that your products enter the grey market will drop sharply. Should your products still find their way to the grey market, skilled monitoring with the help of an intelligence software will also assist here, since professionally collected and processed data can attain a status that would allow for criminal prosecution. This will ensure that illegal resellers can no longer challenge you and other colleagues.

Would you like to monitor the development of your products and prices on the market? Test blackbee now and keep a steady eye on the online market!