What's the Gray Market?
The gray market, also known as the parallel market or unofficial market, refers to the buying and selling of goods through channels that are not authorized by the manufacturer, brand or trademark owner. These goods are often genuine products that have been manufactured for the legitimate market, but they are sold outside of the manufacturer's approved distribution channels.
One way that gray market goods can enter the market is through parallel imports, you may also have heard of this as product diversion, which occurs when a product is legally purchased in one country and then sold in another without the authorization of the trademark owner. This can happen when a product is in high demand and the price is lower in one country compared to another. For example, a product that is sold for a lower price in a country with a weaker currency may be imported and sold for a higher price in a country with a stronger currency.
The gray market can have a significant impact on brands and manufacturers. One of the main concerns is that gray market goods can dilute the value of a brand by undercutting the prices of legitimate products. This can lead to confusion among consumers, who may not be able to tell the difference between a gray market product and a legitimate product, and can also lead to lost sales for manufacturers and authorized distributors.
Another concern is that gray market goods may not be subject to the same quality control standards as legitimate products, which can lead to safety concerns and damage to a brand's reputation. This can also damage the manufacturer's image when a consumer seeks a warranty claim that cannot / will not be honored because it was purchased from a gray market seller. Additionally, gray market goods can also impact the ability of manufacturers to control their distribution networks, which can make it difficult to ensure that products are being sold in the intended markets and at the intended prices.
One strategy manufacturers can use to combat the gray market is setting and enforcing Minimum Advertised Price (MAP) policies. A MAP policy is a manufacturer's suggested minimum price for a product, and it is meant to prevent retailers from advertising a product at a price that is below the manufacturer's suggested minimum.
MAP policies can help prevent retailers from undercutting the prices of legitimate products and can also help to preserve the value of a brand. However, it's important to note that MAP policies can be difficult to enforce, as retailers can still sell products at a lower price, they just can't advertise it. Additionally, some countries have regulations that can limit the ability of manufacturers to enforce these policies.
In conclusion, the gray market refers to the buying and selling of goods through channels that the manufacturer or trademark owner does not authorize. This can happen through parallel imports or the diversion of goods.The gray market can have a negative impact on brands and manufacturers as it can dilute the value of a brand, lead to safety concerns and damage reputation. One strategy to combat the gray market is setting and enforcing Minimum Advertised Price (MAP) policies and Reseller Agreements. But we will be honest: dealing with the gray market is no simple task and cannot be solved with agreements alone. It requires diligence, good data, and constant pressure by the manufacturer.