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GREY MARKET Grey market is the selling of goods by unauthorised dealers.,…
GREY MARKET
Grey market is the selling of goods by unauthorised dealers.
1 ) Example of Grey Market
Luxury watches are sold by dealers who need to clear out their inventory.
Unauthorised dealers selling with manufactures permission.
Unauthorised dealers offer substantial discounts on new items.
2) Reasons for Grey Market occurs
Overstock
Extra products are often produce. Manufacturers view this as a chance to sell surplus goods to a country that relies on the product to earn a profit. (Ahmadi, Dasu and Carr, 2011).
Why?
This allows the manufacturer to clear the excess stock whilst still making a profit from the grey market distributor.
EXAMPLE
Outdated watches are discarded on the grey market to minimize slow-moving inventory. This strategy benefits the manufacturer's inventory turnover and short-term cash flow.
Rules and Regulations
Imposed on manufacturers by the government.
A regulation provided to a manufacturer is the quantity of goods they are permitted to make in a certain country or the product standard.
Why?
The product specification is essential to grey market resellers. These resellers would seek to get the best specification of the product. Often known as full/high spec items, and sell it in countries with low spec (MAHALINGAM, 2020).
EXAMPLE
This is quite prevalent in Malaysian automobile sector. It is very common to find these imported automobiles with greater features at a lower cost.
Price Differentials
Brands often have different pricing strategies in different areas of the world. Resulting in different prices for different distributors.
This encourages grey market sellers to purchase lower priced products from other countries.
Why?
They then sell same item for higher price in the host country. As a result, different pricing for same products are created.
EXAMPLE
High end product. Bought in Paris then sold in Malaysia for a profit.
4) Differences between grey goods and smuggled items
Illegally transported smuggled items
that can be both legal and illegal products (can be found in both grey or black market), in order to maximise arbitrage opportunities.
Can be found in both grey and black market.
EXAMPLE
Cigarettes, alcohol, or iPhone to evade taxes from customs.
Grey goods
are legal and legitimate goods that come from the right manufacturer but are marketed through unauthorized channels.
3) Impacts of Grey Market
Authorised dealers
Reduction in sales as a result of dual-priced goods on the market.
Why?
To meet grey market goods price or they may lose a sale.
Grey market resellers have also affect the exclusivity of authorised dealers (Srisomthavil and Assarut, 2018) due to the influx of availability from other sources.
Manufacturers/exporters
Unlicensed products competing against the licenced products.
Why?
Due to product availability everywhere, impacting brand image.
Manufacturers may benefit from the grey market by identifying a stream of demand that previously was missed that can now be tapped into.
Individual consumer
Grey market product do not come with any guarantee or warranty (Grey Market | Most Important Things to Know About Grey Market, 2020).
It may be cheaper but there is risk.
If a product that happens to be faulty consumer will not be entitled to the after-sales service or product exchange from the company.
Also known as
parallel imports
:
Such activity is unofficial but not illegal
These channels are not authorised by the manufacturer or the exporter.
