Inside the Grey Market

The grey market continues to be an issue for manufacturers worldwide. A grey market occurs when wholesalers or retailers sell a branded product even though they aren't authorised to do so. The product is legitimate, but the product was obtained outside the usual distribution channels typically used by the manufacturer in that geographic region.

Often, this situation develops when a manufacturer's wholesale price is high in one area but lower in another area (due, in part, to differing channel costs, distribution strategies and price sensitivities). Another reason for grey market activity emerges when a product is available in one region but not in another. Intermediaries may buy from grey market sources when they want to boost profit margins or seek a competitive advantage by stocking an item not sold in other nearby stores. This affects warranties, as well.

The grey market has been problematic for decades, one consequence of globalisation--heightened by the popularity of online retail and wholesale channels. Sony battled grey market goods when the PlayStation Portable was at its height of popularity. Canon is one of several manufacturers warning that some products in UK stores were imported from other areas without the proper authorisation. At the very least, Canon warns that such products aren't eligible for its 'cash back' promotions. At worst, grey market products may not contain all the right parts (such as functioning CDs).

Hewlett-Packard warns that grey market equipment may be cheap but it might not function properly. Apple iPhones have been sold in China via the grey market. Callaway, the golf club company, has battled the grey market, as well. Tesla Motors is also dealing with the grey market. Even beer has been sold on the grey market. All these products are real, not counterfeit.

What happens when a grey market purchase malfunctions? How does the warranty work, and who is liable for the cost? How does the manufacturer deal with customers' and channel members' reactions to the grey market?

What's happening in the grey market?

Brands that carefully control their distribution still may wind up in the grey market, through which wholesalers or retailers sell products in countries or stores without official approval, often at prices that undercut those charged by authorised outlets.

Reportedly, Abercrombie & Fitch clothing and American Eagle Outfitters apparel are being sold through e-tailers in India without permission. These aren't counterfeit products; they're genuine, but the manufacturers didn't sell to these shops and haven't given permission for the shops to carry their branded clothing.

Digital cameras and other electronics are sometimes found in grey markets, priced at a discount but also without warranties or customer service support. Hot new game consoles like the PlayStation Vita, for instance, are informally available in China through the grey market, even though they're not officially distributed in that country. Even Cadbury chocolates have apparently been sold via the grey market before being officially introduced through authorised distributors in India.

Depending on each country's legal system, brand owners may have a couple of alternatives for dealing with the situation, because the grey market is--pun intended--a grey area.