Prepared by :Mrinal Gaurav

Gray Market Products: Stealing Legitimate IT Sales?

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WHAT Definition

A gray market is the trade of a commodity through unauthorized distribution channels or unintended by the original manufacturer

An unofficial market in which goods are bought and sold at prices lower than the official price set by a regulatory agency.

It is sometimes referred to as the underground economy or "hidden economy."

Types of MarketsTWO MAIN TYPES OF GREY MARKETS ARE The first refers to imported manufactured goods. (Typically, these products would be unavailable or

expensive). The second type of grey market in existence is the

unissued securities that are not yet traded in official markets (i.e. the selling of goods that are not even on the market yet—such as selling a version of a software product or gaming system before it becomes available to the public).

Statistics The gray market increased to a mammoth rate of

120% to € 7.4 billion in 2006.

Statistic shows only 20-50 % accounts for authorised sale in International Market

Rest accounts in terms of Grey Market

Types of Product Gray markets are omnipresent.

We can see gray markets in Electronic, Share market, automobiles, construction industry, pharmacy, health and beauty aids to name few.

WHEREPlaces where grey markets are active

1. High-end fashion apparel 2. Electronics business It is hard to get data on gray market activity becausepeople often lump gray market together whit blackmarkets)

Facts of Trade Goods purchased in Gray market will not

honor warranties . For example : Electronics goods

Availability of inferior goods. Gray goods are said to benefit the consumer Gray goods undercut prices offered by

authorized dealers, confuse consumers, and even reduce consumer goodwill when the products materially differ from those intended for distribution.

Activities in different region In the European Union grey markets increased 120%

to 7.4billion by 2006 In Malaysia cell phones purchased on the grey

market account for 70% of total cell phone sales In India sales of grey market PCs outnumber

authorized sales by 2:1

WHOCulprits/victims

The middlemen , unauthorised dealers are the culprits. The sole distributors are the main victims.

Effects Authorised distributors lose their status as sole

distributor Customers who paid top dollars for exclusive

products feel cheated Adverse impact on the relationship and trust

between members of distribution network A manufactures ability to stand behind its products

is taken for granted Undermining segmented pricing schemes Reputation and legal liability

WHEN

Gray markets are beneficial If they reach previously untapped markets. When they allow suppliers to overcome supply Constrains and shortage When competition is necessary When distribution channels cannot change quickly Enough to meet new market realities When market segmentation is required

1. Incremental Sales

Gray markets are beneficial if they reach previously untapped markets.

For example, cell phone manufacturers competing in Malaysia.

2. Supply Constraints Gray markets are beneficial if they allow suppliers to

overcome supply constraints and shortages.

For example, IBM Corp

3. Market Segmentation It is sometimes difficult to segment a market within

an existing distribution channel structure.

Continued example, IBM. used a dual-channel strategy to sell profitably in high-end markets while still reaching more price-sensitive consumers with gray market products.

How 1. Sensing To develop a mechanism to detect where, when

and to what extent the gray market violation are occurring. Example:─ Tracking software which flags sudden spikes in orders

placed by the distributors. Web crawlers that sift through the Internet’s billions

of pages to identify potential instances of unauthorized sales.

2. Speed How fast can the company could take the action

against the violations. It helps in two waysa) The quick response against the violations will limit

the participation in the gray market as the punitive consequences is costly.

b) The agent will get less time to enjoy the profit from the gray market participation.Example: Toyota and Chrysler

3. Severity Building a capability to apply the right degree of

punishment.Example─ General Motor charged Canadian dealers caught

selling cars to the US the difference between Canadian and U.S dealer invoice prices.

─ Automotive dealer was cut off from the hottest model product line for three months after being caught gray marketing.

continued…

Proactive approach- Charging the same price to all market like LVMH- Introducing new products constantly and steadily

discounting the previous generation’s products like Intel Corp.

http://www.youtube.com/watch?v=Wbc0Y8HUH_Y