The potential impact of gray/parallel trade in the

electronic industry.

Introduction Definition Forms of Gray Market Causes Effects and Consequences Solution Conclusion References

US Air-compressor manufacturer - all indicators proved that they were growing in Germany but the true value of their sales showed it was stagnant

Problem Identification and findings Three other dealers instead of one authorized

dealer

Myers , B., & Griffith, A., (1999),“Strategies for Combating Gray Market Activity,” Business Horizons , Nov-Dec

1. White Markets (Registered/Genuine

Product and Authorised dealer - iPhone-

O2)

2. Black Market (Illegal and unauthorised

dealer– heroine, weapons)

3. Gray Market

Gray marketing is the sale of genuine trademarked products through [legal] distribution channels unauthorized by the manufacturer or brand owner (Anita et al., 2006)

It could be Domestic or International (parallel/lateral) (Thomas & Peters, 2006; Doole & Lowe, 2001)

Degree of preference or favourability varies - depending on the direction of flow (Zafar, 1999)

Doole, I. & Lowe, R., (2001), International Marketing Strategy; Analysis, Development and Implementation, 3rd. edn, London, Thomson Learning

Parallel Importation

Re-importation

Lateral importation

Parallel

Lateral

Doole, I. & Lowe, R., (2001), International Marketing Strategy; Analysis, Development and Implementation, 3rd. edn, London, Thomson Learning

Tangible products (lumber and electronic components)

Intangibles (broadcast signals, IPOs) Massive goods (automobiles and heavy

construction equipment) Light, easily shipped products (watches and

cosmetics) Mundane (health and beauty aids) and Life saving (prescription drugs) (Anita et al., 2004)

However, for the purpose of this presentation we would be focusing on tangible products (Electronics)

Malaysia - cell phones purchased on the gray market account for 70% of total cell phone sales. (Anita et al., 2004)

In India, sales of gray market personal computers outnumber authorized sales by two to one. (Anita et al., 2004)

An iPod is $160 cheaper than the $440 that authorized dealers sell it in India. (Wired, 2006)

OR

STANDARDIZE PRICE

OR

STANDARDIZE PRODUCT

Price differentials that are large enough (Thomas & Peters, 2006)

Easy access from one market to another (Thomas & Peters, 2006)

Managerial incentive that is outcome-based (Zafar, 1999)

Attempt to cover costs or meet quotas (Anita et al., 2004)

Excess inventory problems. (Zafar, 1999)

Difficulty to differentiate between ordinary customer and a potential reseller. (Zafar, 1999)

Poor or unstable financial health of network partner (Zarley & Burke, 2006)

Degree of product standardization (Cavusgil & Sikora, 1988 cited in Myers, 1999)

Consumers attitude towards quality-price inference and risk

Manufacturer Undermine companies' existing international

price differentiation strategies (Backhaus, 2007) and Marketing strategies (Usinier, 2009)

Forces them to hold down prices to dealers (Badley, 2002)

Erodes consumer’s confidence in Global companies (Doole & Lowe, 2001)

Loss of marketing control. (Zafar, 1999)

Manufacturer Increased or decreased sales and profits

(Cavusgil & Sikora, 1988; Zafar, 1999) Eroding of brand equity (Cavusgil & Sikora,

1988, Anita et al., 2004), reputation and dilution of exclusivity (Anita et al., 2004)

Strain on manufacturer-dealer relations. (Cavusgil & Sikora, 1988)

Legal liabilities (Cavusgil & Sikora, 1988) and litigation costs

Distributor or Reseller Forced to lower prices (Badley, 2002) Price-based competition (Zafar, 1999) Increase or decrease in sales and customer

base (Bannerji, 1990) Inability to justify investment in added-

services

Consumers Quality products at cheaper prices (Prince &

Davies, 2000) Price-quality inference confusion (Gallini &

Hollis, 1999; Doole & Lowe, 2001) Loss of after-sales services (WIRED, 2006)

STANDARDIZE PRICE = Alienate some customers in certain

countries

ADAPT PRICE = Encourage opportunistic Gray Marketers

(Cavusgill & Sikora, 1988)

GRAY

MARKET

REACTIVE STRATEGY

PROACTIVE STRATEGY

1

2

3

Reactive Strategies Quick response to price-differentials due to

currency fluctuations Price cutting Supply interference Legal action None or expensive after-sales service Punishment – revoking of distributors rights

legal dealer selling to unauthorised dealers Private investigation/investigators

Proactive Strategies Unbundle services – (Bannerji, 1990) Establishment of legal precedence Join or form AGMA (Anti-Gray Market Alliance) Educate Consumers Toll-free hotline to encourage the public’s

assistance

Proactive Strategies Coordinate distribution channel horizontally Marketing Information System accessible

to all Increased distributor communication Centralize pricing decisions Inventory Management

MANUFACTURER

A B C D E

GAPS FOR GRAY MARKETING TO TAKE PLACE

A, B, C, D and E are different distributors in different countries/territories

• Coordinate distribution channel horizontally

• Web-accessible database

• Increased distributor communication

• Differentiate distributors products (bar-codes, serial numbers or secondary trade-marks)

• Provide technical assistance where necessary e.g. stocking and inventory control

Price Discrimination

Brand equity

Prevention of free-riding

Focus on leaks (i.e. product diverters) rather than product differentiation or litigation. (Zarley & Burke, 2006)

Distributors also should ensure legal precedence as regards Manufacturers

Finally, exclusion of gray goods should be allowed, except when it is used to facilitate collusion or to enforce anticompetitive price discrimination (Lee, 2006).