Understanding the Gray Market Strategy


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Globalization and expansion to new markets are some of the marketing strategies used by the enterprises to improve their bottom line.

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Understanding the Gray Market Strategy

  1. 1. Understanding the Gray Market StrategyGlobalization and expansion to new markets are some of the marketing strategies used by theenterprises to improve their bottom line. Irrespective of the size of the business, enterprises makeuse of similar business tactics to increase the revenue. This is either done by increasing efficiency,production levels, quality or by cutting costs. However, with gray markets also thriving in thebusiness environment the revenue and profit generation of the enterprise is greatly affectedAs per Wikipedias definition, “a gray market, also known as parallel market is the trade of acommodity through distribution channels which, while legal, are unofficial, unauthorized, orunintended by the original manufacturer.” These gray-market goods though legal are sold outsidethe regular distribution channels by enterprises or entrepreneurs without the permission andknowledge of the original manufacturer of the goods. Such parallel import of goods which areconducted mainly in case of electronic products, luxury items and expensive medicines orpharmaceuticals negatively impacts the brand reputation.Gray markets are unauthorized distribution channels that steer the products away from the genuinedistributors and pass it to the consumer at a lower price. By importing the products to other regionsat a lower price provides the grey marketers and the product manufacturers a large customer base,however, the difference in the price of products is what damages the organizations trademark andbrand reputation. Such activities also strain the manufacturer and dealer relationship which again hasan adverse effect on the business. Further, as these gray market products are not sold in the regionfor which it is intended to, can create legal liabilities for the brands.Globalization, organizations web presence and e-commerce are factors that have paved the way forgray markets to thrive in the business environment. This gray market activity is very detrimental toevery industry sector, more so for the IT industry. Reports from the study conducted by KPMG
  2. 2. showcases that IT product manufacturers collectively end up losing up to US$5 billion in profitsannually as a result of the parallel market activities.Since the gray market is an age old phenomena, over the years, enterprises and the governmenthave taken strategic actions and brought in compliance regulations to combat these unauthorizedperpetrators. Nevertheless, to control the speed at which this parallel market is thriving, leadingservice providers have worked out a robust enterprise risk management solution for the globalenterprises. Besides, their anti-counterfeiting solutions facilitate enterprises to locate the violatorsfrom the online marketplace so that proactive measures can be taken to stop or control suchactivities.Read More About: Brand Management, Anti-Fraud