6 Ways the Online Grey Market Hurts your Brand
People usually associate the grey market with exclusive luxury brands. Indeed, watches, eyewear, and handbags are the most targeted categories. The grey market preys on scarcity, so it usually spares mass-market brands.
But as the grey market increasingly moves online, it targets new industries. Marketplaces like Amazon make it easier to sell and move products across borders, and any price difference between two countries now creates opportunities for arbitrages.
Consumer electronics brands, for instance, face competition from marketplace sellers with parallel import stocks. The grey market is no longer a luxury-only problem.
Here are six ways the online grey market could hurt you, even if you’re not Chanel.
Damage to your brand image
By definition, grey market e-retailers are not part of your official distribution network. They operate without oversight from your e-retail team. Stocks will be sporadic. Prices will fluctuate nonstop. And obviously, product content will be off. If you’re lucky, they’ll rip it off your website. If you’re not, they’ll snap a quick phone picture.
Even if the volumes selling through grey-market channels are low, these pages hurt your brand.
Acquiring a product is a matter of emotion, and the emotion is tied to your brand. And a strong brand is what sets successful manufacturers apart from the rest.
Lack of pre- and post-sales service
For the consumer, buying a product from a grey-market channel might go relatively smoothly. That is, until the consumer needs assistance or realizes he or she has purchased the wrong product. Authorized resellers usually offer expertise, support, free returns, and the official manufacturer warranty.
Grey-market buyers will usually be turned down by the seller if they encounter an issue. The risk is that they turn to the brand, which, more often than not, is unable to process their request.
Unfair competition to authorized e-retailers
Authorized sellers are at a disadvantage when competing against grey-market sellers. Because they get their stocks from official channels, they can’t benefit from cross-border price arbitrages. They also need to support a higher cost structure: a real e-commerce site (compared to selling on marketplaces), rich content, free returns, and support staff.
Grey-market sellers’ bread and butter is to offer products at a steep markdown. By doing so, they compete directly with legitimate e-retailers and hurt their sales. While one expects e-retailers to compete between themselves, one can’t assume that they’ll be happy about low-cost direct competition.
Worldwide prices trending down
Most brands have different price lists for different countries. As value-based pricing dominates how brands do pricing nowadays, it might be perfectly rational to offer different wholesale prices in different countries, at least in theory. However, that practice is getting increasingly harder to implement, and the grey market is partly to blame.
If you don’t strictly control to whom your distributors can sell, you’ll shortly see cross-border deals. These deals happen within your authorized distribution network but occur between players that shouldn’t be doing business together. So it’s still considered within the grey market.
In the end, the lowest price point will prevail.
Lack of sell-out visibility
One of the keys to e-retail success is sell-out visibility (knowing where your products sell), both down to the final client purchase or at least to the product-page level. It is already hard to achieve as most e-retailers and distributors will only provide aggregated sell-outs every month. We should know: We created BlueBoard to give brands the product-page-level visibility they need to make the best e-retail decisions.
When you surrender part of your online distribution to grey-market channels, you lose visibility on some sales. Goods destined to be sold in Poland make their way to England. Products that were supposed to be for retail purchase end up online. This hinders your ability to make data-driven decisions.
Quality issues and low satisfaction
One common supply source of the grey market is factory rejects, especially for brands with high-quality standards. Depending on your relationship with your factory, there might be a risk that faulty or substandard products make their way to your final customer.
From then on, it’s pretty apparent how this could hurt your reputation. It doesn’t matter that the customer bought the product on a shady site; in their mind, if your logo’s on it, you’re at fault.
Are you faced with grey market issues? How do you currently monitor it? Let us know in the comments or reach out to firstname.lastname@example.org.