Question

International marketing

Explain the meaning of a ‘grey market’ and describe how such a market can be created. What steps might a firm take to reduce the opportunity for the creation of a grey market?  

Answer 1

A grey market is a market in which products are sold outside the brand owners' approved distribution channels. This type of activity is not illegal, one can do it.

Grey market can be created due to the following reasons:

Low price competition: Grey market is created to sell the products at a low price in order to gain competitive advantage. Producers often charge higher prices in one country than another. This creates an opportunity for sellers to import goods and sell them at a lower price than the authorized distributors. E-commerce sellers, mainly import the goods and sell it in a country at a low price where it is not available. By doing this they gain the competitive advantage in the market.

Blocked distribution: Some manufacturers restrict a few distributor from selling their products, but the distributors sell their products by purchasing it from the grey market. They buy the product at a low price and sell them through an illegal distribution channel.

In order to identify an outflow of products to the grey market, the firms should monitor the situation. This includes regular test purchases and serial number tracking, the evaluation of cases and other illegal activities. An intelligence platform is required to compile and analyse the data from reports, documents, emails, websites and telephone recordings. By doing this manufacturers can reduce the opportunity for the creation of a grey market.