RTM: My impression is that most manufacturers don’t take serious steps to stop grey markets. For many, the grey market may even be a good thing.

AC: I agree. Certainly, I think many manufacturers are simply unaware of the extent of the problem.

Others feel that the grey market, where a real branded product gets distributed through legal, but unauthorised channels, reaches markets which their full price products may not reach.

It only becomes black if the goods are fake or if they are re-imported in such a way that a law is broken, such as the avoidance of tax.

Some manufacturers actively promote and build routes to market which look very much like grey markets.

"Grey product only exists because the supplier has created pricing discrepancies which allow it."

Take clothing. Manufacturers’ factory outlets, which offer deep discounts, are akin to a grey market because they offer real, branded product at a discount price. The difference, of course, is that factory outlet stores are run by the manufacturer itself, while grey market sellers are not under the manufacturer’s control.

RTM: How big are grey markets?

AC: No one knows, but estimates for watches and cameras go as high as 20%.
RTM: So when does grey become a problem?

AC:  Where it starts to damage existing channels by undercutting them. And it really becomes a problem when the manufacturer’s authorised channel starts buying grey!  This happens all the time in the book trade  in the USA.

"Examine pricing discrepancies. Are they really justified?"

RTM: How so?

AC: Well, Marketing Channels, the textbook I co-authored, retails for $120 in the USA, but in Asia the identical book is sold for a lot less.

An Indian student came back from vacation having purchased an authorized, licensed Indian version (in English) in India for $10! This is just one example; the problem is common for all textbooks today.

But it gets worse.

The authorised channel in the USA has now tapped into this. For instance, the bookshop at Purdue University has started buying some of its textbook stock through grey channels – that way it can offer much lower prices to its students. And US book shop industry associations even give seminars for their members where they teach them how to buy from the grey market.

RTM: Which, of course, kills the margins for the publishers.

AC: Yes. Grey markets also make it very hard to get rewards right.
I came across a pharmaceutical company in Europe where grey marketeers were exporting product from Portugal to the UK.

So the pharma company’s Portuguese managers vastly exceeded their targets, whilst the Brits, who had spent a year diligently creating the demand, came nowhere near theirs.