Gray market - An introduction

Gray market

1. Prepared by :
Mrinal
Gaurav

2. Gray Market Products:
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3. Euro Gray Market 280SL parting out -
Benzworld.org - Mercedes-Benz…

4. Gray-market Weapon Prices
Surge in Iraq Chaos.

5. WHAT
Definition
A gray market is the trade of a commodity
through unauthorized distribution channels or
unintended by the original manufacturer
An unofficial market in which goods are bought
and sold at prices lower than the official price set
by a regulatory agency.
It is sometimes referred to as the underground
economy or "hidden economy."

6. Types of Markets
TWO MAIN TYPES OF GREY MARKETS ARE
The first refers to imported manufactured goods.
(Typically, these products would be unavailable or
expensive).
The second type of grey market in existence is the
unissued securities that are not yet traded in official
markets (i.e. the selling of goods that are not even
on the market yet—such as selling a version of a
software product or gaming system before it
becomes available to the public).

7. Statistics
The gray market increased to a mammoth rate of
120% to € 7.4 billion in 2006.
Statistic shows only 20-50 % accounts for authorised
sale in International Market
Rest accounts in terms of Grey Market

8. Types of Product
 Gray markets are omnipresent.
We can see gray markets in Electronic, Share
market, automobiles, construction industry,
pharmacy, health and beauty aids to name few.

9. WHERE
Places where grey markets are
active
1. High-end fashion apparel
2. Electronics business


It is hard to get data on gray market activity
because
people often lump gray market together whit black
markets)

10. Facts of Trade
Goods purchased in Gray market will not honor
warranties . For example : Electronics goods
Availability of inferior goods.
Gray goods are said to benefit the consumer
Gray goods undercut prices offered by
authorized dealers, confuse consumers, and
even reduce consumer goodwill when the
products materially differ from those intended for
distribution.

11. Activities in different region
In the European Union grey markets increased 120%
to 7.4billion by 2006
In Malaysia cell phones purchased on the grey
market account for 70% of total cell phone sales
In India sales of grey market PCs outnumber
authorized sales by 2:1

12. WHO
Culprits/victims
The middlemen , unauthorised dealers are the
culprits.
The sole distributors are the main victims.

13. Effects
Authorised distributors lose their status as sole
distributor
Customers who paid top dollars for exclusive
products feel cheated
Adverse impact on the relationship and trust
between members of distribution network
A manufactures ability to stand behind its products
is taken for granted
Undermining segmented pricing schemes
Reputation and legal liability

14. WHEN

Gray markets are beneficial
 If they reach previously untapped markets.
 When they allow suppliers to overcome supply

 Constrains and shortage
 When competition is necessary
 When distribution channels cannot change
quickly
 Enough to meet new market realities
 When market segmentation is required

15. 1. Incremental Sales
 Gray markets are beneficial if they reach previously
untapped markets.
For example, cell phone manufacturers competing in
Malaysia.

16. 2. Supply Constraints
Gray markets are beneficial if they allow suppliers to
overcome supply constraints and shortages.
For example, IBM Corp

17. 3. Market Segmentation
 It is sometimes difficult to segment a market within
an existing distribution channel structure.
Continued example, IBM. used a dual-channel
strategy to sell profitably in high-end markets while
still reaching more price-sensitive consumers with
gray market products.

18. How
1. Sensing
To develop a mechanism to detect where, when
and to what extent the gray market violation are
occurring.
Example:
─Tracking software which flags sudden spikes in orders
placed by the distributors.
Web crawlers that sift through the Internet’s billions
of pages to identify potential instances of
unauthorized sales.

19. 2. Speed
How fast can the company could take the action
against the violations. It helps in two ways
a)The quick response against the violations will limit
the participation in the gray market as the punitive
consequences is costly.
b)The agent will get less time to enjoy the profit from
the gray market participation.
Example: Toyota and Chrysler

20. 3. Severity
Building a capability to apply the right degree of
punishment.
Example
─General Motor charged Canadian dealers caught
selling cars to the US the difference between
Canadian and U.S dealer invoice prices.
─Automotive dealer was cut off from the hottest
model product line for three months after being
caught gray marketing.

21. continued…
Proactive approach
-Charging the same price to all market like
LVMH
-Introducing new products constantly and steadily
discounting the previous generation’s products
like Intel Corp.

22. http://www.youtube.com/watch?
v=Wbc0Y8HUH_Y