You’ve probably heard of the black market, but what about the gray market? While the black market is a place for illegal trade and traffic in goods and services, the gray market, as the name implies, is a bit less cut and dried. Strictly speaking, the gray market operates legally but without the permission of the brands it carries. Manufacturers and brands sell their goods to distributors, who sell those goods to retailers, who sell the goods to their customers. The gray part happens when, for example, the retailer can’t sell its stock and so sells it at a discount to other retailers who may, in turn, sell it for a cheaper price. Which seems fair until you realize the gray market comes with its issues. Small businesses face several challenges, and the gray market only adds to them. Here are four big concerns about the gray market for small businesses.
A warranty or guarantee rarely backs a gray market good. Customers who purchase on the gray market may not be aware of it and will ascribe any issues with the product to the original manufacturer. This issue can destroy a brand’s reputation. It’s especially onerous if a manufacturer discontinues or ceases production of a product and orders the destruction of off-spec goods. Flawed and dangerous products can ruin public goodwill if retailers seize and sell these off-spec products destined for the dumpster on the gray market.
The original business sets the prices of its goods; however, the presence of gray market goods marks down the price considerably, affecting the business’s ability to make a profit. These markdowns prevent the business from investing in their products and others. Such disparity in pricing also confuses the consumer, who may think they’re getting a better deal on the gray market but aren’t.
Often, other regions or countries may sell gray market goods. These sales can lead to issues with the location’s laws and retail standards. A North American product—a vehicle, for example—sold in another country may require costly changes to meet emission or safety standards. Again, a consumer, unaware of the gray market status of the product, may end up blaming the manufacturer rather than the individual who sold it to them, leading to further tainting of the brand.
The last of the four big concerns about the gray market for small businesses has to do with the quality of the products sold. Counterfeits and poorly manufactured products disguised as your product may intermingle with gray market goods. Furthermore, the sale of your goods on the gray market may fund criminal activities. Beyond the damage to your brand, bad products can lead to poor performance at best and accidents, injuries, and even death at worst.
The best way to fight the gray market is to monitor where you sell your products and by whom and to destroy off-spec and similarly expired products before they enter the market. Protect yourself and your customers!
