The grey market: how to reduce unauthorised sales of your products

Selling products without authorisation from the brand is one of the most common problems in the digital environment. This is what is known as the grey market since it lies at the limit of correctness, even dipping into illegality in certain cases.

Keeping track of the digital outlets that sell your products can be a mammoth task, but it’s possible to keep yourself up to date through the use of monitoring tools. Let’s review what the grey market is, what it means to the brand, and how you can combat it.

How is the grey market generated?

The grey market isn’t only found in the world of online sales. Nevertheless, the grey market has greatly expanded in the world of eCommerce due to the ability to relocate and work remotely it offers, thus escaping the scrutiny of the brands themselves. 

The grey market often involves the sale of products by unauthorised third parties; in other cases, it can even be considered part of the sale of counterfeit goods, although this is a much more serious issue that can be dealt with directly through legal channels.

In the case of unauthorised resellers, this quasi-resale situation can occur for several reasons. As a general rule, these all have an official distributor as intermediary. There are some specific situations that can lead to these practices, among which we would like to highlight the following:

• Stock liquidation: products that are no longer consumed, with low demand, or even those that have been left out of the brand’s official catalogue.
• Excess stock: in specific cases, the seller might identify that it’s going to be impossible to create a sales campaign for certain products and reaches an agreement with a third party for derivative sales.

This practice is also often carried out by unreliable distributors who, when faced with certain market circumstances, decide to not comply with the rules for the sale of the products.

In the end, what’s left are those cases in which a grey market situation is generated by the sale of stolen merchandise. 

What harmful effects does the grey market have on the brand?

The first negative consequence for the brand is the most obvious: the lack of control over what the market does with its products. This is precisely where all the problems that we are going to mention next stem from.

The crisis that the brand faces in terms of the consumer is one of the most important. Whether due to the sales of products by unserious distributors or with low guarantees, the brand risks the public associating these two actors as one and the same, causing a serious decline in the real perception of the products in the imagination of the audience.

It’s vitally important to keep in mind that these distributors can also play around with the prices of the products illegally. Price is a key factor in your brand image, which can find itself altered by policies that have nothing to do with its sales lines.

In some cases, these unauthorised sales can cause real problems with collective responsibilities. For example, these include the sale of expired food products, technology products that don’t comply with regulations, or hygiene products in poor condition. This can be a great obstacle for the brand, for whom the responsibility for the maintenance and sale of this stock remains beyond its control.

How to fight the grey market from home

The key for brands to stop the grey market lies in their aforementioned control over their distributors. How can you do this?

The only way to do so is to know exactly where your products are being sold, including marketplaces, official distributors, and all other possible channels.

Price monitoring software and MAP monitoring software allow you to harvest the web for references to your catalogue. While this tool wasn’t conceived for this objective a priori, it can help you detect where your products are being sold, in what conditions, and if the sellers are on your list of friendly sellers.

When you get this information, what are the signs that a grey market exists?

1. Resellers that sell for below your suggested retail price (SRP). This can be key to identifying malpractice that can give rise to a grey market that is out of your control. This may also be a sign that they’re obtaining the products illegally; otherwise, they would be incurring losses.
2. Unknown eCommerce businesses and marketplaces. This is the clear identification of those who are not on your regular distributor list. This can help you to find out who the product suppliers are, regardless of the pricing policy they’ve put in place.
3. Available stock in each sales channel. Thanks to the analysis of the stock in your sales channel, you can check to see if the numbers between the sales made by your distributors and your actual stock match up. If this isn’t the case, there might be another participant backstage.

In any case, preaching about the benefits of the brand among the consumers is key to avoid the effects that the grey market can have on your company. It’s essential to openly communicate which are the official distributors or resellers that have been recognised as such by the brand. One good practice that brands which don’t sell directly on the internet participate in is to link directly to the online stores where the user can acquire their products. You can see an example of this with Essie, an international brand offering nail products. Its website allows the buyer to select their preferred eCommerce business from a list of options.

Fighting against the online grey market isn’t an easy task. But it’s a necessary step that will help you decide which will be the best online partners for your brand in the future.