Everyone loves getting great discounts and deals while shopping.
Who wouldn’t love buying a top-of-the-line smartphone or a branded watch online at a bargain price? It indeed feels like you’ve hit the jackpot, until the phone malfunctions and you discover there’s no warranty.
That’s a very common example of risk when buying from grey sellers, and this is one of the many hidden costs that consumers (and brands) pay for getting their hands while trusting unofficial sellers. The grey market sellers offer products at tempting prices but with hidden costs to both consumers and brands.
While grey sellers selling through unauthorized channels is a global issue, some markets suffer more than others due to the difference between supply and demand. For example, in Singapore, buyers often turn to the grey market to purchase luxury watches. The demand for these watches and the grey luxury goods market made the headlines in 2022 after a couple who were selling them went missing with millions of dollars of their customers’ money.
In today’s digital age, the grey market has become a big challenge, as it distorts market dynamics and impacts brand integrity and consumer trust.
Challenges for sellers and buyers
Brands are not designed to sell themselves. They operate through a network of dealers and distributors with deep knowledge about the local market. Sometimes, through price arbitrage, stolen goods, or parallel import, these products land in the hands of grey sellers.
Those unauthorized distributors and sellers use digital channels to make these products available to a large consumer base, throwing a wrench into the well-oiled machinery of legitimate retailers.
Luxury brands, in particular, struggle against unauthorized sellers as the luxury market thrives on exclusivity and a carefully curated brand experience. The selling of goods outside of brand-approved channels ruins their plans, harming the brand’s reputation and diminishing perceived value. When a luxury item is available at a much lower price in the grey market, it creates a perception that the brand is not doing very well, or that the brand is dominated by unauthorized channels. This also impacts sales as consumers who love the brand decide not to buy those products because they see the same products being sold in the grey markets at a much lower price. It then becomes very difficult to even identify if they are genuine products or not.
A recent news report stated that Watches of Switzerland, an authorized dealer of a luxury brand of watches, sells their leading automatic watch in rose gold for £42,600, but an unauthorized US dealer, Watch My Diamonds, sells the same watch on the “grey market” for $34,850 (£27,227). This price disparity dilutes the premium perception of the brand and makes it harder for authorized dealers to compete. Additionally, the lack of control over the customer experience through unauthorized sales can harm the overall brand experience.
For sellers in general, the grey market’s impact on pricing strategies and brand integrity is profound. Authorized sellers pour resources into marketing, customer service, and ensuring top-notch product quality—all of which justify their prices. When grey market operators offer the same products at a fraction of the cost, it triggers a race to the bottom, eroding brand value and slashing profit margins for legitimate sellers.
That said, the revenue raked in by the grey market is quite significant. Grey seller categories like apparel generates 18 percent, consumer electronics obtains 14 percent, and jewelry earns around 13.5 percent revenue.
Beyond these immediate concerns, the grey market presents a maze of legal and regulatory challenges. Manufacturers and authorized sellers are often forced to divert resources into tracking and combating unauthorized sellers. This includes legal battles and enhanced tracking mechanisms, taking funds away from innovation and customer service enhancements. Market data gets distorted, complicating inventory management and demand forecasting. Moreover, international trade relations can get tangled in this web, with grey market activities often flouting trade agreements and local regulations.
For consumers, the attractiveness of grey market bargains often comes with a bitter aftertaste. Venturing into the grey market can feel like a treasure hunt, but instead of gold doubloons, you’re after designer handbags and the latest gadgets.
Quite simply, grey market sellers may not have robust return or exchange policies, leaving buyers stuck with unsatisfactory products.
Then, the absence of an official warranty is a significant drawback, leaving buyers unprotected if products malfunction. Manufacturers often do not honor warranties for items purchased through unauthorized channels and access to authorized service is typically limited. As a result, buyers may need to pay for repairs or replacements out of pocket.
Often imported, grey market products may be tailored for different regions, with variations in features, software, or hardware that may not be fully compatible with Singapore’s standards or preferences. For instance, electronic devices may have different power requirements or lack certain frequency bands.
While grey market goods are generally genuine, there is a small risk of counterfeit products being misrepresented as grey market items. Consequently, buyers may face health and safety risks due to inferior quality materials, fake products bypassing safety and testing standards, which can increase the likelihood of allergies, injuries, or even life-threatening incidents. Additionally, they may be exposed to legal risks, such as fines, legal consequences, or customs seizures.
Finally, Singapore’s consumer protection laws, such as the Consumer Protection (Fair Trading) Act (CPFTA), may not fully cover purchases made through unauthorized sellers. As a result, buyers may encounter difficulty in seeking redress for defective or misrepresented goods.
The ultimate risk is turning to dishonest resellers, such as these two companies in Singapore, which allegedly failed to deliver luxury watches and bags after receiving substantial advance payments.
These goods often escape the rigorous quality controls of authorized channels, raising the specter of counterfeit or substandard products. What seemed like a sweet deal can quickly turn sour, leading to financial losses and mounting frustration. On the flip side, discovering grey market products can be a double-edged sword for brand loyalty. When customers find out that they could have paid less elsewhere, it can leave a sour taste, making them question the brand’s pricing and value proposition. This suspicion extends beyond just the brands themselves, impacting the trust consumers place in authorized retailers. Why pay more at a legitimate store when the same product is a click away at a lower price? This dilemma not only challenges consumer-brand relationships but also shakes the foundation of traditional retail, forcing a rethinking of how value and trust are built in the modern marketplace.
It thus becomes crucial for brands and consumers to be alert and tackle grey market sellers. The stakes are high, as brands’ revenues and customer’s safety are compromised. Effective countermeasures are not just a defensive strategy; they are essential to nurturing a robust e-commerce ecosystem.
The path to protection: Monitoring the grey market
Moving forward, both buyers and sellers need to adopt smart strategies to navigate the grey market’s murky waters. While some Luxury brands have been quick to act, only 15 percent to 36 percent of businesses in the CPG industry are prepared enough to protect their brand image, according to a research.
For sellers, comprehensive monitoring and enforcement strategies are crucial. This includes investments in the right technology infrastructure, that enables marketplace monitoring to track unauthorized listings and price tracking to maintain pricing integrity across various platforms. Proactive customer feedback collection and analysis can help identify and mitigate grey market impacts. Maintaining strong relationships with authorized distributors and taking legal action against persistent grey market sellers can also help protect market share and uphold brand reputation.
Brands are investing a lot in the legal capacity for brand protection. More brands are hiring experts in this domain to identify unauthorized channels. Brands are also investing in technology to identify and act faster against unauthorized sellers and distributors. An example of this is that many brands today are creating a digital twin for their products. So, every product is unique and there is a digital replica of the product which provides full transparency when and where the product is sold, if it is exchanged between one customer and another.
Overall, effective grey market monitoring enhances customer trust, drives sales, and fosters mutual growth with retail partners, ensuring long-term success in a competitive marketplace. Embracing grey market monitoring is not just a defensive tactic; it’s a proactive approach to ensure long-term success in a competitive marketplace.
On the buyer’s side, the key is to stick to authorized retailers and remain vigilant about product authenticity. This means verifying seller credentials, reading customer reviews, and looking for telltale signs of genuine listings, such as consistent pricing and official brand communication. Engaging with the brand’s customer service for purchase verification can also be a useful step in ensuring you’re getting the real deal.
Ultimately, staying informed and proactive is essential for both buyers and sellers. Brands should continuously update their monitoring technologies and strategies to stay one step ahead of grey market activities, while buyers should educate themselves about the risks and benefits of purchasing from authorized sources. This collective effort will help create a safer and more trustworthy marketplace for everyone involved.
Vaibhav Dabhade is the Founder and Chief Executive Officer of Anchanto.
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