The potential impact of

gray/parallel trade in the

electronic industry.
 Introduction
 Definition
 Forms of Gray Market
 Causes
 Effects and Consequences
 Solution
 Conclusion
 References
 US Air-compressor manufacturer - all
indicators proved that they were growing
in Germany but the true value of their
sales showed it was stagnant
 Problem Identification and findings
 Three other dealers instead of one authorized
dealer

Myers , B., & Griffith, A., (1999),

“Strategies for Combating Gray Market Activity,” Business Horizons , Nov-Dec
 1. White Markets (Registered/Genuine
Product and Authorised dealer - iPhone-
O2)
 2. Black Market (Illegal and unauthorised
dealer– heroine, weapons)
 3. Gray Market
 Gray marketing is the sale of genuine
trademarked products through [legal] distribution
channels unauthorized by the manufacturer or
brand owner (Anita et al., 2006)
 It could be Domestic or International
(parallel/lateral) (Thomas & Peters, 2006; Doole &
Lowe, 2001)
 Degree of preference or favourability varies -
depending on the direction of flow (Zafar, 1999)
 Parallel Importation
Parallel
Re-importation

Lateral importation Lateral

 Doole, I. & Lowe, R., (2001), International Marketing Strategy; Analysis, Development and
Implementation, 3rd. edn, London, Thomson Learning
 Doole, I. & Lowe, R., (2001), International Marketing Strategy; Analysis, Development and
Implementation, 3rd. edn, London, Thomson Learning
 Tangible products (lumber and electronic components)
 Intangibles (broadcast signals, IPOs)
 Massive goods (automobiles and heavy construction
equipment)
 Light, easily shipped products (watches and cosmetics)
 Mundane (health and beauty aids) and
 Life saving (prescription drugs) (Anita et al., 2004)

However, for the purpose of this presentation we

would be focusing on tangible products
(Electronics)
 Malaysia - cell phones purchased on the
gray market account for 70% of total cell
phone sales. (Anita et al., 2004)
 In India, sales of gray market personal
computers outnumber authorized sales by
two to one. (Anita et al., 2004)
 An iPod is $160 cheaper than the $440 that
authorized dealers sell it in India. (Wired,
2006)
STANDARDIZE PRICE

OR
STANDARDIZE PRODUCT

OR
 Price differentials that are large enough
(Thomas & Peters, 2006)
 Easy access from one market to another
(Thomas & Peters, 2006)
 Managerial incentive that is outcome-based
(Zafar, 1999)
 Attempt to cover costs or meet quotas (Anita
et al., 2004)
 Excess inventory problems. (Zafar, 1999)
 Difficulty to differentiate between ordinary
customer and a potential reseller. (Zafar,
1999)
 Poor or unstable financial health of network
partner (Zarley & Burke, 2006)
 Degree of product standardization (Cavusgil &
Sikora, 1988 cited in Myers, 1999)
 Consumers attitude towards quality-price
inference and risk
 Manufacturer
 Undermine companies' existing international price
differentiation strategies (Backhaus, 2007) and
Marketing strategies (Usinier, 2009)
 Forces them to hold down prices to dealers (Badley,
2002)
 Erodes consumer’s confidence in Global companies
(Doole & Lowe, 2001)
 Loss of marketing control. (Zafar, 1999)
 Manufacturer
 Increased or decreased sales and profits (Cavusgil &
Sikora, 1988; Zafar, 1999)
 Eroding of brand equity (Cavusgil & Sikora, 1988, Anita et
al., 2004), reputation and dilution of exclusivity (Anita et
al., 2004)
 Strain on manufacturer-dealer relations. (Cavusgil &
Sikora, 1988)
 Legal liabilities (Cavusgil & Sikora, 1988) and litigation
costs
 Distributor or Reseller
 Forced to lower prices (Badley, 2002)
 Price-based competition (Zafar, 1999)
 Increase or decrease in sales and customer
base (Bannerji, 1990)
 Inability to justify investment in added-
services
 Consumers
 Quality products at cheaper prices (Prince &
Davies, 2000)
 Price-quality inference confusion (Gallini &
Hollis, 1999; Doole & Lowe, 2001)
 Loss of after-sales services (WIRED, 2006)
STANDARDIZE PRICE = Alienate some customers in certain

countries

ADAPT PRICE = Encourage opportunistic Gray Marketers

 1
REACTIVE STRATEGY

3 GRAY

2 MARKET
PROACTIVE STRATEGY

(Cavusgill & Sikora, 1988)

 Reactive Strategies
 Quick response to price-differentials due to
currency fluctuations
 Price cutting
 Supply interference
 Legal action
 None or expensive after-sales service
 Punishment – revoking of distributors rights
legal dealer selling to unauthorised dealers
 Private investigation/investigators
 Proactive Strategies
 Unbundle services – (Bannerji, 1990)
 Establishment of legal precedence
 Join or form AGMA (Anti-Gray Market Alliance)
 Educate Consumers
 Toll-free hotline to encourage the public’s
assistance
 Proactive Strategies
 Coordinate distribution channel horizontally
 Marketing Information System accessible
to all
 Increased distributor communication
 Centralize pricing decisions
 Inventory Management
 • Coordinate distribution
MANUFACTURER channel horizontally
• Web-accessible database
• Increased distributor
communication
• Differentiate distributors
products (bar-codes,
serial numbers or
secondary trade-marks)
A B C D E
• Provide technical
assistance where
necessary e.g. stocking
and inventory control

GAPS FOR GRAY MARKETING TO TAKE PLACE

A, B, C, D and E are different distributors in different countries/territories

 Price Discrimination

 Brand equity

 Prevention of free-riding
 Focus on leaks (i.e. product diverters) rather than
product differentiation or litigation. (Zarley & Burke,
2006)
 Distributors also should ensure legal precedence as
regards Manufacturers
 Finally, exclusion of gray goods should be allowed,
except when it is used to facilitate collusion or to
enforce anticompetitive price discrimination (Lee,
2006).