2010

SEMINAR REPORT
ON

GRAY MARKETING

JUNE, 7 20101
 SEMINAR REPORT

Department Of Business Management and Sciences,

University of Agriculture, Faisalabad.

MBA Marketing

Submitted to:
Sir Yawar Abbas

Submitted By:
Muhammad Irfan Abid

Registration No.
2008-ag-186

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GRAY MARKETING:

Generally, a manufacturer works with a single importer who can sell and
support their products in a given region. The importer usually has local
dealers and distributors who resell the imported products; this is called a
"distribution channel". Gray Market refers to merchandise that is imported
and sold by methods other than these normal channels.

Gray Market items are not designed to be sold in a particular market and
cannot be supported by the authorized importer because they may not meet
mandatory safety and certification codes. Because these items are not
designed for a particular market they may not function properly, or the
authorized importer may not be equipped to provide service, support or
software.

With the opening of international borders and the use of the Internet to sell
goods, Gray Market equipment has become extremely common in the
photographic and consumer electronics markets. Many different types of
equipment are brought into North America for sale without the proper
documentation and US consumers do not always know what they are
purchasing.

DESCRIPTION:

Unlike black market goods, grey-market goods are not usually illegal.
Instead, they are sold outside normal distribution channels by companies
which may have no relationship with the producer of the goods. Frequently
this form of parallel import occurs when the price of an item is significantly
higher in one country than another. This situation commonly occurs with
electronic equipment such as cameras, TVs etc. Entrepreneurs buy the
product where it is available cheaply, often at retail but sometimes at
wholesale, and import it legally to the target market. They then sell it at a
price high enough to provide a profit but under the normal market price.
International efforts to promote free trade, including reduced tariffs and
harmonized national standards, facilitate this form of arbitrage whenever

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manufacturers attempt to preserve highly disparate pricing. Because of the
nature of grey markets, it is difficult or impossible to track the precise
numbers of grey-market sales. Grey-market goods are often new, but some
grey market goods are used goods. A market in used goods is sometimes
nicknamed a Green Market.

Importing certain legally restricted items such as prescription drugs or

firearms would be categorized as black market, as would smuggle the goods
into the target country to avoid import duties. A related concept is
bootlegging, the smuggling or transport of highly regulated goods,
especially alcoholic beverages. The term "bootlegging" is also often applied
to the production or distribution of counterfeit or otherwise infringing goods.
Grey markets can sometimes develop for select video game consoles and
titles whose demand temporarily outstrips supply and the local shops run out
of stock, this happens especially during the holiday season. Other popular
items, such as dolls can also be affected. In such situations the grey market
price may be considerably higher than the manufacturer's suggested retail
price. Online auction sites such as eBay have contributed to the emergence
of the video game grey market.

FROM THE MANUFACTURER ASPECT:

Manufacturers may give the same item different model numbers in different
countries, even though the functions of the item are identical, so that they
can identify grey imports. Manufacturers can also use batch codes to enable
similar tracing of grey imports. Parallel market importers often de-code the
product in order to avoid the identification of the supplier. In the United
States, courts have decided that decoding which blemishes the product is a
material alteration, rendering the product infringed. Parallel market
importers have worked around this limitation by developing new removal
techniques.

The development of DVD region codes, and equivalent regional-lockout

techniques in other media, are examples of technological features designed
to limit the flow of goods between national markets, effectively fighting the
grey market that would otherwise develop. This enables movie studios and
other content creators to charge more for the same product in one market

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than in another or alternatively withhold the product from some markets for
a particular time. Consumer advocacy groups argue that this discrimination
against consumersthe charging of higher prices on the same object simply
because of where they happen to liveis unjust and anti-competitive. Since
it requires governments to legislate to prevent their citizens from purchasing
goods at cheaper prices from other markets, and since this is clearly not in
their citizens' interests, many governments in democratic countries have
chosen not to protect anti-competitive technologies such as DVD region-
coding.

GRAY MARKET EXISTS FOR:

Tangible products (lumber and electronic components).

Intangibles.
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).

INCENTIVES FOR GRAY MARKET:

Price differentials that are large enough.

Easy access from one market to another.
Managerial incentive that is outcome-based.
Attempt to cover costs or meet quotas.
Excess inventory problems.
Poor or unstable financial health of network partner.
Degree of product standardization.
Consumers attitude towards quality-price inference and risk.

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Effect of Gray Marketing:

(Manufacturer)
Increased or decreased sales and profits.
Strain on manufacturer-dealer relations.
Legal liabilities and litigation costs.

Distributor or Reseller

Forced to lower prices.

Price-based competition.
Increase or decrease in sales and customer base.
Inability to justify investment in added-services

(Consumers)

Quality products at cheaper prices.

Price-quality inference confusion
Loss of after-sales services.

SOLUTION

STANDARDIZE PRICE = Alienate some customers in certain countries.

ADAPT PRICE = Encourage opportunistic Gray Marketers

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
unauthorized dealers.
Private investigation/investigators.

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 Proactive Strategies

Unbundled services.
Establishment of legal precedence.
Join or form AGMA (Anti-Gray Market Alliance).

Educate Consumers.
Toll-free hotline to encourage the publics assistance.

MOTIVATION TO STOP GRAY MARKETING

Price Discrimination.
Brand equity.
Prevention of free-riding.

Conclusion.

Focus on leaks (i.e. product diverters) rather than product

differentiation or litigation.
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.

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