Evaluating Gray Market's Impact on Dealers, Manufacturers, Consumers

This essay provides a comprehensive analysis of the gray market, also known as the parallel market, examining its definition, causative agents, and the impacts it has on various stakeholders. The essay begins by defining the gray market and providing an example of its existence in the cell phone industry. It then explores the key reasons behind the emergence of gray markets, including supplier valuing strategies, reseller cost differentials, and the terms of contracts. The essay proceeds to evaluate the positive and negative impacts of the gray market on authorized dealers, manufacturers, and consumers. It discusses the effects on sales, profits, customer loyalty, and brand reputation. Finally, the essay differentiates between gray market goods and smuggled items, highlighting the legal and ethical implications of each. The conclusion emphasizes the importance of manufacturers taking measures such as using bar codes to mitigate the negative effects of the gray market and encourages consumers to be cautious when purchasing goods outside authorized channels.

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GREY MARKET
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Professor
Institution

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The gray market, also known as parallel market refers to the trade of a product or
products through distribution channels that are legal but not intended by the original producer or
the trade mark proprietor. The products are sold by the manufacturer or an authorized agent
outside the terms of trade between the reseller and producer. The term gray market was created
by manufacturers to instill fears to the consumers and lure them into thinking that buying such
goods is illegal1. All what the manufacturers wanted was for the consumers to buy directly from
them. The term was chosen because of its similarity with the term black market used earlier on
which refers to a stolen and illegal good. An example of a commodity that exists in the grey
market is Cell phones.
The emergence of the GSM in 1990 prompted the onset of the grey market in the phone
industry. Today, 30% of all cell phones traded anywhere in the world pass through the grey
market.
Causative Agents of the Grey Market
Supplier Valuing Strategies
This is the most frequently cited feature. For the industrialists, there are crucial reasons
behind rating in favor of the huge orders. In the case of cell phones, this policy is a reflection of
the gauge and learning the curve economies which are inherent of the large orders2. It is also
1D. Antia, et al. "Competing with gray markets." MIT Sloan Management Review vol 63, no. 4,
2016, p. 45.
2Assmus , Gert, and Wiese Carsten . "How to address the grey market threat using price
coordination." International Marketing Strategy: Contemporary Readings vol 13, no. 4, 2015, p.
157.

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important in maintaining the structure of the company and after-market replacement sales. In
most markets, the bid prices are lower than the manufacturer's book price especially for the large
orders and the bid customers often sell the phones to the grey retailers who sell the goods to
customers at a higher price than the book price.
The Reseller Cost Differential
This happens in two phases; the difference between the operating cost of the total full line
and the contracted line low facility discounters which is shaped by an item for consumption lines
place in reseller’s strategy. The manufacturer’s commitment to customer service also aggravates
the situation3. The manufacturer might impose stringent requirements on the authorized dealers
like maintain the stock parts sufficient to sustain the acceptable level of customer service.
The terms of the contract
The terms of a contract by which the manufacturer rationalizes production scheduling or
smooth the levels of inventory are able to sustain the grey markets. The most common feature
here is the return penalty3. In the phone industry, the screen manufactures for instance call for the
delivery of a given quantity of screens over a specified period of time and a charge of 40% for
the cancellation of any order. Many companies enforce these stiff stipulations so as to keep the
production costs competitive.
Impacts of the Grey Market
To The Market Dealers
3Carrigan, Marylyn. "Developing successful relationships with the grey market." Long Range
Planning vol 62, no. 2, 2016, p. 47.

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Positive Impact
As a result of the parallel market goods having different prices, the consumer is confused.
The authorized grey market dealers are made to sell genuine products at a relatively higher price
whereas the grey marketers enter the markets and sell the same kind of products which are legal
and of the same quality at a relatively lower price than the market price4. The genuine grey
market dealer, therefore, makes limited sales and takes home little profits.
Positive Impact
In most cases, there is always a way in which the genuine and full-service dealers are
rewarded in the network. The supplier gives genuine dealers other supply options. The dealer can
sell at a relatively high but still competitive price and therefore take home profits. The seller will
enjoy customer loyalty1.
Impacts to the Manufacturers
Negative Impacts
The manufacturer spends a lot of time in the fight against the grey market.to the manufacturer;
he suffers lost margins due to this market. The market also leads to problems with official
distribution3. The manufacturer’s sales department suffers the problem of inadequate information
concerning the grey market since the negative implications do not arise in the state where the
product was manufactured.
Positive Impact
4Cornelli , Francesca, and Goldreich David. "Investor sentiment and pre‐IPO markets." The
Journal of Finance vol 5, no. 3, 2016, p. 14.

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The manufacturer is able to team up with the other global producers and come up with a
globally accepted price that will earn those profits. Through coming up with this single price,
they can ensure that any price below that will lead to losses and hence they might easily lock out
the dealers in the grey market and gunner all profits in the market2.
Impacts to the consumers
Negative Impact
There is no guarantee from the company for a good purchased in the grey market. Since
consumers get the goods without a guarantee, they lose interest and trust with the firm's products
since they are in doubt with the quality that they are producing2.
Positive impact
The consumers are able to acquire products at a relatively cheaper price and save on
money that they could use to buy the same good from an authorized dealer at a relatively higher
price.
Difference between Grey Market Goods and Smuggled Items
The primary difference between grey market goods and smuggled goods are goods that
have been banned, are counterfeits or even stolen items which are sold in the market contrary to
the laws of the land5. On the other hand, the grey market commodities are products that are
genuine only that they are sold through a channel of distribution which is not authorized.
Transactions on the smuggled goods are in most cases counterfeit.
5A. Katsenelinboigen. "Coloured markets in the Soviet Union." Soviet studies vol 4, no. 3, 2018,
p. 39.

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Conclusion
Grey market is a market that has taken a large portion in the market for most
commodities in the market. Grey market can lead to loss of margins to the producers. It is
therefore advisable for the producers to curb the grey market through having bar codes to their
products. The manufacturers can also encourage their shoppers to buy goods via mail orders and
other grey outlets.

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Reference List
Antia, et al . "Competing with gray markets." MIT Sloan Management Review Vol 63, no. 4,
2016, pp. 45-65.
Assmus , Gert, and Wiese Carsten . "How to address the grey market threat using price
coordination." International Marketing Strategy: Contemporary Readings vol 13, no. 4, 2015,
pp. 154-187.
Carrigan, Marylyn. "Developing successful relationships with the grey market." Long Range
Planning vol 62, no. 2, 2016, pp. 45-67.
Cornelli , Francesca, and Goldreich David. "Investor sentiment and pre‐IPO markets." The
Journal of Finance vol 5, no. 3, 2016, pp. 12-24.
Katsenelinboigen, A. "Coloured markets in the Soviet Union." Soviet studies vol 4, no. 3, 2018,
pp. 34-54.