Individual Assignment: Gray Market and Export Price Decision Analysis

This report provides an in-depth analysis of the gray market, focusing on its definition, causes, and impacts on export price decisions. It explores how currency fluctuations, differences in reseller costs, and manufacturer contracts contribute to the rise of gray markets. The report examines the effects on authorized dealers, manufacturers, and consumers, highlighting issues such as price erosion, unfair competition, and consumer dissatisfaction. Furthermore, it distinguishes between gray goods and smuggled items, clarifying their legality and distribution channels. The report uses examples like Nikon cameras to illustrate real-world scenarios and concludes by emphasizing the importance of understanding gray market dynamics for businesses involved in international trade and marketing.

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Individual Assignment: Export Price Decision (Gray Market)
Gray Market
The grey market is the act of purchasing or offer goods for sale that were imported into the
nation through illegal ways that are not authorized through the original manufacturers'
distribution channels. The implication of such goods that they may be legal in other nations,
but they might be embargoed in the exporting nation due to policies standards influenced by
business and market requirements (Northrup, 2017).
Grey market can be described as unapproved market involving the exchange of
goods/products. Additionally, such markets are a result of products that have been
prohibited in the country and are being made purchaseable in that said country. In some
cases, it might be that new products are imported into the the country before official dates
and are traded (Antia et al., 2006).
The gray market occurs when there is a difference in prices for a trendy product between
various countries. This business has been enhanced by the online marketing which transcends
international boundaries. In this concern, goods purchased online can be delivered in any
location where even selling and use of the product are unauthorized.
For example, the Nikon camera is unauthorized in the US (Nytimes.com, 2019). However,
the camera can only be legal for sale when imported through Nikon U.S.A. This model of
camera is useful and only sold in Japan. In this case, people have admired the camera, but
they can find no way to purchase it. However, they have developed non-official options to get
the camera. For instance, they acquire them through friends who travel between the countries.
Also, vendors in the US have used this option to sell the product. The problem that the users
of the product encounter is the issue of warranty. Users who used unauthorized means to buy
will not be covered by the Nikon U.S.A warranties.
Reasons for Gray Market Occurring
Shifts in Currencies

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Fluctuations in the value of currencies are a primary factor influencing gray markets. When
the currency of a country gains its value than others, gray marketers take its advantage to
import goods into the country in a bid of making more profits.

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For example, during 1984 and 1985, the US dollar gained its value over those of other
countries (Landefeld et al, 1985). This attracted gray market activities in the country. For
instance, gray marketers used illicit ways to import caterpillars from Scotland and Belgium.
They were able to make 15% profit over those which they used to generate from selling the
machines made in the country.
Differences in the Costs of Reseller
Recognized sellers normally present some useful services to the suppliers such as advertising
and product use demonstrations in the market. These sellers incur more expenses, while gray
marketers enjoy illegal means of enjoying promotional services done by franchised sellers
(Cespedes et al, 1988). In such situations, franchised sellers may switch to gray marketers
with the aim of escaping expenses in product promotion and get more profits earned from un-
official gray marketing.
Contracts among Manufacturers
Manufacturers consider contracts as one way of rationalizing production process. These
contracts specify the number of products to be supplied and the period that the supply can
persist. However, demand changes over time in unusual behaviour which may lead to a
shortage of the product. If the demand rises and the supply decreases, they attracts gray
marketing (Chen, 2007). In such a situation, gray marketers may make higher profits in
selling products with high prices in regard to the current demand. For example, when Canon
cameras were stopped export to Netherlands, the Dutch dealers solve the issue by simply
imported Canon from Germany instead. Any of concerted or overt action against dealers of
Gray market may be construed as an illegal restraint of domestic and international commerce.
Impacts of Gray Markets
I. Authorized Dealers
Authorized dealers interfere with the current prices of products in the market (Huang, Lee
and Hsun Ho, 2004). Concerning this, the dealers may find it hard to fix appropriate prices of
products, which may end up in losses. Authorized dealers may be subjected to unnecessary
competitions by gray marketers. These gray marketers may sell products at cheaper prices,
thus attracting more customers in the market. Therefore, the authorized dealers face unfair
competition resulting in a loss of customers.

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II. Manufactures
Fluctuations of prices as caused by gray markets may cause erosion of price margins
(Bandyopadhyay, 2010). In this situation, the manufacturers get it difficult to sustain support
from the dealers in sales promotional services.
Gray markets can also affect the revenue collected by the manufacturers. This results in
changes in patterns of supply and consumer shifts to gray markets, thus lowering sales
volume and profits.
III. Individual Consumers
Gray market causes consumer dissatisfaction. In such occasions, gray products may not
qualify warranty covers as those which are officially recognized in the market. This can
get some consumers into troubles over the breakdown of products that they have bought.
It also harms confidence and trust that the consumers have towards products. Goods coming
from fake and different sources may cause doubts among the consumers. Thus, they can
lack trust in products and move away from them.
Difference between Gray Goods and Smuggled Items
Gray goods are those goods that are legal, but they are in the market for sale in an unofficial
means. These goods may be brought without the consent of the government authorities. An
example can be seen a European luxury item can be sold at a triple higher price in Japan.
Hence, it allows for ecommerce sellers to get the brand by importing the products from
Europe and sell them at a lower price.
On the other hand, smuggled goods are those that are totally illegal and prohibited from
being sold in the country (Albaum, Duerr and Josiassen, 2004). In most cases, they are sold in
black markets. The most popular smuggled product in the whole world which are bombs,
guns, submachine guns and assault rifles.
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References
Albaum, G., Duerr, E. and Josiassen, A. (2004). International marketing and export
management. 4th ed. Pearson Education Ltd 2002, pp.166-167.
Antia, K., Bergen, M., Dutta, S. and Fisher, R. (2006). How Does Enforcement Deter Gray
Market Incidence?. Journal of Marketing, 70(1), pp.92-106.
Bandyopadhyay, S. (2010). The Internet And Gray Marketing. International Business &
Economics Research Journal (IBER), 9(6).
Cespedes, F.V., Corey, E.R. and Rangan, V.K., 1988. Gray markets-causes and
cures. Harvard Business Review, 66(4), pp.75-82.
Chen, H. (2007). Gray marketing and its impacts on brand equity. Journal of Product &
Brand Management, 16(4), pp.247-256.
Huang, J., Lee, B. and Hsun Ho, S. (2004). Consumer attitude toward gray market
goods. International Marketing Review, 21(6), pp.598-614.
Landefeld, J.S. and Young, K.H., 1985. The Trade Deficit and the Value of the
Dollar. Business Economics, pp.11-17.
Northrup, L. (2017). What Is The Gray Market, And Why Should I Care?. [online]
Consumerist.com. Available at: https://consumerist.com/2013/05/09/what-is-the-gray-
market-and-why-should-i-care/ [Accessed 21 Apr. 2019].
Nytimes.com. (2019). CAMERA PRICES IN SHAMBLES. [online] Available
at: https://www.nytimes.com/1982/12/11/business/camera-prices-in-
shambles.html?searchResultPosition=5 [Accessed 21 Apr. 2019].