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Evaluate the Actions That an International Marketer Can Take to Eliminate or Reduce the Likelihood of ‘grey Markets’ Emerging

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Evaluate the actions that an international marketer can take to eliminate or reduce the likelihood of ‘grey markets’ emerging.  

Introduction

Grey market product, which known as the parallel market product that are genuine products protected by intellectual property right but are usually sold by authorized resellers or innitiall product manufactures via either licensing agreement or sales contracts(Daniel and Benjamin, 1998), or in another word, sold by unauthorized, unofficial, or unintended distributors(Sugden, 2009), has become so prevalent in the last decades that it was called by a publication as a "disease to be eradicated”. It was the scourge of successful supply chains and the bane of brand owners. In order to response to the increasing risks brought by grey market, a battle against grey market has been waged for many manufacturers in a variety of industries around the world. In this essay, it will first highlights the driving forces leading to grey market activities by explaining from three types, and addresses the negative effects of grey products three angles. Then, two main strategic solutions and four core elements in marketing, mentioned as 4P, which includes  price, product, promotion and place will be put forward, which international market could take to eliminate or reduce the likelihood of grey market.

Understanding Grey Market

The formations of grey market can be categorized by three types (Berman, 2004). The first one is lateral importing, which is caused by price differences between export market and destination market because of the foreign exchange rate, difference in purchasing rate, competition and consumer preference etc; And the products are not produced in either one, while thy are sold from one country to another through unauthorized channels; The second types is re-importing, which would be occurred when the goods is priced cheaper in an foreign market than in domestic market, and if the cost of arbitrage is less than the price difference; The third type is parallel importing, which would be happened when the price of the commodities in domestic is lower than the export market. parallel import from the grey marketers in the export market will directly from the domestic market rather than source from within their own country.

The grey market bring lots of problems. Many managers and such academics as Prince and Davies (2000) , Kersi et.al (2004), Maskus (2004) argue that the grey market brings lots of problems. Such as from a consumer perspective, an increased competition could occurred in grey market (Antia et al.,2004); low-priced alternatives offered to customers will lead erosion to traditional pricing strategies(Christopher, 2007); and there will raise problems in getting support from authorized resellers when selling commodities of equal quality to those sold through authorized channels (Steinkamp, 2009). Additionally, from a common managerial perspective, considerable disruption can be caused by price differences within a comapny’s established distribution channels and damage to channel relationships (Steve, 2009) as well as form a difficulty in developing and maintaining a global image (Ahmadi et al., 2011).

Table 1: Key impact of Grey market

Original Manufactures

Authorized Distributor

Customers

Impacts

Sales lose

Brand’s good will and reputation loss

Expense of monitoring the market increase

Control of product qualities loss

Tension strain on relationship with manufacture increase

Profit loss

Reputation loss

Risk of health and safety increase

Warranty support and service loss

In order to combat ‘grey markets’emerging, two categorists strategies can be laminate or reduce the likelihood of ‘grey markets’ emerging, includes proactive strategies, which design to limit the activity before star(Berman, 2004). It includes those activities such as using the network to promote the monitoring, developing rebate programs, check out new and existing distributors to be more detail, differentiating products and to be sold to different markets, educating consumers, deterring diversion through labeling, reducing price differences across markets etc. Another strategy is reactive strategy, which consists a numerical legal actions to prevent its formations once it has began (Berman, 2004). Many defenses actions and strategies are best applicable when gray marketers seek to confuse customers by selling goods that differ materially from the manufacturer’s domestic goods. In such cases, state consumer protection laws as well as trademark can provide a basis to manufacturers protecting.

Table 2 : Two main strategies to combating Grey market.

 Proactive strategies

 Reactive strategy,

supply-side based

demand-side based

Internal/ Organization based

Eliminate disparate price,

Strategic pricing

Identify Grey products,

Adjust distribution Place,

Product/service differentiation and availability

Dealer development

Educating consumers,

Developing rebate programs,

Promotion

Long-term image reinforcement

lobbying

Change and re-build organization structure

Strategic confrontation

Participation

Pricing cutting

Supply interference

Collaboration and acquisition

(Source: Adapted from Berman, 2004)

Critical Strategies Evaluation from proactive and reactive strategy

Eliminate disparate price and price cutting

Firstly, price is clearly state as one of the 4P’s in marketing theory ( Price, Promotion, Product, Place and Positioning) that contributes to the marketing mix in terms of motivating potential customers, arousing their attentions, as well as stimulating them for purchasing and consumption for services (Musonera and Ndagijimana, N.d). From the three types of formation of grey market and the two situation that a company had faced, it can be seen that grey markets exist when a customer can purchase cheaper products, which are export from foreign area that is not available domestically or not from official channel. This situation has become more prevalent because the best price can be obtained cross regions through comparing of sourcing from multiple regions and globalized purchasing(Pros, 2012). As gray market is initially and mainly caused by price differential (Onkvisit and Shaw, 2009). Thus, if the price difference in various international segments can be eliminated or reduced through a corporation, grey market activities can be then, straint undoubtedly.

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