Grey markets across industries

 

Grey markets, as you most likely already know, revolve around the trade of original branded products outside of their authorized distribution channels. Since the products are not illegal, but they’re sold via unauthorized channels, they represent a sort of legally grey area - hence the name.

 

The size of the global grey market is steadily increasing. Currently, it’s valued at around $1 billion, and it’s projected to reach ca. $1.75 billion by 2031.

 

One of the main reasons for the growth is strong consumer demand for cheaper alternatives to pricey branded products. As opposed to counterfeits and lookalikes, grey market products are indeed original. However, the price cut often comes with disadvantages, like non-existent warranties (these are usually tied to specific regions and authorized sellers) or products that don’t conform to the buyer’s regional standards (e.g., different plugs and safety features, etc).

 

While the effects of grey markets on consumers may seem to range from somewhat noticeable to quite dangerous, brands definitely get the short end of the stick in this regard. Distorted pricing and the loss of trust within your authorized distribution network are acute pain points, not to mention the damage to your brand image and thus your bottom line.

 

Depending on your industry, the specifics of grey markets may differ greatly from what another business in another industry is experiencing. Let’s take a look at a couple of major industries and their grey markets!

 

 

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The cosmetics industry

The global cosmetics market is currently valued at $375.62 billion and is projected to reach $644.17 billion by 2034. The industry is very versatile, encompassing a wide range of products from skin and hair care to make-up and perfumes.

 

Find out all about the beauty industry in e-Commerce!

 

Just like other products, luxury cosmetics tend to be much more expensive than those labeled under supermarket brands. However, as cosmetics typically don’t come with warranties, consumers may be even more tempted than usual to reach for a grey market option.

 

Factor in the fragmented way cosmetics are typically distributed - via wholesalers and large-scale distributors -and you may understand why cosmetics grey markets tend to flourish. With an even stronger buying incentive for consumers and fewer oversight possibilities for brands, cosmetics is a "perfect" industry for grey markets.

 

Given the significant price differences between regions, grey market sellers often purchase cosmetics in countries with lower prices and resell them in more expensive markets in Europe or the US.

 

Although they deal with original products, grey market cosmetics are not without dangers for consumers. As grey market sellers are usually harder to hold accountable for their actions, they may be more likely to sell expired or mislabelled products.

 

The consequences for brands are often quite dire. You can experience significant channel conflicts, price erosion, and trust issues within your authorized distribution network, not to mention the loss of brand image you may suffer if your customers are regularly exposed to your products in this less-than-ideal environment.

 

 

How to solve cosmetics grey market issues

Due to the fragmented distribution system, the best way to discover and eliminate cosmetics' grey market structures is via monitoring. First of all, systematic and regular online monitoring (including marketplaces, images, and social media) uncovers grey market offers, alerting you to the problem.

 

Then you need to monitor your supply chain, e.g., do background research on your distributors and other business partners to ensure that they’re sticking to the exact terms of their contracts. If your products allow for it, you may also want to consider employing specific identification labels or tracking codes on their packaging to be able to follow their journey through your distribution network and discover where they end up.

 

 

An illustration of various makeup products scattered around on a table

 

 

The pharma industry

The global pharmaceutical industry is currently worth $1,737.97 billion and is expected to reach $2,776.74 billion by 2033.

 

Similar to the cosmetics industry, pharma products tend to come without warranties as well, which makes them an excellent candidate for grey markets. Moreover, as ingredients may be classified differently across various regions, pharma products freely available in one country may face more restrictions in another. Consumers in the latter country thus have an even greater incentive to approach grey market sellers.

 

Price differences between products are significant in the pharma industry. In the EU, these differences may come up to 300%, which significantly contributes to the formation of grey markets. As with other products, grey market sellers purchase drugs in lower-priced markets and sell them in others where the prices are higher.

 

Considering that we’re dealing with controlled substances, the consequences for purchasing grey market pharma products are dire. As ingredients and potency sometimes vary across regions, consumers may unintentionally ingest a different quantity of the active ingredients than intended, which could have devastating effects on their health.

 

In the above case, brands producing pharma products could face serious repercussions. But even if no life-threatening issues arise, grey markets in the pharmaceutical industry cause brands the "regular" issues of margin erosion, distorted prices, and loss of trust within the distribution network.

 

 

How to solve pharma grey market issues

As with cosmetics, monitoring is also essential for pharma brands to detect and eliminate grey market problems. The monitoring of marketplaces, social media, and single webshop domains across your markets is essential to discover potential grey market clusters.

 

Controlling distribution and tightening your oversight over your authorized sellers is also important to detect leaks in your distribution network as early as possible. Moreover, given the sensitive nature of pharma products, it’s imperative to document your findings in a court-admissible way to prepare your brand for eventual legal cases.

 

 

Automotive industry

The global automotive industry is currently worth $2.75 trillion and is expected to rise to $3.26 trillion by 2030.

 

 

An illustration of various automotive parts lying around on the ground

 

 

As expensive consumer goods, cars and car parts have always been subject to the dangers of counterfeiting. And by danger, we mean real, life-threatening peril that a faulty automotive part can cause in a traffic accident.

 

Find out all about the dangers of counterfeit automotive parts!

 

You’d think that since grey markets deal with original products, or in the case of the automotive industry, original equipment manufacturer (OEM) parts, the danger of using them in your car would be minimal. Well, think again.

 

OEM parts arrive on the grey market when a manufacturer tries to sell the surplus product parts they produced for a specific client. Just like other grey market products, the unauthorized sale of automotive parts often exploits arbitrage opportunities, distorting your brand’s carefully created pricing mechanisms.

 

However, grey market automotive product parts are not always exactly the same as the ones ordered by the client. Some may differ in size and composition, while some could sport certain defects or even miss components - after all, they didn’t have to pass through the same vigorous examination as the parts delivered to the client.

 

This means that purchasing such a product part not only lacks any warranties, but using them may even be dangerous for consumers. In addition, as these product parts arrive via unauthorized channels from another region, they may correspond to a different set of safety regulations (if any), potentially harming end-users.

 

 

How to solve automotive grey market issues

Monitoring is key to detecting established grey market structures, and also for preventing the formation of new ones. Our marketplace monitoring service is essential to see where grey market OEMs pop up, while image and social media monitoring add adverts and other picture-based content, leading potential customers to grey market listings.

 

Furthermore, a test purchase is often inevitable for determining the origins of the infringing automotive parts, and to decide whether we’re dealing with fake or grey market OEM products. Enforcement, i.e., ensuring that the infringing listing is deleted from the internet, is especially important in case these products pose a significant health danger to end users.

 

 

The electronics industry

The size of the global electronics industry is currently $4.06 trillion and is expected to reach $5.61 trillion by 2030.

 

Price differences across regions are a driving force behind the electronics grey markets, as well as the willingness of manufacturers to quickly part with their existing stock. Relatively fast product cycles certainly contribute to this phenomenon.

 

But just like automotive parts, electronic products come with region-specific requirements that may significantly vary from each other. Similarly, most high-value electronics have warranties, indicating that should a consumer opt for grey market goods, they’ll exclude themselves from warranties and may take up additional burdens like non-compliant product components, including differently shaped plugs.

 

Brands and businesses, on the other hand, can expect distorted pricing, dissatisfied customers, a diluted brand value, and potentially even warranty fraud.

 

 

How to solve electronics grey market issues

Authorized reseller programs are usually a great tool to find honest sellers to work with you. Moreover, these programs also serve as an information center to let consumers know which sellers work with you, and consequently, which sellers will be able to extend the required warranties and other after-sales services.

 

Apart from that, we recommend regular monitoring to detect existing and new grey market listings of your products. This includes marketplace and social media monitoring for product listings, as well as image monitoring for picture-based content and domain monitoring for single webshops.

 

Finally, enforcing your rights ensures the removal of any grey market content from the internet.

 

 

Conclusion

Regardless of the nature of your products, grey markets are harmful for brands, businesses, and consumers alike. Don’t let grey market sellers distort your pricing and disrupt your carefully balanced distribution network! Contact us and let’s combat grey markets together.