Grey markets on online marketplaces

 

Grey markets, though not strictly illegal, are just as burdensome for brands as black markets. Grey markets emerge when your original branded products are sold outside of your authorized distribution network.

 

Depending on its severity and scope, a grey market can cause anything from mild annoyance to structural risks. In more serious cases, your brand can experience margin erosion, price wars with and between authorized partners, channel conflicts, brand dilution, as well as legal compliance issues, should a product make it into a region with different safety regulations.

 

Find out more about the issues grey markets cause and how they relate to black markets!

 

We at globaleyez discover grey market product listings on marketplaces just as fake listings. However, to effectively dismantle persistent grey markets, you need more than an occasional takedown. In fact, you need a systematic approach complete with integrated commercial, legal, and technological defence systems.

 

 

Why grey market offers thrive on large marketplaces

Large marketplaces are often plagued by recurring grey market issues. This is due to several reasons.

 

The marketplace economics of larger platforms (e.g., Amazon, eBay, AliExpress) create perfect conditions for unauthorized merchants to sell grey market products. These marketplaces typically offer low entry barriers for third-party sellers, allowing them to sell on the platform without significant checks.

 

Discover how major marketplaces verify their sellers!

 

These limited upfront KYC (Know Your Customer) requirements, paired with Buy Box-driven price competition and cross-border selling practices, allow grey markets to form and flourish undetected.

 

Then there’s the issue of price transparency and arbitrage between regions. Consumers and sellers alike can easily discover the product prices, promotions, and clearance deals of other regions. More favorable conditions on the other side of the border are a powerful incentive for arbitrage between countries, regions, and even online-offline trade.

 

 

Illustration of a shopper comparing products on a laptop screen

 

 

Finally, let’s not forget about the data asymmetry brands experience on major marketplaces. Instead of the full picture, brands often only get fragmented views across major marketplaces like Amazon and eBay, local platforms, and comparison services like Google Shopping. Usually, there’s no single source of truth, telling you who sells what, where, and for what price.

 

 

Brand-side control levers inside marketplace ecosystems

There are several steps you can take to increase your control over the situation.

 

 

Governance: selective and controlled distribution

Putting in place a selective distribution system means that you limit sales to pre-approved intermediaries, all of whom hold themselves to your contractually set terms regarding quality and brand representation. This is especially important for brands in the luxury, beauty, premium, and electronics categories.

 

You need to set clear terms in all your distribution and reseller contracts regarding territory, channel, and platform restrictions, as well as MAP (minimum advertised pricing) and RRP (recommended retail price) expectations. Don’t forget to add explicit consequences for non-compliance with your terms, including leakages.

 

Finally, it’s imperative to include rights management, territory approvals, and content control over creative assets in your agreements. This ensures that your IP-protected content and products can’t be legitimately distributed outside of your authorized channels.

 

 

Operational controls on marketplaces

Major marketplaces usually offer tools like brand registries and IP dashboards to aid brand owners in their quest to protect their IP rights. Find these tools and register for them. While their actual scope and content depend on the marketplace in question, some of them allow you to control which sellers can list your branded products and how your content can be used across the platform.

 

Familiarize yourself with the specific listing rules and escalation processes of all marketplaces you work with. These internal rules usually state when you can file a claim for IP, policy, and contract-based violations, what the process entails, and how to escalate via marketplace channels.

 

If your chosen marketplace is Amazon, monitoring the Buy Box is crucial for price discipline. Check which sellers win the Buy Box for your products to detect systematic undercutters. Don’t forget that the underlying objective is to align your internal first-party vs. third-party strategies with your selective distribution objectives.

 

Related topics

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How loyalty, registration, and direct channels shrink grey market incentives

Another useful approach to curb the creation of grey markets is to shrink the corresponding incentive in your distribution network.

 

Trade partner loyalty programs are an excellent example of this approach. Tiered rewards, performance-based incentives, and exclusive offers help persuade your business partners to adhere to their contracts, making it more attractive than arbitrage.

 

Issuing performance-based rewards is another useful tactic. Shifting from pure volume-based bonuses to versatile KPIs like assortment quality and on-brand presentation will contribute to discouraging diversion.

  

 

An illustration of KPIs depicting pie and bar charts

 

 

As for customers, linking warranty services and product registration to purchases made via authorized channels reduces the attractiveness of the lower price levels offered on grey markets.

 

Reducing the number of middlemen is also a proven way to limit the potential of leaks and, consequently, the creation of grey markets. Strong direct-to-consumer (DTC) offerings with consistent prices, reliable service, and clear authenticity messaging encourage consumers to buy directly from your brand.

 

In addition, educating your customers about the dangers of grey markets (e.g., no local warranties, product support, and updates), as well as who your authorized resellers are, will help push them in the right direction.

 

 

From detection to evidence - building a holistic anti-grey market program

globaleyez has been at the forefront of the fight against grey markets for nearly two decades. We have developed an effective, highly scalable, and customizable framework for the detection, dismantling, and prevention of grey markets for brands of every size and in every industry.

 

Our framework consists of four major steps, which form a cycle of sustainable grey market protection for your brand. We monitor both on- and offline to detect grey markets, enforce your rights by dismantling them, incentivise all stakeholders towards compliant behavior, and based on the evidence gathered during the previous steps, optimize our action before we start the cycle again with monitoring.

 

Online brand protection is not a one-and-done kind of service. As fraudsters keep finding new platforms for grey markets, we have to think outside the box and constantly optimize our brand protection strategies to better fit the rapidly evolving demands.

 

The starting point is our automated monitoring service of marketplaces and comparison sites, e.g., Amazon, eBay, Google Shopping, Mercado Libre, as well as relevant local and regional platforms. This service ensures that grey market clusters are detected as quickly as possible.

 

When analyzing data gathered during monitoring and test purchases, we look for suspicious behavioral patterns. These include out-of-territory shipping, mismatched or inconsistent packaging, unusual discount activities, and recurring MAP violations that signal grey market sourcing.

 

But we do so much more than simple data gathering and analysis. We turn data into action by carefully documenting our findings in a court-admissible way, and present you with solid evidence for a lawsuit against fraudsters - should you wish to pursue your rights in court. For example, we record timestamped screenshots of seller metadata, product listings, historic price curves, and much more.

 

As our goal is effectiveness, we strategize our countermeasures and prioritize action against the most disruptive fraudsters. At the core of this action is careful analytics of our data on sellers, including selling volumes, margin erosion, and an overall risk to your brand.

 

Finally, our data holds a clear mirror to the behavior of your distribution partners. Should we uncover non-compliant behavior, our data forms a solid basis for renegotiating or terminating your agreements.

 

 

Conclusion

Grey markets harm your brand’s distribution network, pricing strategy, reputation, and ultimately, your bottom line. It’s imperative to take sustainable, tailor-made action to detect and dismantle grey markets and prevent the formation of new ones.

 

Contact us to learn more about our highly effective, scalable, and customizable grey market solution!