Grey Marketing: A Legal But Unofficial Form of Marketing

What is unofficial grey market?

A grey market is an unofficial market for financial securities. Gray (or “grey”) market trading generally occurs when a stock that has been suspended from trades off the market, or when new securities are bought and sold before official trading begins. The gray market enables the issuer and underwriters to gauge demand for a new offering because it is a “when issued” market (i.e., it trades securities that will be offered in the very near future). The gray market is an unofficial one but is not illegal. The term “gray market” also refers to the import and sale of goods by unauthorized dealers; in this instance as well, such activity is unofficial but not illegal. In gray market trading, while the trade is binding, it cannot be settled until official trading begins. This may cause an unscrupulous party to renege on the trade. Due to this risk, some institutional investors, like pension funds and mutual funds, may refrain from gray market trading.

The gray market for goods thrives when there is a significant price discrepancy for a popular product in different nations. In many nations, there is a substantial gray market for popular consumer devices and electronics because these can be easily purchased online and shipped to any location. Other popular gray market products include luxury cars, high-end apparel, handbags and shoes, cigarettes, pharmaceuticals, and cosmetics. Unauthorized dealers may import such items in bulk and, despite adding a healthy markup, sell them at a price still well below the local cost.

Is grey marketing legal?

Gray market refers to the sale of a product that has intellectual property rights, without the intellectual property owner’s permission in that market. Gray market goods are genuine rather than counterfeit goods. Grey marketing is also known as parallel importation. Grey market lies somewhere between the black and white markets. It generally deals with the genuine commodities. However, they lack the proper authorization or controlling factors. Black Market and Grey Market are related to the illegal facet of the market.

A simple example of a grey market is the one which is developed by people who trade in goods at lower rates than the official rates.  The goods of grey market are not like counterfeit goods of black market. It typically involves those services which are not registered legally in order to save taxes from the government. Thus, most often the distribution channel used is unauthorized or unofficial in the grey market.

Some examples of grey marketing?

Unavailable Goods

Not all goods are available and accessible in every territory. This may be the result of the manufacturer’s strategic decision to not support the importation of specific products into a territory. It may be the result of pricing strategy or marketing efforts, or it may be caused by lack of distribution networks in a country or region. This void is an opportunity for retailers and e-commerce sellers to unofficially import products into the territory and offer them for sale.

For example, a jewelry maker may choose to limit retail to upscale markets as part of its branding strategy. Retailers who look to sell the jewelry may buy the branded items abroad, and bring them into the territory. As they are not bound by the IPR holder’s pricing policies, they may choose to sell them for a price of their choice.

Temporary Demand

Sometimes a new product is introduced, with its demand exceeding its supply temporarily, causing authorized suppliers in a territory to run out of stock. An example may be a new video game console or a new doll before the holiday season. This temporary demand can be used by sellers who buy the goods in demand, often in bulk, with the purpose of reselling. In these cases, grey market prices are often higher than the official distributor prices.

Types of Grey Market

The two main types of grey markets are those of imported manufactured goods that would normally be unavailable or more expensive in a certain country and unissued securities that are not yet traded in official markets. Sometimes the term dark market is used to describe secretive, unregulated trading in commodity futures, notably crude oil in 2008. This can be considered a third type of "grey market" not intended or explicitly authorized by oil producers.

How does the Grey Market Effect Business?

In the grey market, the goods are sold at a lower cost than the cost decided by the company. The company sets the prices bases their calculations of profits. When goods are sold at a lower cost the company's profitability is affected. A few effects of Grey Market are

Brand Reputation

Products of the grey market do not come with a guarantee backed by the company. If the products sold in the grey market do face an issue with its performance the name of the brand will be affected.

Affects Profitability

In the grey market, the goods are sold at a lower cost than the cost decided by the company. The company sets the prices bases their calculations of profits. When goods are sold at a lower cost the company’s profitability is affected.

Multiple Market Prices

Because in parallel marketing the goods have different prices it confuses the consumer. The authorized dealers sell genuine products at a higher cost whereas the grey marketers sell the same original and legal product management at a lower rate than the market. Hence there are price differences for one single product developed by the same manufacturer.

Effects the Government

Grey goods are goods that are sold without tax charges. Taxes are applied to both buying and selling of the products. An increase in the transactions puts the government to loss.

Black market vs. Grey market, what is the difference?

 "Black market typically involves transactions outside of the official economy (either not paying taxes or dealing with illegal goods or services), whereas grey market is more about diversion or counterfeiting. For example – an unauthorized dealer, who owns a store of a brand of watch, would be considered as a part of grey market. On the other hand, if the same person sells fake watches under the same brand name, then that would be included in a black market. Therefore, the two markets are different from each other. Black market are clearly illegal and generally involves transaction outside the boundaries of the official economy. It often rise where demand is greater than the supply and Tries to avoid price control feature and taxes. Whereas grey marketing Often takes the advantage of difference in costing of products in countries. They tend to compete with the authorized dealers. It can often lead to black markets and the products are usually deprived of normal warranty.