Effect of Grey Market Sales on Manufacture’s Bottom Line

Innovations in technology, marketing strategy, globalization and business expansion are all aimed at

increasing the organizations net earnings or net income. Referred to generally as the ‘bottom line’ this

includes all actions that affect the overall profit of the organizations. Enterprises, big or small follow the

same business tactics and aim to improve the bottom line either by generating revenues or by increasing

efficiency or cutting costs. However, the growth of technology has also paved way for the growth of the

‘grey market’.

The 'gray market’ refers to the distribution channels that steers branded products from a manufacturer

and from the authorized distribution channels and funnel it across to the consumer through a series of

legitimate distributors across the world. The grey marketers take the products and import it to other

countries at lower prices. The difference in the price tags offered by various legitimate markets creates

an opportunity for the middlemen to obtain branded products at discounted prices and sell it for a

higher profit. These distribution channels open up a wider customer base for the product

manufacturers. Grey markets also pose serious challenges to IT manufacturers and their authorized

distributors. A study conducted by KPMG shows that IT product manufacturers collectively end up losing

up to US$5 billion in profits annually.

However, the grey market affects not just the IT industry but other industrial sectors too. Automobiles,

consumer products, pharmaceuticals, fashion accessories, are other industries that are affected by the

grey market activity, which is very detrimental. It paves the way for customers to purchase products

with invalid warranties, or designed for use in particular countries or made up of counterfeit parts. Cons

counterfeiting erodes customer satisfaction and damages brand reputation, leading to significant effects

on the net earnings for manufacturers.

To improve the bottom line, enterprises work out strategies to trim expenses as well as increase

revenue by new product launches or locating new market for an existing product. Further, in this

aggressively competitive environment, product manufacturers are turning towards globalizations and

look for new global markets to outsource their products. However the globalization led cost –savings

comes with a considerable risk of product counterfeiting and unauthorized channels. Thus, enterprises

need to be well equipped with proper tools and anti-counterfeiting solutions to protect the products

from violators.

Leading service providers have designed sophisticated counterfeit detection and online fraud detection

solutions, which would help enterprises, locate grey markets and violators to recover revenue, stock

value and lost brand reputation.

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