The grey market: A complete guide

The grey market refers to genuine products being distributed through unauthorised channels. While grey market products can offer the potential of lower prices for consumers, their nature presents a unique challenge to both businesses and the wider public. 

The significant risks grey market goods present can have a tangible impact on quality, warranties, and at the worst, your brand reputation. 

In this guide, we’ll take a deep dive into grey market goods and the issues surrounding them. We’ll provide insights into how they work, their legality, the risks they pose, and what strategies are available to combat them.

What’s the grey market?

So, what is the grey market? The grey market refers to the trade of goods through distribution channels that are legal but unofficial or unauthorized by the original manufacturer. This is distinct from counterfeit goods which are illegal copies of a brand's intellectual property.

Goods are not made for the grey market but become grey market meaning they are intended for sale in one region, but then imported and sold in another.

This is often done without manufacturer consent and is done because the grey market pricing can be offered at a lower cost compared to ‘official’ products. 

While grey market goods are, in a technical sense, ‘genuine', their sale outside of official distribution networks presents significant challenges to both consumers and manufacturers. For example, grey market goods can make warranties invalid and cause quality assurance issues. We explore these issues further in the risks of the grey market. 

Grey market examples

Grey market goods can be essentially any consumer product being sold through an authorised channel. This can include:

• Electronics. Laptops, smartphones, and high-end cameras are frequent candidates for becoming grey market goods. This is due to a high demand for these products at reduced prices in a particular market. In this case, products like these are often sold without a valid warranty.
• Luxury goods. Perfumes, watches, and designer handbags are frequently found circulating in the grey market. They’re often imported from overseas where their recommended retail price (RRP) is significantly lower to be resold in regions with more expensive pricing models.
• Automotive parts. Car parts are another common product found on the grey market. These spares are intended for one region but imported and sold in another, creating safety concerns and potentially voiding warranties in the event of a problem.

Risks of the grey market

Goods circulating on the grey market pose multiple risks to consumers and businesses. These include:

• Lack of warranty. Goods sold on the grey market will often come without a valid warranty for the region they’re bought in. This leaves customers without recourse if there’s a problem with the product.
• Quality issues. Genuine goods manufactured in the same factory may need additional certifications for different regions and may not technically meet the quality or safety standards where they’re sold. This can lead to compliance issues along with potential health and safety risks.
• Brand reputation damage. Customers who have had a negative experience with grey market goods, such as through an invalid warranty claim, will often see the brand in a poor light. This dilutes brand value and confuses customers, leading to lost loyalty and trust.
• Legal complications. The regulations around grey market goods vary by region. This means companies might find it difficult to retroactively take action against grey market sellers. This legal action can also be expensive and time-consuming.

How does the grey market work? 

The grey market normally operates through supplier’s importing from outside regions parallel to authorized import to official resellers. In short, unauthorised resellers buy the products from low-cost regions to resell in high-priced markets without manufacturer authorisation.

This difference in cost is achieved through exploiting differences in currency and taxation along with each region's recommended retail price (RRP).

While the goods they sell are genuine and function the same as authorised products, by side-stepping the official distribution channels they often lack official support, proper documentation, and warranties.

The legality of the grey market

The legality of grey market goods is complex due to varying from region to region. In the European Union, the resale of goods from other markets is generally allowed under the Trademark Directive’s ‘Exhaustion Doctrine’, however, it requires the brand owners' consent and only applies to regions within the EU.

This does provide a level of protection for EU companies and offers a means for legal recourse against unauthorised distributors. However, brands do need to prove that the grey market sales are damaging their brand and business. You can read our full guide to grey market legalities here. 

What tactics have brands taken to reduce grey market distribution?

There are several strategies brands can implement for grey market protection. These include:

• Selective distribution agreements. Some bands employ selective distribution systems, where only authorised retailers are allowed to sell their products. This helps control how products are sold but can be difficult to enforce.
• Price harmonisation. By aligning prices across different regions, businesses can reduce the initial incentive for grey market resellers. This does mean that products being sold well below RRP can be quickly identified, however may incur missed opportunities for profits.
• Legal action. Legal action can be pursued as a last resort against unauthorised resellers. This is particularly effective when grey market goods violate trademarks or infringe on intellectual property. Brands pursuing legal action will, however, need to prove damage to their brand.
• Digital Product Passports (DPPs). One of the most modern grey market solutions is the implementation of Digital Product Passports (DPPs). These platforms store product information and track the full lifecycle of goods from raw material sourcing and manufacture to distribution and final sale. This helps ensure products are exclusively sold through authorised channels.

Using a Digital Product Passport to avoid grey market goods

Digital Product Passports (DPPs) are a powerful means to solve the grey market problem. With complete transparency and traceability of the supply chain, DPPs allow you to constantly monitor where your products are in the supply chain.

If a product appears in an unauthorised region, this is flagged, allowing rapid investigation and corrective action. For example, an electronics manufacturer can track an individual product from the second it leaves the factory right through to its final sale to a customer. If the watch is sold in a region other than the one it was meant for, brands can use the DPP to identify where the supply chain broke down leading to a grey market product.

DPPs also feature authentication, whereby consumers and retailers can verify the authenticity of the product before sale by accessing the DPP. This not only protects the reseller and end-user but helps to build and maintain trust in your brand.

When choosing a Digital Product Passport solution, ensure that it offers both EU compliance and robust traceability and authentication features. It also needs to seamlessly integrate into your existing systems.

Authentify It is an all-in-one solution that offers all of this and more, presenting an entirely new way to track products, communicate with consumers, and build both trust and engagement. 

Get in touch to learn more.