Effect Of Grey Market Sales On Manufacture’s Bottom Line

By Author: Alice Coope
Total Articles: 213
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Innovations in technology, marketing strategy, globalization and business expansion are all aimed at increasing the organization's 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 'grey 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.