Gray Markets_Group 4

8/8/2019 Gray Markets_Group 4

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COMPETING WITHGRAY MARKETS

By Kersi D Antia, Mark Bergen & Shantanu Dutta

Presented by :Group 4


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Introduction

G ray markets are markets whereproducts are sold by unauthorizeddealers.

These are ubiquitous. Exist for Tangible products like

lumbar and electronic productsIntangibles like IPOsHeavy equipment like

automobilesWatches, cosmetics and

medicine

Estimated to be a market of $20billion in IT alone

MNCs have full time managersand staff to deal with gray marketsissues.

There is increasing evidence of G ray markets in many industries.Examples :EU has seen its growth to 120%which amounts to$ 7.4 billion in2006.70 % of Cell phones purchased inMalaysia are though gray marketroute.To manage gray market activity,

managers can follow a 3S-Sensing,Speed and Severity framework.


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Sha des of Grey M a rket Sha des of Grey M a rket

A utomobile Industry

Differential Pricing of vehicles across borders

H igh Fashion A pparel

Authorized retailers selling their leftover inventory to unauthorized dealersE lectronic Business

Companies buy electronic goods in bulk and resell it through unauthorised

distribution network

Intangibles

Ex: Satellite television dishes were selling products that customers could use to

hack into U.S.-based encrypted television programming without paying for it


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T h e Gordi a n Knot of Gr a y Ma rkets(1/3)

Dilution of Exclusivity

FreeRiding

ChannelRelation-ships

SegmentedPricing

Reputation& LegalLiability

Unauthorized selling leads to five significant costs.

All these costs are closely linked

Each cost feeds off the other and forms the Go rdian Kn o t .


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T h e Gordi a n Knot of Gr a y Ma rkets(2/3)

D ilution of Ex clusivity

Impact on DistributorsLoss of exclusivity

Increased CompetitionReduced Margins

Impact on CustomersHigher paying customers

feel cheated.

Impact on BrandEroding Brand CacheIncresed complaints from

authrorized distributorse.g. Levis & Tesco Corp

Free Riding

No action on complaints lead toDealers finding indirect ways

of reducing costs

For example, reducedpresale service, cutting downsalesforce training etc

Severly impacts productswhere value-added servicesplay an important role. For example, automobile industry


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H ow to Control Gr a y Ma rkets?H ow to Control Gr a y Ma rkets?

1Sensing

2Speed

3 Severity


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S ensing (1/2)S ensing (1/2)

This is manufacturers ability to uncover Greymarket

Sensing Techniques: Periodic , Unannounced audits of Distributors

Sales record

"snitch lines" toll-free telephone numbers thatauthorized distributors can use to report on graymarket instances in their territories.

Contract with Market research firms


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S ensing (2/2)S ensing (2/2)

High Technology Solution: Using serial number to track goods

ex. Lotus development Corp. Tracking software that flags sudden spikes in

orders placed by distributors

Disadvantages: High Cost Not fool proof


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Sp eedSp eed

Functions: Direct Cause and Effect relation established

Perpetrator will have much less time to enjoy thepayoff from gray market participation

Methods to enhance speed:

Develop Internal process and Clear chain of command Proximity to markets

ex. Daimler vs Toyota in USA


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S everityS everity

Taking actions against grey marketsMethods for Severity Fines called charge backs on Distributors

involved ex . Automobile industry Withdrawing or lessening co-op allowances and

quantity discounts, reducing the distributor'sallocation of high selling products

Hassle factor like cutting off supply of Hottestselling model of a car

Legal options


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W h enW h en Gr a yGr a y c a n h el p !c a n h el p !

G ray Markets are not always bad

Effective way toRespond to competitive pressuresManage distribution channelsSegment markets

Reach untapped markets Adjust to change in market conditions


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T h e GoodT h e Good Gr a yGr a y

Incremental SalesSupply Constraints

Competitive Necessity or OpportunityMarket SegmentationChannel Management

Changing Market ConditionMarket Intelligence


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IsIs Gr a yGr a y W h iteW h ite or Bl a ckor Bl a ck

Issue not as simple as BLACK or WHITE

Be very careful in determining when G rayhurts and when it helps

Prescription : Careful thought andapplication of managerial wisdom


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THANK YOU

Documents

Gray Markets_Group 4