Grey Market: The Advantages And The Pitfalls

Online auction sites are filled with "grey" products. Grey products are not the same as fakes or replicas of bid brand names.

The grey market refers to the flow of goods through distribution channels other than those authorised or intended by the manufacturer or producer. There is also a more specific term used for the same practice, namely parallel imports. Parallel imports are goods that are imported through non-official channels from low to high price countries - a completely legal transaction.

For example, one might be able to source a pair of legitimate Nike shoes in Malaysia for half the price than one could do so in South Africa. Local entrepreneurs spotting such an opportunity could then import this merchandise and sell it for a profit in the local market, thus undercutting local retailers - a practice that is perfectly legal in South Africa. Many small - and not so small - sellers on use this method of parallel importing to source goods at competitive prices and then make a profit by selling them on our site.

Grey product are most often to be found in the consumer electronics category. The biggest problem the buyers of such products face is the warranty. Often, the "grey" importer is not able to provide the post-sales service. The local distributors (if there are any) will, naturally, refuse to service items not acquired through them. This is where the buyer needs to make a decision balancing out the cost savings with the potential risk, should something go wrong with the item and they are not able to receive the necessary support for the item locally.

Due to the nature of grey market economics, it is generally difficult or even impossible to track and verify the precise numbers of grey market sales. The manufacturers would, of course, prefer to have control over distribution channels. That is to be expected, because grey imports can damage their reputation in a round-about way: through no fault of the manufacturer, the name of the brand and the lack of post sale support may connect in the mind of a consumer who acquired the product in question through grey channels. Besides, manufacturers also need to protect their authorised dealers. However, some people think that parallel imports are simply a part of globalisation. After all, if a grey importer can offer the same product at a more competitive price (either with a similar level of support or at a price low enough to justifying a lower support level), then that is simply part of operating in a free market and being part of the global economy. After all, with access to the Internet nothing is hindering South African consumers from accessing a web site in Malaysia and making a purchase directly from a Malaysian vendor.

However, importers and sellers should take the responsibility to inform consumers of the level of support that they are likely to receive when purchasing a product through the grey marketing channel. This way one eliminates any confusion regarding the product and consequent support structure and contributes to a more satisfied sale process.