LOS GATOS, CA--(Marketwired - Jun 30, 2016) - The first step to solving any problem is recognizing that it exists. With billions of dollars' worth of tech products being sold on the gray market each year, it's clear that the IT industry has a problem -- and a big one at that. Unlike black market products -- which are stolen or counterfeit -- gray market goods are genuine, branded products sold through unofficial distribution channels. Gray marketing is not necessarily an illegal practice, but -- as unauthorized sales continue to raise costs, contribute to lost revenues and damage brand reputations -- stopping it is in the best interest of the tech sector. With this in mind, AGMA, a non-profit organization and the largest group solely focused on Intellectual Property protection in the high-tech industry, is educating manufacturers on how to identify gray market activities and arming them with strategies to counteract it.
How does it Happen?
Whenever the lowest price is the customer's top priority, gray marketing has a chance to enter the picture. Global price differences, lack of cross-border regulations, importing practices and third party brokers who operate outside of the authorized channel can all contribute to products being leaked from authorized channels. Commoditized tech items are especially susceptible. In order for a product to be attractive to gray marketers, it needs to be small, valuable and standardized (i.e., it needs to work the same way in San Francisco, Poland and Taiwan.) These attributes make items such as ink and toner cartridges, hard drives, switches, servers and memory modules among the products that show up in the gray market most often.
How Big is the Problem?
The cycle that gray market goods travel through often involves several brokers and resellers in multiple countries, making it difficult to put an exact number on the size of the problem. Instead, impacts seen by manufacturers and distributors are looked at. For example, one major IT vendor estimates that the gray market costs them between hundreds of millions and billions of dollars annually. The same vendor notes that approximately fifty percent of its hardware revenue is at risk to the gray market.
What to Watch For
Awareness is a critical early step in addressing gray market activity. Paying close attention to the market is a must. Manufacturers that listen to distribution partners will have an edge, as they represent their eyes and ears on the front lines. For example, if complaints are being made about being constantly undercut on price by brokers or on eBay -- a gray market problem could be indicated. Where, how and for how much are products reaching the channel? If distributors or resellers perceive a lack of marketplace monitoring by the manufacturer, this can open the door to the gray market.
Strategies for Success
Establishing effective processes to identify and monitor gray market activity is challenging. Promoting strong gray market mitigation programs and collaborating with channel partners to drive out noncompliant behavior is essential. According to AGMA, the following tactics are recommended to deter the movement of goods to gray market channels:
- Establish a strong authorized channel - Do your research upfront, and ensure that channel partners are committed and trustworthy.
- Put pricing controls in place - Know your product's selling price in different geographies to avoid creating destinations for gray marketing.
- Set up discounting controls - Thoroughly vet and carefully control all discounts to ensure that they are not abused.
- Use contracts - Set clear, enforceable boundaries for authorized selling. Monitor sales to ensure contract compliance. Perform compliance reviews on a consistent basis.
"We strongly encourage manufacturers to invest heavily in brand protection," noted AGMA president Sally Nguyen. "The work put into establishing and enforcing clear guidelines for reselling their products will lead to a healthier business in the long run. While the majority of people doing business are good and fair, it only takes one or two bad seeds to ruin a company's reputation and negatively affect everyone in the channel. By sharing best practices, guidelines and expertise, we can all work together to lessen the impact of the gray market."
What about Consumers?
Although consumers are not necessarily breaking the law by purchasing product outside of official distribution channels, they are opening themselves up to higher risks. Gray market goods are not eligible for manufacturer warranties and support, in fact, a warranty would typically be considered null and void in this case. This leaves consumers to fend for themselves if something goes wrong.
And there are plenty of things that could go wrong. From being damaged in shipping to having been opened and repackaged or having parts swapped out, consumers buying gray market goods have no guarantees that what they have purchased is going to work. According to Nguyen, "A discount can sometimes actually end up costing more money in the long run. Products offered at lower prices from non-authorized sellers should raise a red flag. In order to ensure that they are not getting a gray market product, consumers should only purchase products from authorized resellers -- lists of which can often be found on manufacturer's websites. Otherwise, a 'buyer beware' situation is created."
As an industry association, AGMA is chartered with addressing key threats to intellectual property in the high-tech industry. To learn more about AGMA, please visit www.agmaglobal.org.
AGMA is a non-profit organization comprised of influential companies in the technology sector. Incorporated in 2001, AGMA's mission is to address gray market fraud, parallel imports, counterfeiting, software piracy, and service abuse of technology products around the globe. The organization's goals are to protect intellectual property and authorized distribution channels, improve customer satisfaction and preserve brand integrity.
AGMA welcomes any technology manufacturer, as well as persons or entities that own or hold intellectual property rights to finished goods outside the technology industry; product and service providers; government and law enforcement officials who provide goods and/or services to combat gray market fraud, counterfeiting and warranty and service abuse threats. AGMA uses a variety of avenues to cultivate change in the marketplace, including event speaking, educational initiatives, benchmark studies, industry guidelines, and, where appropriate, public policy advocacy. To learn more about AGMA's initiatives or to become a member, please visit www.agmaglobal.org or follow them on Twitter.