According to Wikipedia – A Grey Market or dark market is the trade of a commodity through distribution channels that are not authorized by the original manufacturer or trademark proprietor. These markets products are products traded outside the authorized manufacturer’s channel.
In the Grey Market operation, the goods are imported and sold in the market by unauthorized dealers. This type of operation is unofficial to conduct but not illegal.
We often purchase these branded products that also at very low prices. Do you know why these branded products are available at such a low cost? And How?
The fact is hidden in the grey market also known as the parallel market. These are incorporated unofficially all over the world.
There are some key aspects that you need to know before considering them.
You can refer to the table of content below to learn about the topic you are interested in –
- Brief About The Grey Market
- How Does The Grey Market Work?
- Types Of Grey Market
- Advantages And Disadvantages :
- What Is The Impact Of Grey Market ?
- The Impact of Grey Market Products In USA
- Brief Of India’s Grey Market Premium
- Some Grey Market Products Of Canada, Australia & UK
- What Is The Adverse Impact Of The Grey Market On Businesses?
- What Actions Should The Brand Take To Prevent The Grey Market?
- Who Interact With The Grey Market ?
Brief About The Grey Market
The gray market is the dealing of any goods from the unapproved distributor that’s not an authorized dealer by the manufacturer.
Suppose, if you’re selling Rolex and you are not recognized by Rolex co. as an authorized dealer whether it’s new or used. It means that you are selling those products in the gray market.
What Is Grey Market?
It is also known as a parallel market that refers to the sale, usually at very moderate prices of branded products by unauthorized distributors or dealers.
In simple words, it is a small business selling commodities of a particular company even though they are not the approved dealers in the market.
Grey Market Goods Examples
Products sold in gray markets are quite broad and include automobiles such as BMW, IBM, and other technology products. Like Nikon Olympus and Minolta cameras, Duracell batteries, and even opium the world’s best-selling perfume.
Grey Market Products Fake Or Real
Generally, these products are often sold beyond the acknowledgment of an original manufacturer. It means products sold are legal and genuine but imported and sold unofficially. Usually, not black-market goods.
Is it Legal?
As the products are sold legally, but outside of the brand’s permission.
We can say that grey market activity is considered an unofficial way to conduct market operations but is not illegal.
How Does The Grey Market Work?
As we know the grey products are unauthorized and traded all over the world.
Such countries like Japan, Europe, or China at other times they may be produced by a domestic manufacturer in the United States ostensibly for sale overseas or by a US subsidiary abroad.
In any case, if these domestic or imported products are sold in the United States by distributors or dealers who were not officially authorized.
However, the manufacturer to sell the products such goods become part of the gray market.
Types Of Grey Market
Generally, there are 3 types of the grey market explained in brief:
It is the market of selling legal, original, and new products by an unapproved dealer generally in a national or international distribution channel.
It could be a camera, watches, etc or related to the stock market.
The term green market refers to the fact that goods sold and previously used are frequently put back into productive uses.
Often, these products are repaired, recycled, refurbished by the manufacturer by the reseller to save the environment from getting polluted from the used and discontinued products.
Such as electronic equipment which is made up of many precious materials including highly refined glass, gold, aluminum, silver, etc.
The third type of market is also primarily known to be a black market. Where the deals of illegal products and selling or brokering transactions are involved.
Such as cyber-arms, unlicensed pharmaceuticals, weapons, crude oils, stolen credit card details, and other illicit goods are traded illegally.
Advantages And Disadvantages :
Customer’s Point of View
Pros & Advantages:
- The benefits of the lowest price of high branded products available to the customers.
- The customer gets the products that are not available in the market and even in their own country that also at a low price.
Cons & Disadvantages:
- One of the major obstacles that arise with the grey market products, which customers face is the absence of guarantee or warranty cards.
- After-sale services like warranty service, training, or repair for products are usually unavailable to product purchasers.
- The reality behind the market is, a consumer generally fails to differentiate between duplicate, used, or new products. Due to which the goods fail to achieve customer’s trust.
Companies and Nations Point of View
Pros & Advantages:
- In this type of market, high-value goods are sold easily. Which increases companies’ overall transactions & sales.
- Sometimes sales groups or operator in the company tries to achieve sales target. To achieve sales targets, they try to sell products in the Grey market.
Cons & Disadvantages:
- Sell of the high-value exorbitant product cheaply which badly affects the company’s profitability.
- As grey market also sometimes deals in fake products which may stake the companies reputation or spoil companies.
- Multiple prices of single products due to parallel marketing or purchasing.
- Business relationships and client faith are in danger due to the dealing of the commodities in the these market.
- As the transaction increases it adversely affects the market and the economy too.
- Companies lose consumer’s belief in their quality. As sometimes they do not get the quality of the products as detailed by the original manufacturer in the ads.
- Products sold are unapproved or may not be reliable and beyond the manufacturer distribution channel.
- The company and the nation suffer a huge loss. Significantly to the images of the brand and the nation which is much more valuable than financial earnings.
What Is The Impact Of Grey Market ?
Several problems arise due to the birth of the grey market. Some are listed below. Let’s move on to the list one by one:
Low Price Competition
As many manufacturers try to increase their sales of products through various distribution channels. So in order to increase their sales, they start to distribute their products in a huge authorized distribution channel.
This creates difficult competition among all dealers to accomplish the sales target. Hence they offer discounts, selling the products at lower profit than the estimated price of the products.
Differences In The Price Of Different Countries
Some of the manufacturers offer the same products in different-different countries at different prices. And fix the prices according to the demand of that particular country.
So grey markets are well aware of these strategies and take the benefits of the same.
They get low-cost products from a particular country. And selling it at a low cost in the host countries. These create differences in price among two different countries.
Blocked Distribution Channel
Many times it happens when some manufacturers obstruct the dealer/distributor from selling their product in the market. Though the distributors are very willing to sell their products.
In that case, the dealer purchases their product from the parallel market at a cost lower than the price fixed by the manufacturer. Which creates an unauthorize deals of any product and affect approved distribution channel very badly.
Generally, the manufacturer seldom fixes the large sales target for the authorized dealers. And usually creates a sense of pressure among dealers to achieve the target in any way.
This enforces to sell the product at a lower cost in the grey market to attain their target easily.
High Product Cost
Some of the products of the manufacturer are costlier enough and some are overpriced than their competitors or opponents.
To sell the products and support trades in the market. The companies do sell their products into the parallel market to hold their products selling and operating.
So to make it more clear, let’s have a look at some of the grey market examples – And countries famous for grey market products.
The Impact of Grey Market Products In USA
Some of the examples of the product are based on several facts.
The USA Grey Market Watches
Grey market watches and US-warranted watches are manufactured in the same factories from the same components, and compassion, by the same workers.
Do You Know?
The United States is the 2nd biggest market for Swiss watches and is a hub for gray market watches. Including online grey market websites such as Jomashop.com, PrestigeTime.com, and AuthenticWatches.com.
Many unauthorized sellers in the USA sell most watches with a warranty from the manufacturer or from the manufacturer’s licensed importer. Hence, these are “grey market watches”.
The gray market is by no means bound to the United States. Rather, Germany’s grey market website Chrono24.com has sales offices in both Hong Kong and New York. While a lot of watches are also marketed on Amazon grey market and eBay, said the unnamed watch industry executive.
It’s important to note that,
- “Grey market” is not illegal
- Not factory seconds
- Neither demo merchandise
- Nor cheaper or inferior products
- In fact, in almost every instance a watch is absolutely identical to its US-warranted analog.
Now you will probably think of, Why and how such a transaction of Grey market watches takes place?
Transaction of the Grey market watches can take place in two ways:
- Due to the MAP policy, which gives authorized sellers a minimum sale price to uphold. Some of the official resellers get tied down with unwanted stock of watches. Incapable to purchase new collections until they liquidate old stock. This may lead to a build-up of a large number of inventories.
- So the authorized dealers themselves find the gray market as the easiest solution to liquidate old stock of watches. Even if they may not be making any profit from selling to unauthorized dealers.
- Many luxury watch brands prefer do not to advertise their prices online, which may leave their potential customers with too much mystery when searching online.
- These unauthorized dealers provide services like trade-in schemes for old watches, financing solutions, price-match guarantees, and their own warranty and service centers.
- Also, Grey market watch websites offer to rebuy your older models, offer student discounts, and decent delivery service. So it’s not only about the expressive discounts they offer to their customers. They have also touched on many points that give these websites a luxurious feel.
Hence, these market watch websites offer many advantages to luxury watch buyers, and brands are suffering as a result.
Star Citizen Grey Market
In 2014, Eurogamer(a British video game journalism website) reported that a grey market had arisen from Star Citizen’s funding practices, specifically the sale of limited-run ships and the inability for players to sell ships among themselves.
You can explore the site given below: Starhanger.com -The safest Star Citizen marketplace(the safest marketplace for Star Citizen items. You can register to buy or sell spaceships and other items )
The star citizen grey market website is a player-created market where players can buy and sell in-game items such as ships, ship paint, weapons, armor, etc. on star citizen that’s actually hosted on a subreddit called star citizen trades.
There are 3 main marketplaces in the grey market, among all, the largest one is the Star Citizen Trades subreddit.
This isn’t a black market because it’s semi-approved and unofficially supported by the publisher CIG (Cloud Imperium Games).
But you really are best to think of it as a black market. Unlike buying from CIG when you send payment to the seller here there’s no mechanism in place to ensure that what you purchased ends up.
However, the gray market does go to great lengths to ensure honest trade takes place. And that scams are minimized saying,
“This is verified trades in which both seller and buyer confirm to the board and the transaction correctly took place. As these trades are tracked so, the sellers with a large number of verified trades are generally honorable”.
What Is Grey Market Stocks?
A gray market stock is an unofficial market for financial securities. It refers to an unregulated marketplace for stocks, before it is listed on a regular stock exchange. Where brokers buy and sell shares of a company.
Grey market trading usually occurs when a stock that has been suspended from trades off, or when new securities are bought and sold before official trading starts.
Grey markets stocks are legal in many countries like the United States, India, and most of the countries in the world. Although they are less frequent in this country. So we can say that the gray market of stocks is an unofficial one but is not illegal.
Brief Of India’s Grey Market Premium
What Is The Grey Market Premium?
The grey market premium is a price paid as a premium amount in rupees at which IPO shares are being traded before they get listed on the stock exchange
The words ‘Buyer’ or ‘Seller’ is directly connected to the IPO grey market premium.
As they actually tell the price either at which buyers are willing to buy shares or the price at which sellers are willing to sell their IPO shares.
Hence, its premium could be positive or negative based on the demand and supply of the stock.
Examples of India’s grey market premium are:
- Railtel IPO grey market premium
- IRFC IPO grey market premium
- Home first grey market premium
- Indigo paints grey market premium
Examples Of How To Trade Gray Market Stock
Mundra Port and SEZ Limited
Issue Price: Rs 440 per equity share
Grey Market Premium: Rs 400 (Buyers)
It indicates buyers are ready to buy Mundra Port shares at 440+400 = Rs 840.
Issue Price: Rs 45 per equity share
Grey Market Premium: Rs -6 (Seller)
This indicates sellers are ready to sell SVPCL shares at the discount of Rs 6. i.e. 45-6 = Rs 39.
IPO Grey Market Premium
IPO Grey Market is an unofficial market where IPO applications or shares are bought and sold. Before they become officially available for trading on the stock exchange.
It’s an over-the-counter market where dealers may execute orders for preferred customers as well as provide support for a fresh issue before it is actually issued.
Parallel Market Trading Include :
- Trading (selling or buying) IPO Applications at a certain rate (premium)
- Trading (selling or buying) allocated IPO shares before they list on stock exchanges
Grey market trading is usually done among a small set of people who believe each other. As there is no official platform or laws set for this negotiating their deals.
Note: As IPO Grey Market has no laws around it. So all the transactions are done in cash on a personal basis. Stock Exchange, SEBI, or Brokers are not associated or back this deal.
How Does IPO Grey Market Premium Works?
As we are aware of the grey market premium is nothing but the price at which the shares are being traded market.
Let’s assume the issue price for stock A is Rs 200. If the grey market premium is Rs 400, it means that people are ready to buy the shares of company A for Rs 600; (i.e. 200+400).
This is how a typical deal works out in the grey market.
Let’s understand this with another example.
Asha is a trader in the stock market. She is allocated 500 shares at a certain issue price in an upcoming IPO. Meanwhile, there are other investors, called ‘buyers’, who think that the value of the share is much higher than its issue price.
These buyers are ready to pay a ‘premium’ on the shares in the grey market. Dealers in these markets contact investors like Asha, called ‘sellers’. They decide to make a deal to sell the shares at a certain price (premium) that is higher than the issue price.
If Asha likes the deal and is unwilling to take a risk with the stock’s listing, Hence, she sells her shares and books the profit.
Some Grey Market Products Of Canada, Australia & UK
Parallel Market Watches
The gray market of watches is anybody who’s not an authorized dealer. So if you’re selling Rolex and you are not recognized by Rolex as an authorized dealer whether it’s new or used, you are in the gray market.
Authentic Watches Grey Market
Gray Market watches are authentic products that are sold through an unauthorized source.
Authentic Watches bought from a gray market source will not cover a factory warranty and resale values will be lower than a watch purchased from an authorized retailer.
Creation Watches Grey Market
Creation Watches are a very legit site where watches sold are absolutely new and authentic
But the watches they sell are grey market watches because they are not Authorized, Dealers. And the warranty they offer is through them, not through the original manufacturer.
What Is Grey Market Camera?
A “gray market” camera is advertised for a price significantly less than is charged by the real manufacturer or their authorized dealer.
But it is important to note that, before thinking about purchasing from gray market stores, buyers need to be educated.
About Grey Market Cameras
Gray market cameras are usually not knock-offs, pirated, or counterfeits. They are not illegal or unethical, but they do intentionally evade the normal sales and distribution channels and are not sanctioned, approved, or authorized by the manufacturers.
People generally buy branded cameras of Canon and Nikon at a low price. Often without investigating the idea of exactly what they are buying. Nor do they know the right questions to ask before spending their money.
More importantly, they may find out many months after the purchase that they have no recourse if they encounter any problems.
So the valuable lessons could be learned from this experience which can help consumers make intelligent and knowing choices. Accordingly, they are sure to get what they pay for.
The best defense for the consumer is education: know what you want to buy and exactly what you are buying, and ask a lot of questions like:
- How the discount market for expensive cameras works and make their money to be alert to red flag issues.
- Know the product specifications of what you want to buy.
- And finally how the companies that sell, apparently cheaper cameras and accessories.
Some Precautions Before Buying A Branded Camera- If The Price Is Lower Than The Advertisement
- Is the store an authorized dealer for the brand you want, and did they purchase directly from the original material manufacturer?
- How long have they remained in business?
- Are they supplying the USA version of the camera for the body, accessories, and lenses?
- Take notice if the seller then tries to upsell you. As discount cameras are built differently or have inferior or lower quality parts.
- Next, settle where the warranties are valid. Remember that the warranty is based upon where the camera came from.
- You also need to ascertain where such a warranty applies, and how to apply it, and if there are any limitations or exceptions.
- Find out everything, the return policy is for the camera.
Star Citizen Grey Market
Star Citizen is an in-development multiplayer space trading and battle simulation game developed and published by CIG(Cloud Imperium Games) for Microsoft Windows.
And star citizen grey market is the online platform for players to sells the types of equipment in the game like ships, armor, weapons, etc.
However, CIG continued to raise funds through the sale of ships and other in-game content.
You can explore the site given below: Starhanger.com -the safest Star Citizen marketplace(the safest marketplace for Star Citizen items. You can register to buy or sell spaceships and other items )
Grey Market Games
The grey market, as its name suggests, is a place to buy video games that isn’t illegal but might not be totally ethical. The grey market is built up of e-commerce sites that sell activation keys for games, including newer titles.
It’s not surprising that many gamers are
continually in search of a discount on the titles. They want lots of triple-a titles that cost around 60 US dollars at launch and tend to stay that way for
quite a long time after release.
Several gray market online stores have popped up such as g2a & Kinguin.net that offered digital game keys from third-party sellers at prices often far lower than you’d find from traditional stores or directly from the developers.
Are Gray Market Game Key Sites Legit?
Yes, in the sense that you get a key for less than full price. But No in the sense that they are not supported by game developers.
What Is Grey Market Perfume?
Grey market fragrances are authentic fragrances imported from different countries. These are not the same as fakes, knock-offs, or counterfeits. It is not illegal to sell, buy, or own these fragrances.
But the more adventuresome or avid fragrance enthusiast will soon discover that their perfume habit is getting a bit expensive.
Perhaps a little too expensive. So they shift to grey market goods or online perfume retailers.
What Is The Adverse Impact Of The Grey Market On Businesses?
It is important to understand that this grey market or the parallel market harms the manufacturer’s business, the industry, and the economy. Let us study a few effects.
In the grey market, the goods are sold at a lower cost than the cost decided by the organization. The company sets the prices based on the calculations of profits. Hence, When goods are sold at a lower cost the company’s profitability is affected.
The grey market goods do not come with a guarantee backed by the manufacturer. If the products sold in these markets do face an issue with their performance, the title of the brand will be affected.
Absence Of Guarantee In The Product
As we know earlier that, in the grey market it is very hard to distinguish between the new products and used ones. You never know what the grey marketer might sell to you an authentic or a used one. So, trusting the grey market goods might also not be that simple as it seems.
Multiple Market Prices
In parallel marketing, the goods have different prices in different countries or are advertised differently. So, it confuses the consumer in terms of prices.
On one side, the authorized dealers sell genuine products at a higher cost whereas the grey marketers sell the same original and legal products at a lower rate than the market.
Hence there are price differences for a particular product developed by the same manufacturer.
Impacts On The National Treasure
Grey goods negotiated at the parallel market are usually without tax charges.
Since taxes are applied to both buying and selling of the products. As a result, an increase in the transactions puts the government at loss and directly affects national treasure.
What Actions Should The Brand Take To Prevent The Grey Market?
- Recognize unofficial Sellers
- Warning messages to unauthorized sellers
- Distribution channel policy
- Channel incentives (based on unique serial numbers)
- Supply-chain clarity
- Tutor Your Consumers
- File a suit against unauthorized dealers
Who Interact With The Grey Market ?
If you find this blog insightful, do let us know in the comment section, and please share this post with your social network.
You may like to read this as well :