Aside from potential black market and counterfeit product challenges, what kind of products make up the volume of what’s being sold under your nose on third party marketplaces like Amazon and WalMart? The answer is likely authentic, gray market goods. These are products that have been diverted from your distribution channel by unauthorized sellers. Unfortunately, these sellers have a myriad of pathways to acquire your branded products. Here are just a few:
4 Ways Unauthorized Resellers Get Gray Market Goods
Theft of authentic products by gray market sellers is often incredibly organized — it’s also pervasive. This kind of theft is occurring all along the delivery chain, from the warehouse to the retail shelves. Jennie Martel, Chief of Global Brand Protection, describes cargo trucks as one avenue of theft in her excellent 4-part series “Brand Protection in a COVID 19 world.” These trucks are robbed both in transit and while parked, and drivers are often harmed in the process. Unauthorized third party sellers are often indifferent over collateral damage as long as they get their product.
This is a form of arbitrage in which a buyer purchases gray marketing goods that are genuine products meant for sale in one region, but sells those products in a different region for greater profit. For example, a Canadian product could be sold in the U.S. by unauthorized sellers for more favorable margins even though that specific product was not created or approved for U.S. distribution.
Distributors will acquire products, usually in large quantities, from a brand or even from other distributors for a favorable wholesale rate. Though the implication is that the distributor will hold firm on Minimum Advertised Price (MAP) requirements, more often than not, the distributor will cut price and move volume through an online seller account that is unknown to a brand.
Unauthorized resellers can obtain excess or stranded inventory, product returns, damaged items, or expired goods, all of which are heavily discounted due to their distressed nature. The Wall Street Journal broke a story about discarded waste being resold on Amazon as a legitimate product. Check out You Might Be Buying Trash on Amazon – Literally to learn more about the likelihood of buying actual garbage online.
Amazon has specific definitions to determine a product’s condition to inform and protect consumers against this issue. For example, for a product to be listed as “new” it must be in its original packaging, AND the manufacturer’s warranty needs to be in place.
It is important not to underestimate the impact of expert retail shoppers who are out to play the damaging game of pushing gray market goods. Frequent discounting and promotions or sales through membership retail stores like Costco and Sam’s Club can fuel large numbers of these unauthorized sellers to the point of collectively damaging or destroying a brand’s value. They are shrewd and move quickly, and it’s all about volume for them. They’ll monitor and undercut MAP in the blink of an eye. As a result, for the brand, it’s “death by a thousand cuts.”
Brand Control is Critical
Frequently, brands themselves are deliberate or unintentional victims of gray market problems such as:
Not having controls in place to collect and destroy marketing samples or display items not intended for retail.
Not having rules in place to prevent end-of-the-month sales to unknown or unproven distributors, especially those showing up with requests for large orders.
Not having the will to cut off or otherwise penalize distributors even though critical policies such as MAP are being violated.
This is a challenge for all brands, both large and small. No eCommerce business is immune. Unauthorized resellers discover holes in a brand’s delivery chain and exploit the weakness to turn a personal profit at the expense of the brand’s integrity and reputation.
An effective brand protection solution is one that moves as quickly as unauthorized resellers, finds the holes in the distribution channel by directly contacting resellers, and focuses on raising the stakes, or cost, for an illegitimate seller to continue to list your branded products. Gray Falkon accomplishes all of this swiftly and thoroughly, evicting gray market goods.
About the Authors
Trajan Bayly, CEO of Gray Falkon, is an award-winning innovator across multiple industries, including e-commerce, technology, health, and finance. As a 20-year business veteran and recognized expert in market strategy, innovation, and artificial intelligence (AI) technology, Trajan’s leadership experience spans a wide spectrum, from startup technology companies to large, global organizations like Ernst & Young and General Electric. He earned his MBA at The Fuqua School of Business at Duke University.
Brandt Madsen, Chief Product Officer of Gray Falkon, is a world-class expert in trademark law and other intellectual property (IP) matters. Brandt’s experience includes representing and advocating for all types of IP interests, from those of multi-national corporations, such as Toyota, Nikon, and Rolls Royce, down to the individual entrepreneur. Protecting these rights fueled Brandt’s decision to co-found his own law firm and then sell it to pursue a larger vision of protecting brands in the evolving e-commerce world. Brandt earned his BS degree in Mechanical Engineering from Brigham Young University and his law degree at the prestigious Franklin Pierce School of Law at the University of New Hampshire, where he graduated cum laude.