Grey market research refers to the act of collecting and analyzing data and such insights from the grey market, which is defined as the exchange of legitimate, authentic products through unauthorized, unofficial, or unintended distribution channels.
To put it simply, it is the study, in a sense, of the “shadow” supply chain that exists adjacent and parallel to a brand’s official supply chain.
What’s in the Grey Market is also important to differentiate from the black market.
The Black Market: Herein lies illegal, counterfeit, or stolen product.
The Grey Market: Stock available in the grey market consists of 100% authentic goods that have simply taken an “unlawful” journey to the eventual end-user.
These products are typically referred to as “parallel imports”.
How do products get into the grey market?
There are several common pathways:
International Arbitrage (Price & Availability): This is the most common driver of grey market activity. For instance, a product may considerably be cheaper in Country A than in Country B. Grey market entrepreneurs, or “diverters,” purchase large quantities of goods in Country A and import those goods to Country B for sale, ultimately coming in under price and availability of those goods represented by official distributors. This practice most commonly occurs with electronics, luxury goods, pharmaceuticals, and cosmetics.
Unauthorized Distributors: A distributor, sanctioned for selling in one area or selling to a particular type of retailer (such as discount stores), violates their membership and sells inventory to other unauthorized retailers.
Selling Overstock and Surplus: Businesses may sell excess inventory to a liquidator at a significant discount. The liquidator will then re-sell those goods through their own channels to retailers in competition with their official bricks-and-mortar stores.
Online Marketplaces: eBay, Amazon Marketplace, and Facebook groups serve as the epicenter of the grey market, where individuals and businesses sell genuine products sourced from the aforementioned channels.
What Is Grey Market Research? Grey market research is an act of gathering intelligence.
Organizations carry out grey market research to understand:
The scale: How significant is the grey market for our products? What is the volume being moved?
The sources: Where is the product coming from? What countries or distributors are leaking the product?
The Channels: In what way are they being sold? (Examples include specific online sellers or brick-and-mortar discount retailers).
The Pricing Effects: How much are grey market players cutting below our official prices, and those of our authorized retailers?
The Consumer Motivation: Why are consumers purchasing from the grey market? Is it price only, or also availability?
The Brand Impact: Is the grey market damaging our brand image? For example, are selling with no warranty, damaged packaging, or missing safety manuals?
Grey Market Research Methods
Researchers use many methods:
Mystery Shopping: Buying from suspect grey market sellers to analyze packaging, serial numbers, and point of origin.
Price Tracking: Monitoring prices on and off-line that sells genuine goods at a suspiciously low price.
Supply Chain Audit: Backward tracking from a grey market product to find the point of leakage in an official supply chain.
Data Mining: Using specific programs to track and map online seller data to find larger-scale diverters.
Warranty and Serial Number Utilization: Tracking which serial numbers are being used for warranty claims from products that were not sold with an authorized partner.
What Makes this Research So Important for Brands?
Understanding the gray market is a very important aspect of business intelligence because the ramifications of this understanding include:
Erosion of Brand Value & Pricing Power: When consumers can quickly discover the same genuine product for much less, it erodes the value of the brand and it becomes impossible for brands to sustain premium pricing.
Damaging Relationships with Channels: Authorized retailers who invest in marketing and customer services will become justifiably upset with a brand if they have to compete with unauthorized sellers and lower fixed overhead costs.
Confusion for Consumers & Negative Experiences: Gray Market products are often not accompanied by valid manufacturer’s warranties, local customer support, instructions or suitable power plugs. When the consumer experiences a problem, they blame the brand… and ultimately this leads to a poor customer experience and damage to brand reputation.
Loss of Revenue: Although the diverter’s sale is revenue for a brand, the long-term revenue loss from the loss of pricing and angry retailers will often be far greater.
Ultimately, grey market research is an investigative tool to assess leaks in a brand’s own ecosystem, competitive pricing pressures, and methods for protecting brand equity, retailer relationships, and long-term profitability.
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