The grey market: What brands can do to safeguard customer loyalty

The unauthorized sale of genuine products online, known as the grey market, is increasingly attracting consumers with discounted prices and fast delivery. Joanne Foo, senior manager at SKIM, explains how this trend disrupts brand strategies – and what brands can do to safeguard customer loyalty.

Consumers are always searching for the best bargains they can find on name-brand products. With prices increasing in Asia – especially for luxury products – unofficial sellers are increasingly undercutting official retailers. The grey market adds pressure on top of the existing pressure from the second-hand market, also booming in Asia.

“While we can’t eliminate the thriving grey market, there are ways for brands to manage this dynamic and capitalize on it to build sales in official channels,” says Joanne.

The grey market tends to normalize unrealistic price expectations and diminishes the perceived value of authenticity. It also disrupts brand pricing strategies, damages brand reputation through potential quality and safety issues, and obscures accurate sales and market share data.

If you can’t beat them, befriend them

Companies need to fight back against the grey market’s impact by working to strengthen customer loyalty within their authorized channels. While eliminating the grey market entirely is impossible, brands can adopt strategies to manage its influence.

“If you can’t get rid of them, collaborate with them,” says Joanne. “This might mean dedicating resources to monitor resellers and enforce distribution agreements or working with existing distributors to ensure compliance with agreements.”

Collaborating with grey market sellers can be especially effective in markets where official distribution is limited. Brands can monitor grey market activity and negotiate distribution agreements with the top unofficial sellers.

Meanwhile, by better understanding grey market dynamics, brands can learn more about price sensitivity of their ‘official’ products, which in turn can help refine pricing strategies.

A combination of strategies

At the same time, brands should work to fix weaknesses in their supply chains by reviewing contracts, monitoring product movement, and establishing clear distribution agreements. Varying product formulations and regional packaging can also deter resellers.

Educating consumers about the risks of purchasing from the grey market is also crucial. Brands can benefit from creating content that highlights potential issues such as quality differences, lack of warranties, and poor (or complete lack of) customer service.

Brand ambassadors, authorized dealers, and customer testimonials can also help to build trust in official channels. Companies can also further incentivize purchases through authorized retailers by offering rewards and membership programs. Many consumers, after all, are just looking for deals.

Robust planning

The bottom line is that brands need to have a plan in place. Strategies can include monitoring market trends, developing rapid-response plans for grey market threats, educating consumers about the benefits of official channels, and optimizing pricing and communication strategies.