Due to an enormous growth in the marketing sector and due to the global market, the grey market has seen an unprecedented growth. Grey market is a market that employs irregular methods or unauthorized distribution and selling of products at highly discounted prices. Grey market is not the same as a black market, as it does not indulge in illegal activity.
In this type of market, selling of unauthorized products takes place outside the normal distribution channels. This is done by various companies, which may have no relationship with the actual producer of that product.
When products are delivered or sold from an approved distribution channel, the companies are able to protect their brand image. This ensures the appropriate levels of quality, quantity, durability of the product, which often lacks in grey marketing.
Causes of grey market
- The main cause of grey market is the inequality in the income of different people in different countries. This inequality in the levels of income and consumption leads to various demand conditions for products and this can cause a different price of the same product.
- This can be cause because of fluctuation in the exchange rates of different countries as the fluctuation can cause a difference in price of a product. Grey marketers often buy products from weak currency countries and then they sell it to other countries in highly discounted prices.
- Large volume of discount of products or sale also attracts grey dealers.
- Many manufacturer opt effective marketing strategies in order to maximize profit, which may give rise to grey marketing.
Effects of Grey Market
- The first and the main effect of this type of market is that it often affects the brand image of that particular brand.
- It can create various hurdles for the manufacturer, as they cannot maximize their desired profit.
- Unauthorized products will lead to the competition between the same products of the same brand in the marketplace. This is because of the less price of product in the grey market than the product in the actual market. It will be a serious problem for the authorized distributors and the company may lose the stability during the long run.
- Grey marketers do not consider the quality, quantity and durability of the product, which further lead to dissatisfaction of the product and thus, creates a bad brand image.
Grey market takes place due to the selling of unauthorized products in original market with different distribution channels. It is not similar to black market because this does not include any illegal activity.