We’ve all heard of the black market––that secretive, shadowy underworld of unregulated trading where, legend has it, a savvy buyer can procure anything from an unreleased Nintendo gaming console to a human kidney. But what is the “Grey Market”? To get technical, a grey market refers to the trade of commodities through distribution channels that are not authorized by the original manufacturer or the trademark proprietor. Essentially, it is the shady corners of the internet where your product goes to be sold—the unknown void where your margins are being dumped. And, it can tell you a lot of secrets about your product (and your consumers) that you never realized.
Grey Market Goods
So, just what kinds of items end up on the grey market? All kinds of in-demand items, from hard-to-find fad toys such as Beanie Babies and Tickle Me Elmo dolls (remember those?) to limited-edition video game consoles to prescription drugs and medical supplies. These items can often be found on the grey market at a considerably higher price than the manufacturer’s suggested retail price, with enterprising sellers hoarding items in bulk with the express purpose of inflating the pricing during resale (aka scalping). This practice might sound familiar. With the COVID-19 pandemic, we’ve seen a huge influx of panicked shoppers stockpiling essential items like toilet paper and hand sanitizer, as well as unscrupulous sellers hoarding lifesaving medical supplies with the intention of scalping buyers. Just a few months into the pandemic, retailers are struggling to keep up with demand, forcing some consumers to look elsewhere for products.
Is Your Product On The Grey Market?
Once your product leaves your warehouse, it might take a surprising journey you never envisioned (or intended). Most likely, your current supply chain follows one of three patterns:
- Distributors → Smaller Retailers (online and in person) → Consumers
- Direct to Retailer → Consumers (this is the most common)
- Direct to Consumer
Historically, brands and retailers have relied on “last click attribution” without realizing that this is not the final sale in many cases, especially if they are selling their products in bulk, with a discount to third-party sellers. So where are the leaks?
Enterprising third-party sellers snap up product where it is available cheaply, often at retail but sometimes at wholesale prices, and import it to the target market. They then sell the goods at a price high enough to provide a profit but below the normal market price, to attract buyers. In some cases, where there is extremely high demand (such as the current demand for hand sanitizer and face masks), these sellers swoop in, buy up all the supply and then price gouge. Another example on a slightly lighter note: Tik Tok has inadvertently made a fruit jelly candy go viral, to the point where dollar store shelves are being wiped and the candies are then sold on eBay by third parties at $10, $15 and even $20+ and on Amazon for upwards of $45. This Tik Tok trend has given this previously unknown product a viral rebrand they never asked for, with third party sellers listing the product as “Tik Tok Candy” or “Tik Tok Jelly Fruit Candy,” dropping the original brand name altogether.
Why This Matters For Food & Lifestyle Brands
The Grey Market uniquely impacts retailers and producers of CPGs, or consumer packaged goods including food, beverages, cosmetics, personal care and cleaning products. There are two primary reasons at play here: First off, CPGs should want to hold onto as much margin as they can. If these third-party sellers are selling direct to consumers (and making bank doing it), then why shouldn’t brands just cut out the middleman and sell DTC themselves? More and more CPGs are realizing they need to flex those DTC muscles and beat third-party sellers at their own game.
Secondly, CPGs should want to protect their brand and ensure that it is properly represented. Afterall, brands spend big bucks on crafting the perfect brand image and identity, from logos all the way to brand voice. Once third-party sellers start selling your product on their platform with their own advertising, you are no longer in control of that image. Why hand your brand image over to a stranger? The Tik Tok Candy rebrand discussed in the previous section is an excellent example of this loss of brand image control.
Misleading Metrics
With so much uncertainty about the grey market, it can be hard to take your sales reports and other metrics at face value. For example, when you make a sale, how do you know if that sale is the end of the road for your product? Who is really buying your product––a third-party seller or your end consumer? These questions are more easily answered if you actively manage your own supply chain, or sell directly to your consumers. Assessing your supply chain, shoring up any gaps and reconnecting directly with your target market is the surest path to assuaging these concerns and getting your product off the grey market and into the hands of your primary retailers and key consumers.
Take Back Control
The strongest stance you can take against grey market spill is to become a holdout brand and embrace a direct-to-consumer marketing strategy. In fact, now is the optimal time to beef up your DTC efforts, as more consumers than ever are willing to make purchases online in the wake of the COVID-19 pandemic. The good news is, the majority of consumers are brand-loyal and trust the brands they buy, or at the very least, want to trust them. In fact, there is an average of 5% DTC sales despite poor customer experience and higher prices online.
How To Get Started
If the Coronavirus pandemic has taught us one thing, it’s the importance of maintaining a nimble marketing strategy and embracing (or majorly beefing up) e-commerce efforts. Businesses that are able to quickly pivot and offer products and services remotely, such as grocery stores offering no-contact delivery and gyms offering virtual fitness classes, are able to stay afloat even during a shelter-in-place order. This pandemic has shown us that now is THE time to kick your online presence and e-commerce functionality into high gear. While this could necesitate as significant an undertaking as launching a full website expansion, you can also start smaller and set up an online shop through your existing Facebook and Instagram accounts. The idea is to put as few barriers between consumers and your products as possible, and every business should be taking advantage of the e-commerce features baked right into these social networking platforms.
Speaking of Social Media…
While Facebook and Instagram both offer excellent opportunities for expanding e-commerce efforts, they also serve their intended purpose––to build community, connect followers and fans, and open lines of communication. Now more than ever, customers are relying on social media for updates on product availability, shipping information, customer support, resources on how best to use favorite standbys (think recipe eBooks for pantry staples) and more. Building a strong online community ultimately builds brand authenticity and trust, which encourages customers to skip the grey market and buy straight from the source.
