The grey market threat: How brands can safeguard customer loyalty

Consumers are increasingly attracted to the grey market, where they can buy genuine products through unofficial ecommerce sellers, often with steep discounts and fast delivery. This growing trend has created obstacles for companies as it has undermined brand strategies and authentic channels and has shifted consumer perceptions and behavior. 

How can brands reduce the impact of the grey market and build greater brand loyalty within official channels?

Joanne Foo, Senior Manager at SKIM, and Didith Mendoza, Regional Insight and Analytics Lead at Reckitt, recently discussed this very issue and shed light on how other companies can tackle this growing challenge to gain more certainty and precision in their marketing strategies. 

6 ways the grey market influences consumers and challenges brands

1. It changes the way consumers shop online. Loyalty has waned as shoppers chase bargains and promotions across ecommerce sites.
   
   
2. It anchors unrealistic prices in consumers’ minds. Over time, bargain prices from unofficial sellers begin to seem normal and the official price seems unreasonable.  
   
   
3. It reduces the value of authenticity. Consumers ask themselves: Is it wrong to buy a real product from a reseller? Isn’t my money going to the same place in the end?
   
   
4. It undermines brand pricing strategies. Discounted products sold on the grey market call into question the brand’s entire pricing matrix and make it difficult for companies to command the prices needed to keep their brands healthy.
   
   
5. It impacts brand reputation. Grey market products may not include warranties or customer support, or worse, may fail to meet safety and regulatory requirements. That can reduce customer satisfaction and lead to product recalls or legal consequences.
   
   
6. It affects market share and sales metrics. With sales happening outside of the company’s control, it becomes more difficult to measure sales and market share with certainty.

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

Strategies for reducing the impact of the grey market

If you can’t beat them, befriend them

When brands lack local distribution, unofficial resellers can quickly introduce products to satisfy demand. Social media listening, scraping methodologies and other tracking mechanisms can help companies stay on top of growing demand in new markets. When unofficial sales become significant, brands can take steps to negotiate distribution deals with grey market resellers, while establishing distribution through traditional outlets. 

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

Find the weak links in the supply chain

This is the time to review contracts and production suppliers to identify risks and monitor product movement and potential diversions. Be sure to oversee your distribution network with clearly defined distributor and retailer agreements that avoid steep discounts and offer other forms of support instead.  

We’ve found it’s also wise to vary formulations and regional packaging to ensure that barriers for resellers remain high.  

Educate consumers

Create educational content to uncover the risks of purchasing from grey market resellers, including formula differences, quality issues, lack of warranty and poor customer service. Use brand ambassadors, authorized dealers, testimonials and reviews from satisfied customers to build trust in safe purchasing practices. Companies can also attract consumers to authorized channels with reward and membership program

Include grey market channels in consumer insights

To truly understand your customers, you need a complete picture of their shopping behavior. Consider incorporating context about the grey market into the competitive set for a deeper understanding of market dynamics and consumer behavior, and for greater precision and certainty in your strategies. For example:

• Pricing insights: By analyzing grey market pricing, we can identify the price points at which consumers are willing to switch to unofficial channels. This information helps us understand the true price sensitivity of your target audience.
  
  
• Brand communications: Optimizing messaging can reveal the specific strategies that will capture attention and drive conversion on the right channels. Be sure to evaluate your communication strategies to ensure you’re delivering the right message to the right audience, at the right time.
  
  
• Ecommerce shopper journey analysis: By uncovering key touchpoints, triggers, drivers and barriers influencing purchases, journey insights can reveal perceptions of authenticity and consumers’ willingness to sacrifice it for price. Including this information can shed light on when and why consumers turn to grey market channels through the shopper journey.

“Personal care insights revealed that grey market items accounted for more than half of ecommerce market share,” Joanne shared. “By incorporating grey market dynamics into the study, we can learn more about price sensitivity in official products and help brands refine their pricing strategy.”  

4 key takeaways for ecommerce brands

While the grey market may seem daunting, there are learnings you can apply to your business to help tackle this issue.

1. Monitor market trends and demand. Develop tracking mechanisms to uncover grey market activity and measure its impact on your brand.
   
   
2. Prepare a rapid-response plan. How will you respond when you discover a significant grey market threat? Minimize the impact by having a plan and a team in place.
   
   
3. Help consumers shop smarter in a sea of clutter. With so many options available, educating consumers on the value of purchasing through official channels can raise awareness of the benefits.
   
   
4. Drive conversions in official channels with insights. Get detailed market knowledge that will help you optimize ecommerce pricing and communications strategies and shift purchase behavior back to official channels.

SKIM’s expertise can help your company navigate the challenges of the grey market and infuse more certainty into your marketing strategies. To learn more, schedule a consultation with one of our experts.