Shadow Hierarchy: How Grey Market Sales Really Work

Counterfeits and knock-offs are such a big problem that many articles are written and laws are passed to prevent it. While not as well known as the black market, there’s a “gray market” for consumer goods that’s just as big of a problem.

Working within the “gray area” of the law, the gray market isn’t technically illegal but is unethical due to unauthorized sales of authentic goods.

Most major companies have terms and policies in their Distributor Agreements clearly stating where and to whom authorized distributors can sell. The goal is to keep the brand's products in the correct hands so it is not resold below minimum advertised prices and to keep brand integrity intact.

But wherever profits exist, business is made. Using parallel imports, anonymous LLCs, and a wide variety of illicit techniques, gray market sellers get their hands on authentic goods and resell them online or in physical stores at a hefty profit that is usually below the Minimum Advertised Price. What is grey market? This is the gray market.

Many brands that learn about gray market goods don’t initially understand why it is such a big deal. If the items are authentic, won’t you make a profit no matter what? Well, not quite. Gray market goods can lead to serious problems including:

MAP Pricing Violations – Since unauthorized sellers have no reason to follow minimum advertised price guidelines, they will sell at any price that gets them a profit margin.

Unhappy Authorized Channels – Authorized sellers who comply with MAP policy become frustrated when  they lose customers to gray marketers with lower pricing. This may lead to smaller purchase orders from authorized sellers.

Reduced Brand Integrity – If your product has a MAP of $99 but it is being sold on the gray market for $79, it can impact brand perception and value.

“Black Hole Theory” – This gray market theory suggests that grey marketers will become richer and authorized sellers will become poorer over time if nothing is done to fight gray market trade. With easy online comparison shopping, customers will choose the new product with a lower price. Compliant, authorized sellers will see reduced sales.

Poor Reviews – Grey market sellers may advertise “new” items that are actually older, overstock items or refunded units purchased through liquidation. Grey market sellers may also list the wrong version of the product. Customers who receive these products tend to blame the brand rather than the seller, leaving poor reviews and spreading poor word of mouth.

In general, the largest Gray Market sellers are parallel importers. They purchase high-ticket items in large quantities from wholesalers with deep contact lists. The largest sellers get deals that no one else has access to by contacting established and normally trustworthy distributors / exporters in countries such as China, India, Singapore, or the UAE.

This article is not about these types of grey marketers. We will instead focus on Domestic Gray Marketers. These sellers are more common with small to medium sized brands. The smaller the brand, the more likely grey market sellers are acquiring the product either directly from the brand or through a distributor or wholesaler. These will be the easiest to identify and stop in their tracks. This is found most often in apparel, shoe, and travel-related products.

For medium to large sized brands, there is a more insidious hierarchy that often involves rings of people, multiple addresses, and companies. These hierarchies can often be found in gray markets associated with health and beauty, consumer electronics, and kiosk or MLM brands.

For many sellers, this process is true and is the extent of their enterprise. But what about the larger sellers making six (or more) figures a month through unauthorized sales channels? Are they becoming millionaires through such a basic and obvious business model?

And why does your brand keep playing Whack-a-Mole despite cutting off the supply?

This is an example of what is likely going on:

The first step in removing unauthorized sellers is spotting them on your listings and that is exactly what the Brand Alignment Monitoring Dashboard will do for you. With price updates every 3 hours and inventory totals for every seller on every listing, you will get the most complete picture possible of your brand on every major online marketplace.

Of course, the most important step in removing unauthorized sellers is prevention and enforcement. This is where Brand Alignment is leagues above the competition. 

In short, the answer is Yes. 

We have had our 80%-90%+ enforcement rates in every single industry we have worked in. That includes the following:

• Consumer Electronics
• Apparel and Shoes
• Pharmaceuticals
• Health & Beauty
• Sports & Outdoors
• Mobile Phone Accessories
• And More

As you are already aware, each industry has their own bells and whistles. Please contact us if you have any specific questions about enforcement in your industry.

Brand Alignment gives the brand the option of using their own personal cease & desist letters or the option to customize Brand Alignment's proven high performance Cease & Desist letters. These letters were crafted by Intellectual Property lawyers with a full focus on minimizing liability.

Any infringement complaints filed by Brand Alignment are done with the utmost care and transparency. We do not file counterfeit complaints without test buys and approval from the brand. Our trademark complaints are done with caution and all bases covered.

Finally, in this world, anybody can sue anybody for anything. But it does not mean it will stand up in court. There is nothing we can do to prevent frivolous lawsuits from disgruntled sellers. However, we do everything we can to prepare you to have any case against you quickly dismissed. After two years in business, we are proud to say that neither us or any of our brands have had any legal issues of any kind related to our service.

If you are new to shopping for a brand protection provider, it might be confusing to tell the difference between companies. It might sound like everybody offers the same type of monitoring and enforcement. This could not be further from the truth.

P.S.: Due to the constant changing nature of online marketplaces, our Enforcement Guarantee is a limited time offer.

Please contact us now to ensure you are locked in with your guarantee.