GREY MARKETING

A grey market or gray market is the trade of a commodity through distribution

channels which, while legal, are unofficial, unauthorized, or unintended by the original
manufacturer. In contrast, a black market is the trade of goods and services that are illegal
in themselves and/or distributed through illegal channels, such as the selling of stolen
goods, certain drugs or unregistered handguns.

The two main types of grey market are imported manufactured goods that would
normally be unavailable or more expensive in a certain country and unissued securities
that are not yet traded in official markets. Sometimes the term dark market is used to
describe secretive, unregulated (though often technically legal) trading in commodity
futures, notably crude oil in 2008. This can be considered a third type of "grey market"
since it is legal, yet unregulated, and probably not intended or explicitly authorized by oil
producers.

Contents
• Description
• Responses
• By industry
o Wine

o Automobiles

o Computer Games

o Pharmaceuticals

o Pianos

o Photographic equipment

o Broadcasting

o With securities

o IPO in India

o Electronics

o Frequent Flyer Miles

 o Textbooks

• References

Description:-
Unlike black market goods, grey-market goods are not usually illegal. Instead, they are
sold outside normal distribution channels by companies which may have no relationship
with the producer of the goods. Frequently this form of parallel import occurs when the
price of an item is significantly higher in one country than another. This situation
commonly occurs with electronic equipment such as cameras. Entrepreneurs buy the
product where it is available cheaply, often at retail but sometimes at wholesale, and
import it legally to the target market. They then sell it at a price high enough to provide a
profit but under the normal market price. International efforts to promote free trade,
including reduced tariffs and harmonized national standards, facilitate this form of
arbitrage whenever manufacturers attempt to preserve highly disparate pricing. Because
of the nature of grey markets, it is difficult or impossible to track the precise numbers of
grey-market sales. Grey-market goods are often new, but some grey market goods are
used goods. A market in used goods is sometimes nicknamed a Green Market.
Importing certain legally restricted items such as prescription drugs or firearms would be
categorized as black market, as would smuggling the goods into the target country to
avoid import duties. A related concept is bootlegging, the smuggling or transport of
highly regulated goods, especially alcoholic beverages. The term "bootlegging" is also
often applied to the production or distribution of counterfeit or otherwise infringing
goods. Grey markets can sometimes develop for select video game consoles and titles
whose demand temporarily outstrips supply and the local shops run out of stock, this
happens especially during the holiday season. Other popular items, such as dolls can also
be affected. In such situations the grey market price may be considerably higher than the
manufacturer's suggested retail price. Online auction sites such as eBay have contributed
to the emergence of the video game grey market.

Disadvantages
While not usually illegal grey market merchandise can result in unexpected
disadvantages to the buyer. in many cases the disadvantages outweigh the cost saving. for
example grey market items may come without a warranty or without a warranty that is
valid in US. if such a product breaks or is defective, the manufacturer may not be willing
or even required to correct the problem. Other disadvantages may just be unlaces. For
example the instructions may be printed in a foreign language. In other instances the
product may not comply with the country's laws and may require costly adjustments
before being used legally within this country. In addition to the financial costs, which are
expected to continue to grow year over year, the study shows that products sold on the grey
market may pose a risk to consumers, as well. Products that travel through the grey market may
be sold to unwitting consumers who find out only after they have made the purchase that the
product is obsolete or without warranty or support. This can hurt a manufacturer's reputation with
its customers and investors.

How to identify a grey market product?

one way to identify whether you are buying grey market merchandise is that it may not
come with a country's manufacturer's warrenty or the warrenty is printed in the foreign
language only. in most cases the price will be lower than the usual retail price for such an
item.
Ask the seller or the manufacturer's authorized representative or both if the product is
grey market item. Have the merchandise inspected by some one knowledgeable about the
product. And in the case of cars check the vehicle identification number with the
manufacture's authorized representative. Before buying the grey market item decide
whether any trade potential savings are worth the trade-offs. Remember that these goods
are seldom eligible for manufacturer's price rebates, may be models no longer available in
the country and may require repair

Responses
The parties most concerned with the grey market are usually the authorized agents or
importers, or the retailers of the item in the target market. Often this is the national
subsidiary of the manufacturer, or a related company. In response to the resultant damage
to their profits and reputation, manufacturers and their official distribution chain will
often seek to restrict the grey market. Such responses can breach competition law,
particularly in the European Union. Manufacturers or their licensees often seek to enforce
trademark or other intellectual-property rights against the grey market. Such rights may
be exercised against the import, sale and/or advertisement of grey imports. In 2002, Levi
Strauss, after a 4-year legal fight, prevented UK supermarket Tesco from selling grey
market jeans.[2] However, such rights can be limited. Examples of such limitations
include the first-sale doctrine in the United States and the doctrine of the exhaustion of
rights in the European Union.
When grey-market products are advertised on Google, eBay or other legitimate web sites,
it is possible to petition for removal of any advertisements that violate trademark or
copyright laws. This can be done directly, without the involvement of legal professionals.
eBay, for example, will remove listings of such products even in countries where their
purchase and use is not against the law. Manufacturers may refuse to supply distributors
and retailers (and with commercial products, customers) that trade in grey-market goods.
They may also more broadly limit supplies in markets where prices are low.
Manufacturers may refuse to honor the warranty of an item purchased from grey-market
sources, on the grounds that the higher price on the non-grey market reflects a higher
level of service even though the manufacturer does of course control their own prices to
distributors. Alternatively, they may provide the warranty service only from the
manufacturer's subsidiary in the intended country of import, not the diverted third country
where the grey goods are ultimately sold by the distributor or retailer. This response to
the grey market is especially evident in electronics goods. Local laws (or customer
demand) concerning distribution and packaging (for example, the language on labels,
units of measurement, and nutritional disclosure on foodstuffs) can be brought into play,
as can national standards certifications for certain goods.
Manufacturers may give the same item different model numbers in different countries,
even though the functions of the item are identical, so that they can identify grey imports.
Manufacturers can also use batch codes to enable similar tracing of grey imports. Parallel
market importers often de-code the product in order to avoid the identification of the
supplier. In the United States, courts have decided that decoding which blemishes the
product is a material alteration, rendering the product infringed. Parallel market importers
have worked around this limitation by developing new removal techniques.
The development of DVD region codes, and equivalent regional-lockout techniques in
other media, are examples of technological features designed to limit the flow of goods
between national markets, effectively fighting the grey market that would otherwise
develop. This enables movie studios and other content creators to charge more for the
same product in one market than in another or alternatively withhold the product from
some markets for a particular time. Consumer advocacy groups argue that this
discrimination against consumers—the charging of higher prices on the same object
simply because of where they happen to live—is unjust and anti-competitive. Since it
requires governments to legislate to prevent their citizens from purchasing goods at
cheaper prices from other markets, and since this is clearly not in their citizens' interests,
many governments in democratic countries have chosen not to protect anti-competitive
technologies such as DVD region-coding.

By industry:-
Wine
The grey market in wine flourishes, particularly in the case of champagne. Many large
champagne producers do their own importing, and desire to maintain independent price
points in different markets. Thus a bottle of Champagne might cost US$35 in the United
States while the same bottle might be only 5 Euros in France.It is often profitable to buy
the wine in Europe from an authorized distributor, and resell it in the US. In the case of
enormous pricing disparity, it is not uncommon to find a grey-marketed wine selling for
less at retail than the wholesale price of the authorized distributor. In the case of a large
availability disparity between the US and Europe, the grey market price may be the same
or higher than the authorized price. Typically the importer of a wine is the one most
concerned about grey market sources. The winemaker may or may not care what happens
to the wine after it is sold, although he or she might complain to appease an importer.

Automobiles
Automobile manufacturers segment world markets by territory and price, thus creating a
demand for grey import vehicles. In the United Kingdom the term applies to vehicles
imported either new from cheaper European countries or from Japanese domestic models
imported secondhand from Japan or Singapore, which both have strict laws against older
cars. This importation of secondhand models from Japan/Singapore tends to involve
sports models that were never released in the UK or models that fetch a high price in the
UK due to their performance or status. Although some grey imports are a bargain, some
buyers have discovered that their vehicles do not meet British regulations or that parts
and service are hard to come by because these cars are different from the versions sold
new in the UK.
In New Zealand, grey market vehicles comprise a majority of cars in the national fleet.
These secondhand imports have achieved 'normal' status and are used and serviced
without comment throughout society. A huge industry servicing and supplying parts for
these vehicles has developed. After years of trying to stop grey imports the car companies
themselves have become involved, importing in competition with their own new models.
Russia and South Africa are two other countries with massive fleets imported secondhand
from Japan.

Computer Games
Purchasing some games from online content distribution systems, such as Valve's Steam,
simply requires entering a valid CD key to associate with an account. In 2007, after the
release of The Orange Box, Valve deactivated accounts with CD keys that were
purchased outside of the consumer's territory in order to maintain the integrity of region-
specific licensing. This generated complaints from North American customers who had
circumvented their Steam end-user license agreement by purchasing The Orange Box
through cheaper, Asian retailers.[3][4]

Pharmaceuticals
Some prescription medications, most notably popular and branded drugs, can have very
high prices in comparison to their cost of transport. In addition, pharmaceutical prices can
vary significantly between countries, particularly as a result of government intervention
in prices. As a consequence, the grey market for pharmaceuticals flourishes, particularly
in Europe and along the US–Canadian border where Canadians often pay significantly
lower prices for US made pharmaceuticals than Americans do.

Pianos
Piano manufacturers claim that pianos brought overseas are likely to under-perform
expectations for the brand and may develop serious problems as a result of the wood in
the pianos not being properly seasoned for the climate to which they are exported.
Yamaha Corporation claim that their piano assembly plant in Hamamatsu, Japan contains
large rooms where pianos are seasoned for different climates worldwide under strict
guidelines. Yamaha tries to discourage the sale of grey market pianos by suggesting they
are unsafe on their website: [1]. Like other manufacturers, they will not honour their
product warranties for grey products. Yamaha provides a free serial number search [2] on
their website to determine whether a used Yamaha piano was imported against their
wishes.
Piano manufacturers in other Asian and European countries which did not take into
account American heating habits that produce extremely dry conditions in the home
found that they needed to make significant changes to their wood drying procedures if
they wanted to export a reliable product to that country. Most of the grey market pianos
available today predate these hard-learned lessons. It is true that some pianos change in
only subtle ways, yet piano technicians have found repeatedly that the percentage of
pianos that have become unserviceable is far higher than other pianos of the same age
that were manufactured with American heating habits in mind.[citation needed].

Photographic equipment
Generally regarded as legal in most countries, parallel imports make expensive
photographic equipment attractive to savvy users. The grey market in photographic
equipment is thriving in highly developed and heavily taxed states like Singapore, with
dealers importing directly from lower taxed states and selling at a lower price, creating
competition against a local authorised distributor. Grey sets, as colloquially called, are
often comparable to authorised imports. Lenses or flash units of parallel imports often
only differ by the warranty provided, and since the grey sets were manufactured for
another state, photographic equipment manufacturers often offer local warranty, instead
of international warranty, which will render grey sets ineligible for warranty claims with
the manufacturer. Due to the nature of local warranties, importers of grey sets usually
offer their own warranty schemes with reduced benefits or lasting a shorter period of
time. Grey sets do not differ particularly from an authorised import. They look and
function identically, apart from the manufacturer's warranties having been voided.

Broadcasting
Main article: Pirate decryption
In television and radio broadcasting, grey markets primarily exist in relation to satellite
radio and satellite television delivery. The most common form is companies reselling the
equipment and services of a provider not licensed to operate in the market. For instance, a
Canadian consumer who wants access to American television and radio services that are
not available in Canada may approach a grey market reseller of Dish Network or
DirecTV. There is also a grey market in the United States for Canadian satellite services
such as Bell TV or Shaw Direct.
In Europe satellite TV services are encrypted for rights reasons, as they are only entitled
to broadcast films, sporting events and US entertainment programming in a certain
country or countries, hence only residents of the UK and Ireland may subscribe to Sky
Digital. In other European countries with large British expatriate populations, such as
Spain, Sky is widely available. Although Sky does not condone the use of its viewing
cards outside the UK or Ireland, and has the technology to render them invalid, many
people continue to use them.
Illegitimate importing of "free-to-view" Sky cards from the UK to Ireland is often done
so that Irish Sky customers can receive Five and some of the other channels not generally
available via Sky in the Republic due to rights issues. Irish Sky viewing cards, which
allow viewing of Irish terrestrial channels, are imported into the UK. Northern Ireland
residents subscribing to Sky can watch RTÉ One and Two and TG4, although not TV3,
which carries many of the same programmes as ITV, a lot of the programmes airing
before ITV can show them.
It is also becoming increasingly common in the UK for some pubs to use satellite decoder
cards from Greece, Norway, Malaysia or the Arab world to receive satellite TV
broadcasting live English football matches from those counties. Alternatively, they may
use cards which allow pirate decryption of scrambled signals. Such cards are typically
much cheaper than the cards available in the UK from Sky (who charge extra fees for
public showing licenses). However, Sky has taken civil and criminal action against some
who do this. Two recent cases involving grey cards have been referred to the European
Court of Justice.[5]

With securities
In securities markets, grey market refers to the buying and selling of securities to be
issued in the future, and therefore not yet circulating. This typically occurs some days
before an auction of government bonds or bills and that trading is subject to the effective
issue of those securities. Sometimes this is taken as a forecast of the prices that markets
expect for future issues.

IPO in India
Cities like Ahmedabad, Kolkata and Rajkot are the most active centres for the IPO (initial
public offerings) grey market. Trades done in the grey market are settled on the day of
listing. Once the deal is done at a stipulated price, the seller must deliver the shares after
he has been allotted the shares by the company. If the seller falls short in receiving the
exact number of shares that he has sold in anticipation, then he must buy the shares on the
market (once the share is listed) to honour his commitment. Most of the recently-
concluded initial public offerings are quoting at a significant premium in the grey market,
compared to their issue prices; this means that the issues are perceived to have been
underpriced.
Many traders short sell in the grey market if they feel that the premium on offer is
unwarranted and that the stock may list at a price lower than what most market players
expect it to. Though grey-market operators say that there is a constant change in the grey-
market premium, it largely depends on the subscription on the last day and the market
conditions, post issue closing. Example: Grey market premium for the Roman Tarmat
issue went up from Rs 28–30 to Rs 110–140. This was because the issue was subscribed
around 30 times eventually, after receiving a lukewarm response from investors during
the first two days when it was open for subscription. Though illegal, the grey market
continues to thrive. Investors who bid for an issue normally do not get the full quantity
because of the limits for each class.
This has resulted in many people "selling" their IPO applications to the grey market
operators for a secured interest. Many investors earn a fixed amount—anywhere between
Rs 2,500 and Rs 4,000 by selling their IPO applications to grey-market operators in
Ahmedabad. Though many IPOs are yet to open for subscription, investors may need to
look at more than the prospectus when subscribing to IPOs. Street-smart investors would
rather look at indicators from the booming grey market before taking a call on IPO
investments. It is not only market-savvy investors from Gujarat, but also lead managers
of IPOs from Mumbai, Delhi and other parts of the country, who look at Ahmedabad's
grey-market premium rates as an indicator of the price at which the issue is likely to get
listed.[citation needed].

Electronics
There is a grey market in electronics in which on line retailers will sell merchandise
below the manufacturer's authorized selling price, or advertise below the MAP.

Frequent Flyer Miles

Trade or bartering of frequent flyer miles is prohibited by nearly all major airlines.
Online exchanges of frequent flyer miles -- of which several exist -- are also useful
examples of gray markets.

Textbooks
College level textbooks have a grey market, due to publishers offering them for lower
prices in developing countries. [6]

References

1. ^ http://www.nefi.com/NEON/NEON_issues/NEON_May_22_2008.html
Victory: "Close the ENRON Loophole" Bill is Small Step In Right Direction
2. ^ http://news.bbc.co.uk/1/hi/business/2163561.stm Tesco defeated in cheap jeans
battle; Case T-415/99 Levi Strauss v Tesco Stores
(http://curia.europa.eu/jurisp/cgi-bin/form.pl?
lang=en&Submit=Submit&numaff=C-415%2F99)
3. ^ "Steam Error: Game not available in your territory". Valve Corporation. 2007-
10-23. https://support.steampowered.com/kb_article.php?p_faqid=461. Retrieved
2008-03-24.
4. ^ Caron, Frank (2007-10-25). "Valve locking out user accounts for "incorrect
territory"". Ars Technica.
http://arstechnica.com/journals/thumbs.ars/2007/10/25/valve-locking-out-user-
accounts-for-incorrect-territory. Retrieved 2007-10-25.
5. ^ Case C-403/08 The Football Association Premier League Ltd v QC Leisure
http://curia.europa.eu/jurisp/cgi-bin/form.pl?
lang=en&Submit=Submit&numaff=C-403%2F08; Case C-429/08 Karen Murphy
v Media Protection Services Ltd http://curia.europa.eu/jurisp/cgi-bin/form.pl?
lang=en&Submit=Submit&numaff=C-429%2F08
6. ^ http://www.nytimes.com/2003/10/21/us/students-find-100-textbooks-cost-50-
purchased-overseas.html
• Hays, Thomas (2003) (hardcover). Parallel Importation Under European Union
Law. Sweet & Maxwell. pp. 488. ISBN 0-42186-300-5.
• Nissanoff, Daniel (2006) (hardcover). FutureShop. The Penguin Press. pp. 246.
ISBN 1-59420-077-7.
• Stothers, Christopher (2007) (hardcover). Parallel Trade in Europe. Hart
Publishing. pp. 526. ISBN 1-84113-437-6.
• Michael Levy, Barton A. Weitz (1995) (hardcover). Retailing Management
Second Edition. IRWIN. pp. 700. ISBN 0-256-13661-0.