Grey market goods are not necessarily illegal (though they are sometimes acquired through illegal means), but they are usually sold outside normal distribution channels by companies or individuals, which may have no direct relationships with producers of the goods.
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The distribution channels are often unofficial, unauthorised, or unintended by the original manufacturer, meaning that even if the manufacturers wanted to enforce standards in a quest to protect their brands, they are not able to do so. In this article, I share my two-cents worth on some of the ways in which purveyors of such goods — commonly referred to as grey market vendors — tend to discredit authentic brands.
Reputational implications of grey markets
Authentic brands are valuable assets, that is why they are always imitated for purposes of commercial gain. To illustrate this point, I have to tell you a short story of a well-known international advertising agency from the United States that set out to invest in Nigeria, only to discover that another agency with a name very similar to theirs was already in existence. They had no choice, but to buy that agency in order to protect their brand! That’s how important their brand was to them. To illustrate this point even further, let me remind you of the all too familiar story of Nike vs Mike, Adidas vs Adibas, which many of us unwillingly — and sometimes willingly — fall for. The name might sound similar or even familiar, but the same cannot be said of the taste or the quality.
All things to all men
Whenever the issue of grey goods arises, I am reminded of the story of the eager and brand-conscious buyer, who enters a retail shop insisting on paying only for a particular brand for a TV set, maybe a Samsung. Realising that he may lose the opportunity to make a valuable sale, the shop owner says: “You want a Samsung, no problem I will give you a Samsung” and proceeds to stick a Samsung label onto a generic TV set before declaring (with such finality that it is impossible not to believe him): “There is your Samsung.” At least this buyer is well-clued and very much aware of what is happening, so he flatly refuses to accept this “Abracadabra Samsung”. Many are, however, not so lucky and at the end of their consumer decision journey, wind up with fake products, which they believe to be original or genuine courtesy of sweet-talking and high-sounding grey market vendors. So, instead of the reassuring specificity, predictability and constancy for which authentic brands are known, we now have a false utility, where one product can be all things to all men depending on the circumstances. And when such products break down or malfunction after only a few months of use, who takes the blame for manufacturing faulty or defective products? Of course, the authentic Samsung, and not grey market vendors and their suppliers!
‘These vendors ain’t loyal’
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Grey market vendors are not loyal to anyone or to any product; all they want is to sell as much stuff as possible. Just like a lady of the night, they can hop into bed with anyone who has the money. As Chris Brown sings in his song Loyal, “These ****** ain’t loyal.” (He uses an uncomplimentary word that is synonymous with lack of loyalty, which, however, can’t be repeated here). Yet loyalty is the essence of brand building. By teaching the market that it can get whatever it wants at any price it can afford to pay, grey market vendors discredit authentic brands by dismantling the culture of loyalty that authentic products seek to instil. Since they have neither a name nor a reputation to protect, grey market vendors are not concerned about corporate governance issues such as their environmental impact (noise pollution through pre-recorded advertising messages blaring on loudspeakers throughout the day, littering and obstruction of free movement on shop front pavements, which drives pedestrians onto the streets and increase the likelihood of accidents) and payment of taxes, which producers of authentic brands would be concerned with. Increasingly, grey market vendors are, at best, considered a nuisance that damages the ambience of the city and, at worst, a health hazard.
Cutting corners, the essence of grey markets
Imported products sold in the country’s grey markets usually land without paying the appropriate import duties, which makes them much cheaper than authentic brands subjected to formal import procedures. This means that grey markets do not contribute to the fiscus and, by default, also do not contribute to the costs of market and economic development, placing the entire burden to authentic brands, which are getting fewer by the day. Without mentioning a brand, a radio DJ recently publicly wondered how a certain brand’s 2-litre drink still manages to retail profitably at only $1 after crossing the border all the way from South Africa and paying transport costs, the relevant duties as well as local distribution costs. Your guess is as good as mine as to how this feat is achieved!
The opportunity
As they say, it is an ill wind that blows no good. Admittedly, grey market products and services tend to discredit authentic brands, but it cannot be denied that they are meeting an existing need. There is a market for grey goods. Otherwise, if no one was buying them, the vendors would just give up and disappear from the streets. So while it may be tempting to blame grey markets for most of their problems, maybe the real challenge for authentic brands is to produce authentically branded products that meet the needs of increasingly price sensitive market segments. However, in a country in which we import most of what we want and make very little of what we need, maybe this could be a big ask for local brands. Either way, there is a market for people who want to look good or own the finer things of life, though not at any cost. So, if they can’t afford the real thing, they will willingly pay for something cheap that imitates the real thing. In contemporary terms, the challenge for authentic brands is, therefore, to make “swag” affordable. Because authentic brands are often unaffordable for the vast majority, it’s hardly surprising to learn that the polished good looks of many well-dressed men and women of Harare today originate from the bales of “Mpedgars”, a blending of “Mpedzanhamo” and “Edgars”.
As Jonathan Gordon and Jesko Perrey of McKinsey argue in their article titled The Dawn of Marketing’s New Golden Age, brands need to bring “mass-market prices to the colors, fabrics and designs of high fashion.” A good example is the way music retailers are taking on piracy by flooding the market with original budget CDs.
Much as they undermine authentic brands, grey goods keep them on their toes by forcing formal businesses to innovate and revolutionise their marketing approaches. Perhaps this is why there has been an explosion of digital-based strategies such as email marketing since the digital economy is largely still beyond the reach of many grey market vendors. The choices for authentic brands is to innovate ahead of grey market vendors, or join in and beat them at their own game, but in an organised manner!
Omen N Muza edits the MFSB. You can view his LinkedIn profile at zw.linkedin.com/pub/omen-n-muza/30/641/3b8 or initiate contact on [email protected]
