What’s the big deal about the gray market? If it’s not exactly illegal, why do manufacturers, vendors, distributors, and channel partners care so much?
If customers are getting the same great products and supplies they love and still remain loyal to the brand and sellers, isn’t that a win-win?
Shedding light on the supplies channel gray market.
Gray market activity is a long-standing and complicated issue for Xerox and other manufacturers. It is not widely discussed because it can be difficult to define, monitor, and hold parties accountable.
In commercial markets, the black and white of legal versus illegal activity seems straight forward, yet the line does not actually stay so crisp. It is called the “gray market” because white fades into black and the delineation becomes blurred between legitimate business practices and those pushing the boundary.
The gray market can be attributed to several main factors:
- Pricing structure variations by country compounded by volatility of currency rates.
- Varied routes of product sourcing and acquisition.
- Differentiated rebating and uncontrolled pricing support.
- Traditional quarter-end revenue and margin pressures driving tactical actions.
Cross-border activity, also called parallel importation, is a major contributor to gray phenomena and can be attributed to the above factors. Some opportunistic gray traders consider it a creative business tactic or even a competitive edge, yet it is neither. It is a real problem for vendors, customers, and especially legitimate channel partners.
A stormy climate for doing business
Today’s marketplace is increasingly competitive and it takes savvy and innovation to maintain and grow revenue. Gray traders muddy the landscape with practices used to gain unfair advantage that results in an unstable playing field for legitimate channel partners. It is painfully obvious when prices are undercut as high as 30%.
This type of impact leads some channel partners to consider irregular and potentially damaging short-term strategies in order to compete from an equal position. It clearly perpetuates a stormy climate for doing business. We are very aware of the harmful effect gray activity has on the business success, reputations, and customer loyalty with all parties involved.
Creating checks and balances
It is the intention of vendors that all authorized partners experience a clean competitive market when selling genuine products. This is why we have increased focus and dedicated significant resources to manage and delineate the gray market. With the complexity of the situation, deploying technologies, policies, and internal controls is the critical first step to create checks and balances and take action.
Two initiatives being implemented at Xerox are:
Increased controls over special pricing and price harmonization.
Pricing structures are crafted to reflect parity across global markets, taking into account currency variations. They are reviewed and approved by cross-functional leadership teams who also commit to only rare exceptions with strict and narrow guidelines. Tracking and reporting procedures are put in place with strong internal consequences for non-compliance, including financial penalties. To address the transfer of supplies across currency exchange rates, neighboring countries are assigned carefully defined pricing structures to ensure an equitable market.
Tracking product regionalization with loyalty programs.
Regionalization of product tracking and control is the traditional countermeasure to gray activity. A new way of tracking is being realized, however, by way of the Genuine Xerox Rewards program – a customer loyalty program where users register purchased items in return for reward points. Registration allows us to track unique distribution journeys by monitoring where genuine supplies are being used, which sheds light on unusual sales activities.
For example, if a customer in St. Louis submits a code for a product originally shipped to a distributor in Brazil, it may flag an inconsistency or a route outside of authorized channels. When trends appear, problem areas are identified and actions are targeted accordingly. De-authorizing players in the gray market is one repercussion in order to ensure and regulate a clean market.
Gray market activity is a serious issue and will continue to receive the attention it deserves.
Despite complicated variables, the action vendors have been taking already shows notable progress and channel partners are seeing positive impacts. From these efforts, more insight will continue to emerge about the routes traders take and the practices they deploy. This knowledge paired with tighter controls on pricing and distribution is accelerating our ability to impede gray market perpetrators.
As a trusted channel partner, you can help by continuing to monitor your own channels. Recognize that strikingly low prices suggest gray market offerings and do not purchase from that source.
If you see these types of activities or are in doubt of products, please immediately contact Xerox Brand Protection:
Online: Email Brand Protection Investigations
Call: North America 1-866-979-8222
Outside of North America: 0044 (0) 1707 353250
At Xerox, we take pride in our partnerships that allow us to bring genuine Xerox products and supplies to our customers.
We believe the experience surrounding Xerox products should exemplify their world-class nature, from when they leave our warehouses to when they reach our customers. This journey through the market is something we take seriously. We are grateful for the efforts and support of Xerox’s legitimate authorized partners who assist us in accelerating improvements to address the gray market.
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