Sources of Gray Market
As the price differential between authorized and unauthorized grows, the incentive to divert products across markets increases arbitrage opportunities. A primary source of gray market product occurs when channel partners take advantage of your discount programs and abuse end-customer based pricing deals by ordering excess products with the intent to divert the extra inventory to unauthorized resellers or will sell to other customers and retain higher margins for itself. This results in profit margin erosion for both the OEM and the channel partners that are playing by the rules.
The Risks of Not Addressing Gray Marketing
Customers may suffer because they unwittingly purchased products not working properly because they were designed for a different country, do not have valid service contracts and warranties, or even worse, are already obsolete because they were end of life products. Often, the manufacturer will provide customer service and honor the warranty, as many brands choose to try and solve the customers issue to avoid reduced customer loyalty and preserve their brand image; however, doing so only increases costs to the manufacturer and harms authorized distributors that are playing by the rules.
When gray market products are available to customers as a lower cost alternative from standard distribution channels, the manufacturers reputation, brand, revenues, and margins are negatively impacted.
Drive Profitability – Increase Margins between 3% to 5% Annually
The costs of gray market activities affect virtually all manufactures, across the board from the component manufacturers to the brand owner. Some of the negative impacts of gray marketing can be directly linked to channel incentive abuse by channel partners and lack of monitoring by manufacturers. Internal Audit and Brand Protection teams can focus on identifying and mitigating gray market activities by performing analytics using internal and external data sets, analyzing web-scrapes data, and placing an emphasis on distributor compliance as a priority. While the monitoring of partner claims and reporting is important, the verification of the partner claims and reporting utilizing a third party auditor is critical to be able to truly confirm the accuracy of claims. Companies that focus its efforts in these areas typically achieve 3% to 5% in enhanced margins by focusing efforts on identifying and combating claims abuse and gray market activities. Implementing easy to deploy processes and tools to help mitigate promotion abuse and negative impacts of gray market products is necessary and easy to do.
Partnering with Experts to Develop Enforcement Strategies
Recognizing that automation and expertise are both important in establishing a process to verify special pricing and claims, we have developed our Claim Verification solution on our ConnorX platform. Our data driven approach will result in increased confidence in claims submitted by your channel partners, drive profitability and combat incentive abuse. Connor can provide within 30 days white gloved Business Process Outsourcing services providing real-time special pricing request verifications, claims validation and end-customer verification leveraging our technology platform supported by expert auditors. Our dedicated team of passionate compliance auditors is a globally distributed team of experts with deep Big 4 and industry experience, and local expertise. With customized support from Connor, your channel audit program can pay for itself within 12 months. In fact, past channel programs have historically exceeded 14x ROIs.