gray market products
Question
Where does gray market merchandise come from?
I'm a car audio enthusiast, and most internet retailers, even very reputable ones, sell equipment at deeply discounted prices. However, almost all of these retailers are UN-authorized by manufacturers to sell their products. To my knowledge, these retailers remove serial numbers from all unauthorized products to protect their suppliers. Furthermore, manufacturers do not honor warranties for products purchased at unauthorized dealers. I'm not really familiar with how things are distributed from the manufacturer to the retailer, so my quesitons are: What does a distribution chain look like? And why can't manufacturers stop unauthorized retailers from obtaining and selling their products? Where in chain does the product become "unauthorized?" Thanks! As an avid snowboarder, I also read an article about how Burton Snowboards tracked down and bought back $500,000 worth of their snowboards from Costcos, due to Costco being an unauthorized retailer. Woops, it was a "major six figure number," not $500,000.
7 months ago - 1 answers
Best Answer
Chosen by Asker
Generally, the distribution and pricing models vary a lot from one product to the next. It's common to have a manufacturer's suggested retail price (MSRP). However, via distribution contracts you can limit the rights of the retailers in most any way both companies can agree on. This includes setting standardized prices and preventing the retailer from selling the product to another store chain for resale (redistribution). Suppose Burton Snowboards exclusively distributes snowboards to specific "authorized" retailers who have agreed to and signed distributor contracts. Among other things, these contracts may disallow further redistribution or resale to other stores. If Costco is selling Burton boards and never signed the necessary contracts to become an authorized retailer, then one of Burton's authorized retailers must have violated their contract to resell to Costco. If that's the case, then Burton can talk to some lawyers to get it all sorted out =)
Source(s)
Finance and Operations Management student
by Brett L
7 months ago
Asker's Rating: 