Demands from brand conscious Indians have led to the increase in sale of gray market products particularly appliances and accessories in India to between 10 to 20 per cent, inflicting economic losses on corporations and tax revenues, according to a new report.
The consumer products, traded through these illicit channels, is between two and 10 per cent, said A T Kearney in a report "Combating the Gray Market Menace," released here on Monday.
"Gray market thrives because of three reasons: demand for brands is much more wide spread than the ability of companies to supply in a cost-effective manner; popular brands enjoy decent margins creating an incentive for grey marketers, copying formulations is difficult but not impossible and extensive usage of third parties in the supply chain creates possible risk of leakage of intellectual property," said Subhendu Roy, Partner at A T Kearney India and a co-author of the report.
Gray market comprises of counterfeit products, genuine products that are diverted to unintended markets or channels and damaged or expired products, cautioned Kearney.
The global gray market has grown by about 15 per cent over the past few years and is expected to reach more than $1.5 trillion in the coming years. Gray market is a growing threat for all participants in the consumption ecosystem, including corporations, customers, and governments, it warned. For corporations, the danger is in lost sales, brand value, and market share. For customers, the issue is purchasing gray products and then feeling cheated and distressed by money wasted.
For governments, the struggle is to control spread as not only is gray market commerce a crime, but also loss of tax revenue when products are purchased in the shadows, said the global management consultancy. It calls on the companies to limit the number of expired and tampered products that remain in the market long after their "sell by" dates.
It also calls for stronger controls on intellectual property and materials critical to the production process will help keep new ideas and materials off the gray market.
"Preventing gray market sales will require finding solutions in existing processes and ways of working while also collaborating with other industry stakeholders to shape the external environment. It s time to fight back, to root out illicit sellers that are damaging India and its citizens," Subhendu Roy added.