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An Empirical Investigation of Online Gray Markets
Abstract
A gray market is an unauthorized distribution channel of genuine branded products. Worldwide gray markets compete with authorized distribution channels of branded products and pose significant challenges to brand owners on the management of global supply chains. Therefore, it is important for brand owners to understand sellers’ and buyers’ behavior in gray markets in order to better address this threat. In recent years, online gray markets, a rapidly growing form of gray marketing, have seen significant growth and provide us an unprecedented opportunity to empirically investigate this phenomenon. In this study, we tracked the number of online gray market sellers and transactions on the largest Internet retail website in China for a 34-week period. We focus on two channel control strategies that brand owners can proactively adopt to manage online gray market incidents: controlling product availability and pricing. The results show that less expensive styles are offered by a larger number of gray market sellers and have more transactions. While product availability is positively associated with the number of online gray market sellers, its impact on online gray market transaction quantities is insignificant. This study provides important implications on managing global supply chains that are relevant for researchers and practitioners alike.
... To study the consumers intention in purchasing gray products. (Zhao et al., 2016) [1] , studies that Brand owners face a growing challenge like gray markets, unauthorized channels selling genuine branded products. These disrupt authorized sales and complicate global supply chain management. ...
... To study the consumers intention in purchasing gray products. (Zhao et al., 2016) [1] , studies that Brand owners face a growing challenge like gray markets, unauthorized channels selling genuine branded products. These disrupt authorized sales and complicate global supply chain management. ...
Gray markets, which are defined by the selling of authentic goods through unauthorized channels, offer a complicated environment with major consequences for both customers and respectable companies. This study explores the complicated structure of consumer knowledge about gray markets, exposing the area of unauthorised means of distribution that is sometimes ignored. The present study tries to explore the factors towards purchasing gray market products in Kerala, with special reference to apparels, foot wears and cosmetics. This study uses descriptive data to explore the purchase intentions of consumers to purchase gray products. In the context of gray markets, insights into customer attitudes, preferences, and the variables driving their purchase decisions are examined. Primary data is then collected from various consumers in order to determine the purchase intentions towards these products. The findings of the study provide insights to manufacturers to focus more attention towards authorized sellers. This study necessitates the manufacturers devise strategies to mitigate the sales through gray markets.
... The third assumption concerns the interdependencies across primary and secondary markets. Secondary markets are assumed to cannibalize primary markets (Yrjölä, Hokkanen, and Saarijärvi 2021;Zhao and Jagpal 2006;Zhao, Zhao, and Deng 2016). This is fueled by thrifty consumers who artfully mediate between the two markets to "bargain hunt" (Guiot and Roux 2010). ...
Rare watches, fine wines and spirits, sports cars, designer sneakers, and many other luxury goods create massive enrichment opportunities for consumers if they resell them on secondary markets. This trend is part of the enrichment economy, a novel form of market arrangement where consumers use iconic goods to increase their capital. However, it creates challenges for brands, such as preserving their primary market desirability and avoiding cannibalization. To understand how brands can navigate the enrichment economy, we have conducted an ethnographic study of the luxury watch industry. Drawing on market system dynamics, we theorize market processes that sustain a market within the enrichment economy. We explain the shared discourses, norms, and practices that make the enrichment economy function. This research makes four contributions. First, we theorize primary-secondary market dynamics as a novel class of market dynamics. Second, we theorize the new role of luxury brands as enrichment curators. Third, we discuss the ethics of enrichment by highlighting inequalities and risks it creates. Fourth, we introduce the enrichment strategy as a novel brand strategy that capitalizes on the market dynamics of enrichment. We offer recommendations for luxury and non-luxury brands on product portfolio management, customer relationship management, and ethical innovation.
... The literature on GMs is relatively sparse but gaining attention from researchers due to the growing e-commerce sector and aggressive market entry strategies, especially in emerging markets (Srivastava et al., 2024;Jiang et al., 2020;Ahmadi et al., 2017;Zhao et al., 2016;Shao et al., 2016;Iravani et al., 2016). Three key drivers-price differentials across regions (Altug & Sahin, 2019), demand uncertainty (Dasu et al., 2012), and abuse of channel incentives (Ahmadi et al., 2016)-are mainly responsible for the emergence of GMs. ...
The diversion of manufacturers’ branded products outside the authorized channel leads to the emergence of gray markets (GMs), which is legal under the doctrine of first sale. Product diversion to GMs can negatively affect manufacturers’ brand reputation. In this study, we analyze a manufacturer’s strategic channel choice decision and its implications for social welfare in the presence of GMs and strategic consumers. We present scenarios in which the presence of GMs can either have a positive or negative impact on the manufacturer and the supply chain. Our findings indicate that the manufacturer and the supply chain become worse off due to product diversion to GMs under lower channel differentiation and high penalty cost for the loss of brand reputation due to product diversion. This effect is more severe for a decentralized supply chain, where product diversion does not directly affect the retailer’s profitability due to the erosion of brand reputation. In such scenarios, we suggest that manufacturers should follow a brand-protection strategy to curb product diversion to GMs. However, manufacturers selling product categories with low brand equity can follow a market-expansion strategy. In such cases, the presence of GMs provides an alternative channel to expand sales by capturing untapped consumer segments without incurring additional market search or advertising costs. This strategy also facilitates indirect price discrimination among consumers. We find that social welfare is higher when channel differentiation is low under a decentralized supply chain.
... (Zhao et al., 2016:251) [26] pointed out that the negatives of gray marketing for both the organization and the consumer can be summarized through the following. ...
This article explores contemporary mobility and the new wave of Chinese emigrants in Thailand engaging in “Daigou”, a micro-entrepreneurial activity where individuals purchase local goods for customers in mainland China or elsewhere. This research employs qualitative approaches and methodology through a case study of Chinese residents in Thailand. It examines how these Daigou operators strategically navigate challenges in the post-COVID-19 landscape and amidst shifting global dynamics, especially in response to new Chinese e-commerce laws and competitive markets. Despite facing challenges posed by new regulations and changing market preferences, Daigou operators have demonstrated remarkable resilience and adaptability with three strategies: (1) maintaining a low profile or discontinuing practices, (2) using inventive language to evade AI detection, and (3) adapting professionally within legal frameworks. These adaptive strategies reflect responses to contemporary challenges and contribute significantly to a deeper understanding of transnational entrepreneurial subjects and the evolving landscape of transnational business cultures.
The pre-loved luxury market, particularly for handbags, is undergoing a period of rapid growth, driven by digital platforms and attracting younger consumers who are more environmentally conscious. This chapter identifies the key motivations for purchasing pre-loved luxury handbags, considering Self-Determination Theory (SDT), including hedonic pleasure, economic benefits, social belonging and a desire for uniqueness. The authors identified new motivations for purchasing pre-loved luxury handbags based on a survey of 1,002 respondents: circumventing luxury brand exclusivity, creating social media content, finding sold-out items, addressing past purchase regrets, and the limited online availability of certain handbags. The findings of this study highlight the significant influence of pleasure and exclusivity on consumer behavior and, provide valuable guidance for brands and online platforms to effectively engage with this market.
Perceived risk is conceptualized in terms of expected negative utility associated with automobile brand preferences. Empirical evidence supports the notion that importance of loss is more useful as a segmentation variable than as a component in a multiplicative model. The findings also Indicate that probability of loss may operate at the handled risk level and importance of loss at the inherent risk level.
The topic of management control systems has received limited attention in the marketing literature. Though previous research has tended to view each organizational control in isolation, the authors argue that research should examine the simultaneous use of multiple controls. On the basis of previous work, a conceptual framework for combinations of controls is constructed with associated research hypotheses. Four alternative combinations or “systems” of controls are identified: (1) a traditional bureaucratic management control system with a primary emphasis on formal controls, (2) a clan system with a primary emphasis on informal controls, (3) a low control system, and (4) a high control system. The findings indicate that SBU characteristics and task complexity variables predict the type of system that is likely to be emphasized. In turn, the results indicate that the high control system is associated with highest job satisfaction followed sequentially by the clan, bureaucratic, and low control systems. The high control system also produced the lowest levels of person-role conflict and ambiguity. No significant relationship is found between the four systems and job performance. Study limitations and directions for future research are discussed.
The authors describe how and why gray marketing occurs in the context of legal and illegal (shadow) marketing activities. The regulatory and judicial decisions relating to gray marketing activities are reviewed and the implications of an upcoming Supreme Court ruling on gray marketing are discussed. Finally, some suggestions are offered to trademark owners who face gray market competition.