GMC Packaging

Original products, unofficial channels: How serialization helps tackle the “gray market” problem

What does “gray market” actually mean? Why is it such a challenge for manufacturers, retailers and consumers? And what role does product serialization play in combating the gray market? We address these complex questions in the first part of our news article.

The term “gray market” refers to the selling and buying of original products through unauthorized channels. While often this type of trade is not as directly illegal as the sale of counterfeit goods on the black market, it still lacks full legitimacy. The motivation behind the gray market is often to counteract the controlled/official supply of certain goods through legal sales channels, or to obtain better prices for original goods by bypassing authorized distribution networks. However, the effects are far-reaching and they impact authorities, brand owners and consumers alike:

•    Bypassing official distributors:
Gray market goods are procured from the manufacturer through unauthorized channels, bypassing official retailers. Products are often distributed across international borders to take advantage of country-specific price differences or to dispose of products that are difficult to sell.

•    Damage to official pricing policies: 
Gray market products are usually less expensive than those available through official channels, thus damaging a manufacturer’s official pricing policy.

•    Lack of manufacturer warranties: 
Purchasing gray market products may result in the unavailability of manufacturer warranties and support. In the case of defective products, consumers can neither assert their rights of recourse nor have products repaired or replaced. This leads to customer dissatisfaction, which reflects poorly on the manufacturer’s reputation and brand image.

•    Legal implications: 
Countries have different laws and regulations regarding the importation and distribution of goods. Purchasing gray market products from unauthorized sources can violate property and trademark rights. In addition, gray market goods can be used to avoid local taxes, which makes them illegal, especially for regulated products such as tobacco and pharmaceuticals, resulting in a significant loss of government revenue.

•    Compromised quality and safety: 
Although gray market products are original, they can pose significant quality and safety risks to consumers when sold within uncontrolled supply chains. For example, they may originate from the sale of discarded or perished goods. Or products intended for professional use may also reach end consumers. Gray market products may also be improperly transported and stored.

Detecting gray market activities

Combating the gray market is not easy. What is needed is a reliable system that can be used throughout the supply chain to ensure product traceability. Diverted original products should be tracked, and the appropriate gray market channels must be identified.

Serialization: a successful strategy

Measures such as serialization to track products throughout the entire supply chain, as well as high-profile campaigns to raise consumer awareness of unauthorized procurement and distribution channels have proven successful. Serialization in particular plays a key role in combating the gray market, as it offers many benefits:

•    Traceability: 
Serialization allows companies to monitor the movement of products along the entire supply chain. This helps identify weak points to be found where goods leave or enter the legitimate supply chain. This makes it easier for brand owners to identify unauthorized channels and take the necessary corrective action.

•    Identification: 
Serialization enables brand owners to clearly identify products by comparing their serial number to a central database and differentiate them from gray market products.

•    Quality control: 
By monitoring serialized products, manufacturers can identify and isolate gray market goods that do not meet established quality standards. This product monitoring also facilitates suitable responses, such as the organization of product recalls.

•    Supply chain security: 
Prevents diverted products from entering the supply chain. Serialization ensures that consumers are supplied with products that comply with transportation and storage regulations.

•    Access by authorities: 
The collection of serialization data by authorities and manufacturers allows legal action to be taken against unauthorized distributors and sellers. This serves as a deterrent and can prevent other market participants from entering the gray market.

•    Gained trust: 
Serialization fosters consumer confidence. It demonstrates a manufacturer’s commitment to ensuring the transparency of its brands and products.

•    Consumer engagement: 
Serialization enables the implementation of customized brand engagement campaigns.

Conclusion: Product serialization can effectively combat the challenges of the gray market, protecting both consumers and the brands of the respective products. The effectiveness of serialization depends on its diligent implementation. In the second part of our news article, you’ll learn what to look for in serialization and how Atlantic Zeiser’s GMC Pro can help you establish a workflow for unique, effective product identification.

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Example of a typical serialized packaging

Gray market control – serialize effectively with Atlantic Zeiser’s GMC Pro Flexible, reliable and high-quality printing of gift cards/vouchers, ski passes and loyalty cards