Battling the Gray Market

New White Paper

  • How can gray market activities in the consumer and luxury goods segments be curbed so as to maintain a reasonable balance between the costs and benefits of protective measures?
  • A recently published White Paper describes how this goal can be achieved with the aid of algorithms and intelligent serialization.
  • The approach is based on existing technologies and can easily be integrated into established packaging processes.

The gray market gives rise to huge losses for manufacturers of high-quality products that are distributed in large volumes. For one thing, it provides a gateway for counterfeit products. Luxury goods, such as perfume and cosmetics, as well as expensive alcoholic drinks, food, fashion and electronic devices are especially susceptible to circulation in the gray zone. Controls consume a lot of resources, especially with the rapid growth of technological options available to gray market actors. There is one way, however, of effectively monitoring distribution channels – with the aid of algorithms and intelligent serialization. The technology required for implementation, moreover, is already in use. A recently published White Paper, entitled “Battling the Gray Market”, describes how this approach operates, its benefits, and how it can be integrated into established packaging processes with relative ease.

A gray market problem typically arises when a product can be sold in foreign markets only at a substantially lower price than at home. Another form of gray activity entails the circulation of products in channels with which the brand manufacturer does not wish to be associated for image or pricing reasons. In this context, the proliferation of online commerce has made it much more difficult for producers to control their distribution channels. Many manufacturers therefore employ legions of specialists whose only job is to check sales channels for clean goods, either physically or online. This entails huge costs. According to the author, experience to date implies that even more complex “hidden codes” and more sophisticated safety features alone are incapable of draining the gray market swamp.

Efficient authentication

In this view, what is needed is a system that

  • continues to function even if codes are removed with criminal intent,
  • supports manufacturers’ efforts to reduce the scale of physical on-site controls performed by experts, and
  • can be applied throughout the process chain and thus prevent the illicit removal of genuine and coded items.

The best solution would be if a special gray-market code could be removed but then reconstructed with the help of another feature that cannot be removed. The proposal is not as absurd as it first appears. This is because end users can serve as highly effective authenticators through the combination of existing technologies in such a way that the criminal decoding of packaging has virtually no impact. Special algorithmic integration by way of end-user feedback ensures that the distribution of defined products on the gray market can be clearly localized and thus significantly reduced. A detailed description of the procedure is described in the White Paper.

A copy of “Battling the Gray Market” can be requested >> here <<.

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Ute Heiler

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