AC: There are some legal steps you can take. These vary from country to country, but, in the USA, contract law is very strong.

If you stipulate that your intermediaries mustn’t buy from grey channels and they break that clause then you can sack them  – even if the grey channels are perfectly legal (whether the manufacturer wants to sack them is a different story, that depends on the intermediary’s value in the channel overall). But that varies from country to country and, of course, the intermediaries have to agree to the contract.

RTM: Say they don’t, or, say, the clauses are not legally enforceable in that country?

"Grey becomes a problem when the producer hasn’t segmented the market well enough."

AC: Essentially, grey product only exists because the supplier has created pricing discrepancies which allow it to. If the supplier is really serious, it can just buy up grey inventory.

RTM: Does anyone ever do that?

AC: Very occasionally. Minolta camera company came up with an interesting slant on this.

It decided it did want to protect the authorised resellers who maintain and develop its brand equity. It told them: ‘If you discover grey market product, then we will remove it, but you will have to want it badly enough to share in the pain.’

"Minolta said it was a gesture that the dealers very much like and appreciate."

It said that the cost of any intercession would have to be borne equally by the manufacturer, the distributor and the dealer or retailer channel. 

As Minolta owns its own distribution in most countries, this meant that, in practice, it bore two thirds of the cost.  I am not sure how many dealers took Minolta up on this, but Minolta says it was a gesture that the dealers very much like and appreciate.

RTM: What other steps can you take?

AC: You can either reduce the price differences between markets or make products different from one market to the next, by localisation.

Whilst prices have tended to equalise over the last decade, few manufacturers are prepared to swallow the pill of complete equalisation, as they know that leaves money on the table.

Some suppliers void the warranties on products which are grey imports. But that is pretty dumb, as it leaves a bunch of unhappy consumers who were unaware that they bought a grey product and believed it was warranty-protected.

RTM: What else can you do?

AC: Essentially, grey becomes a problem when the producer hasn’t segmented the market well enough.

One form of purposeful market segmentation through channel design that manufacturers have exploited is factory outlets.  Here the suppliers hope to have done this segmentation exercise so thoroughly that they have created a completely new channel which creates little or no conflict. 

Take factory outlets for clothing.

Here there are several ways to differentiate from offerings in the high street stores. Often the lines are not the same, sometimes it’s old inventory or just the more basic items – sweatshirts and jeans.

Manufacturers claim that the people who are prepared to drive to outlets are not the same as those who flock to department stores to buy the premium priced products.