Grey clouds will not clear quickly

Does the ‘grey’ market undermine brand equity in the same way as, say, supermarket lookalikes? The answer might seem obvious, black and white even, but it is not.

Take the recent example of Coca-Cola’s vanilla variant launch. All the evidence points to Coke bringing forward its official UK launch by three months as a result of fears that the market is being saturated by ‘grey’ product brought in from Canada.

Clearly, loss of control is never desirable for a brand owner, still less when you are the size of Coca-Cola. It hints at impotence. Yet Coke, when pressed, is muted in its criticism of the grey market – falling back on limp, unconvincing generalisations about protecting consumers with specific health problems from foreign ‘formulations’. There are at least three good reasons why it – or any other brand owner for that matter – may wish to pull its punches on this issue.

The first is pragmatism. It is almost impossible, in a free market, to curb the informal trafficking of legal goods which trade on price differences within local economies. So why make a big issue out of what you cannot prevent? Brand owners’ reluctance to act will be reinforced by a second factor. Grey marketing is not clear-cut piracy, nor does it involve rip-off lookalikes, whose only benefactors are the supermarkets. On the contrary, the fact that the goods are genuine means that the brand owner – at some level, in one market or another – will profit from the revenue generated. Thirdly, the grey market can play a benign role in markets where (cigarettes spring to mind) a full-blown marketing presence might be inappropriate; or where – as with Vanilla Coke – it can serve as an informal and cost-effective test market before formal launch.

Yet, for all that, brand owners are right to regard the grey market as a bit of a pest. An unrestricted parallel market can play havoc with the price, positioning and perception of branded goods, particularly at the premium end of a market. Imagine the impact of the BMW 3 series universally sold at Mondeo prices; of reassuringly cheap Stella Artois freely on tap; or cut-price Lancôme skincare products, because you’re not worth it.

Precisely this concern caused Levi-Strauss, not so long ago, to take Tesco to court over the sale of its jeans, which the supermarket had sourced outside Europe and then sold at prices well below those found in ‘authorised’ UK outlets. In the event, Levi-Strauss won its case; but it is likely to prove a rather unsatisfactory, Pyrrhic outcome. What immutable principle, after all, makes it legal to source grey goods within the European Union, but not beyond it? The danger – as the supermarkets well know – is that what to a brand owner is the principled protection of its brand equity, may equally seem to the jaundiced consumer no more than cynical price-rigging, sanctioned by a piece of bad legislation.

What will happen is anyone’s guess. There are pressures, supported by the Government, to modify the EC directive in question. Equally, France and Italy – both renowned for their high-fashion, designer brands – are dead set against any change to the law.

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