Brand owners and problems of product diversion

Product diversion or the ‘grey market’ is an on-going risk for multi-territory exporters – particularly in a recessionary environment when volumes are under pressure and risks of surplus stock are higher. Created by price disparities between the various channel resellers/distributors, diversion represents an unauthorised movement of a genuine product to a region originally intended for sale in another.

For the brand owner, product diversion creates a range of problems and a drain on management resource :

  1. It falsely inflates profits of errant distributors while potentially depressing those of valued partners.
  2. It dilutes trust and confidence of those legitimate distributors and retailers, creating problems with inventory planning, forecasting, complaints and, potentially, receivables for the brand owner.
  3. It ties up management time on handling brand protection disputes and restoring goodwill with legitimate distributors.
  4. It artificially deflates market prices thereby reducing brand owner revenue.
  5. It can occur within brand owning businesses themselves which is potentially damaging as it creates false impressions of performance impacting on bonuses, appraisal and motivation. This requires senior management intervention.
  6. It can create potentially damaging legal issues around regulation, liability etc should the grey product not adhere to regulations across territories.
  7. It can mean dated or damaged product is available in channels the brand wasn’t originally intended for with consequential liability issues.

‘Track & trace’ technology is now widely available as part of a broader Brand Protection Strategy & Policy. If such technology is used in parallel with properly monitoring price and product volume fluctuations, it can contribute to the measurement and control of product diversion.

Measurement and reporting enables future compliance from distributors by providing incontrovertible proof for the brand owner to seek recourse. Such contravention might provide the justification to terminate distributor agreements.

It is surely better to develop a community of motivated distributors growing their business within their own territories than incur wasted time handling aggrieved local distributors undermined by diverted products.

Some interesting videos, from the professional haircare category, advising on aspects of product diversion are :

Bumble and Bumble

L’Oreal Professional


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