Industry Group Issues 'Gray Market' Alert

By Matt Villano | Posted October 20, 2003

Small- and medium-sized businesses (SMBs) nationwide are losing billions of dollars in profits annually due to the sale of brand-name items purchased at lower prices from sellers who aren't part of manufacturer dealer networks, according to a report released by the Dallas-based Information Technology Solution Providers Alliance (ITSPA).

This practice, known colloquially as "Gray Marketing," recently landed Hewlett-Packard a summary judgment of $1.8 million in a case involving fraudulently obtained equipment, and could represent as much as $20 billion every year. What's more, a recent study conducted by the Anti-Gray Market Alliance (AGMA) and consulting firm KPMG indicated that 60 percent of end users pay the same amount for gray market products as they do for products that originate from legitimate distribution channels.

"Careful SMB decision makers should take the time to weigh lower equipment prices against after-sales service and warranty protection," said Joel Plaut, a member of the ITSPA's technology committee, and a vice president in charge of e-business with insurance and financial services firm American International Group.

The problem of Gray Marketing is nothing new — as increasing numbers of technology consumers are buying up bargain-priced merchandise in greater-than-ever numbers, much of that merchandise is being sold by unauthorized resellers or authorized business partners in violation of original distribution agreements. While these items are not necessarily "illegal," often times those products are outdated, faulty, and come with expired warranties, or warranties that are not valid in the U.S.

Plaut and ITSPA Executive Director Russell Morgan have spoken out against gray marketing for years. Morgan and other officials from the nonprofit organization issued a statement today alleging that the gray market threatens to undermine the integrity of legitimate sales channels, disrupt agreements manufacturers make with their distribution partners, and lead to decreased customer satisfaction.

"Gray market computer hardware purchased by small to medium businesses are often damaged, have obsolete, or counterfeit parts, and usually are delivered without support or warranties," the statement quoted Morgan as saying. "ITSPA research indicates SMBs that buy gray market equipment are not getting any bargains either, as the majority pay equally for products whether they originate in the gray market or in the legitimate market."

To help combat these realities, Plaut and the ITSPA accompanied their latest report with a list of tips for SMBs to avoid gray market products. Some of these tips include:

  • Ask whether the product's seller has manufacturer authorization.

  • Determine if the seller's product has warranty support.

  • Check the product serial number with its manufacturer to confirm it isn't stolen.

  • Have the product inspected by a solution provider.

  • Be wary of product advertisements that state "Unused," "New Current Vintage," "Refurbished," "Refurbished to Look New," and "New In the Box."

  • Beware of "bait and switch" product deals.

Launched in May with the help of an grant from HP, the ITSPA is a nonprofit organization dedicated to helping SMBs adopt technology and grow by using local solution providers to solve business problems.

Adapted from internetnews.com.

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