Are You Prepared to Battle Gray Market Threats?

Joe Cohen of Bay Area-based distributor The Lotus Group spent the recent holiday season not only feeding products to busy dealers, but also rectifying "a storm" of gray market-related issues.

Gray market goods are "items manufactured abroad and imported into the U.S. without the consent of the trademark holder." PartsConnexion.com, a new dealer of The Lotus Group, was selling Oyaide A/C plugs that Cohen called "a poor knock-off."

The Lotus Group hadn't yet shipped PartsConnexion its Oyaide product.

So how can manufacturers, distributors, and dealers avoid gray market products?

Cohen says its simple. "When you're buying, you should buy from an authorized source," he says. "Call the manufacturer or e-mail the manufacturer to verify the authorized source."

Cohen followed up on the tip and, after a series of inquiries, shipped his dealer the true Oyaide product. PartsConnexion issued a statement acknowledging it received gray market product, a formal apology to Oyaide and its customers and a guarantee that the company will sell only authorized products.

"This is something that's ongoing," Cohen says of gray market counterfeiting. "It's very insidious. Manufacturers and resellers have to be really cognizant."

Fortunately, the counterfeit Oyaide A/C plug is of a poor enough quality that it's easily recognizable, Cohen explains. Had PartsConnexion ever seen the real product, he says, it never would have been fooled.

"There are distinguishing characteristics. You can even tell by the packaging." He adds, "You can tell by looking at the materials that it's crap."

What's worrisome, Cohen says, is the potential for more sophisticated knock-offs. For this reason, he says dealers have to be better versed.

"There is a lot of research that goes into determining which materials to use, at what thickness and how to combine them. There are reasons these products cost what they do."

The motivation of gray market products is greed, says Cohen. "People see an opportunity and go, 'Oh, we can make that cheaper.' But they're not making that. If they were making that, they'd have to sell it for what it sells for."

Hire a Watchdog for Gray Market Prevention

Some CE pros like NuVo Technologies, however, have taken a more assertive approach.

In an effort to curb gray market distribution of its products, NuVo Technologies hired Net Enforcers to monitor online sales of its products.

Chris Westfall, NuVo's VP of sales, says contracting Net Enforcers was designed to "eliminate fraudulent internet sales" of NuVo products. Net Enforcers will provide two crucial services for NuVo:

• Auction monitoring
• Price monitoring

NuVo says its sales team maintains "a zero-tolerance program internally for misbehaving dealers." A single discovery of a dealer's illegitimate activity results in termination. It takes three such incidents before a distributor is terminated.

The Lotus Group agrees with the notion of "zero tolerance." Cohen says, "Zero tolerance for gray market and counterfeit goods should always be the gold standard."