Suppose that a book publisher sells a textbook for $150 each to its domestic distributor

Question

The same publisher sells the same edition of the textbook to a distributor in Thailand for $85 since the affordable prices by Thai students may be much less than in the domestic market. The textbook finds its way back into the domestic market since the Thai distributor sold it back to another marketer who sells in the domestic market for $85. What is this type of pricing known as, and what are the consequences of such transactions to global marketers, if any?

Answer 1

This practice is known as parallel importing, and the goods are referred to as gray market goods. Gray market goods are trademarked products that are exported from one country to another where they are sold by unauthorized persons or organizations. This practice occurs when companies employ a polycentric, multinational pricing policy that calls for setting different prices in different country markets. Gray markets can flourish when a product is in short supply, when producers employ skimming strategies in certain markets, or when the goods are subject to substantial markups. Gray markets impose several costs of consequences on global marketers. These include 1. dilution of exclusivity, where authorized dealers are no longer their sole distributors; 2. free riding, where channel members can take actions to offset downward pressure; 3 . damage to channel relationship resulting in conflicts and other relationship problems; 4. undermining segmented pricing schemes because of price differentials; 5. reputation can be compromised; and 6. legal liability. Thus, gray markets can cause a variety of problems for the manufacturers as well as distributors. Although it can benefit some customers, it can have an adverse affect on customer loyalty.