Three keys to effectively addressing the gray market

While the sale of gray market equipment may seem like more of a vendor issue, the Alliance for Gray Market and Counterfeit Abatement (AGMA) says channel partners have an important role to play in protecting their customers.

An industry group formed by technology vendors such as HP, Sun Microsystems and 3Com with the goal of mitigating the global distribution of gray market and counterfeit technology equipment, AGMA has outlined three key ways vendors and partners can help to protect authorized distribution channels, and ensure customers are buying what they think they’re buying.

Marla Briscoe, an AGMA vice-president, says the group is also developing standards and best practices for the IT industry as a whole and for the entire supply chain, from manufacturer through the channel to the customer.

“The idea is to raise awareness about what folks may not know about gray market, and what they could be doing, and tips to address issues they may be facing,” said Briscoe, adding AGMA defines gray market as the unauthorized sale of new, authentic, branded products.

It’s a market that shouldn’t be confused with the legitimate aftermarket, says Briscoe. Different AGMA members handle aftermarket sales differently, and many have authorized aftermarket channel programs with warranty protection.

What AGMA is calling attention to, says Briscoe, is the unauthorized sale of unauthorized new equipment; the Web distributor or reseller that might represent themselves as an authorized channel, but as they’re not can’t offer advantages like company warranty support, service and licensing.

“We have folks out in the marketplace who are not representing who they are appropriately,” said Briscoe. “What you’re really doing is putting the consumers at risk of not having access to all the services and all the legal agreements that would normally follow with a [licensed] product.”

If consumers are in the market for a product, Briscoe says they should go back to the OEM and make sure whomever they’re dealing with is authorized to sell that product. Most partners are already under contract not to buy from third parties, but she advises partners steer clear of them, as well as unauthorized marketers.

“If they’re purchasing directly from the OEM or from the OEM’s authorized distributor they’re not placing themselves in that same boat,” said Briscoe.

The first key for manufacturers and partners to successfully tackle gray market issues, according to AGMA, is building corporate awareness. Ensure employees understand the issue, train the, how to recognize gray marketing practices, and create compliance guidelines to watch for red flags. The second key, applying more on the vendor side, is a careful screening of new partner applicants. And thirdly, AGMA recommends the development of an effective serial number tracking program, along with policies to handle returns and warranty claims.

“The more information we have about where a product is being resold, the less the risk the product could be diverted into the unauthorized channel,” said Briscoe.

Networking equipment companies are particularly concerned about gray market issues and Peter Hlavnicka, intellectual property licensing and brand management at AGMA-member Nortel Networks, says the Toronto-based company is taking aggressive action to combat it.

“There should be no question of how seriously Nortel is committed to addressing these issues,” said Hlavnicka. “We do aggressively go after the fraudsters and make every effort to see them prosecuted to the fullest extent of the law.”

Nortel has designated brand management, regional compliance groups and corporate security to manage and facilitate global its global anti-gray and black market activities, including investigative purchases, internal and external investigations, audits of channel and suppliers and monitor and watch trending. As well, markets with prior gray activity have order guidelines that activity is monitored against, the trademark and copyright group deals with infringement, and on the education front sales staff receive training and Web resources are available both internally and externally.

“We monitor our sales performance and unusual spikes or trends in the sales, which might indicate something suspicious may be going on, particularly if it’s a mix of products we know may be a hot item on the gray market,” said Hlavnicka. “We don’t hesitate to terminate the authorized resellers that we catch infringing on their contracts.”

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Jeff Jedras
Jeff Jedras
A veteran technology and business journalist, Jeff Jedras began his career in technology journalism in the late 1990s, covering the booming (and later busting) Ottawa technology sector for Silicon Valley North and the Ottawa Business Journal, as well as everything from municipal politics to real estate. He later covered the technology scene in Vancouver before joining IT World Canada in Toronto in 2005, covering enterprise IT for ComputerWorld Canada. He would go on to cover the channel as an assistant editor with CDN. His writing has appeared in the Vancouver Sun, the Ottawa Citizen and a wide range of industry trade publications.

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