Regional Pricing and the Grey Markets
Companies often establish the price of its products and services tailored for specific markets willingness to pay based on different levels of perceived value. Although this is a valid strategy to try to maximize profits, there is a risk behind it which can jeopardize the ability of the firm to sustain premium prices at most profitable markets. A good example of this issue is the pharmaceutical products price differences between Canada or Mexico and the United States. Or electronics prices in Panama compared to Venezuela or Brazil .
The problem could be increased when products are priced for optimization of volume. This strategy may be helpful to increase market share in a global basis, but can lead to a massive price reduction with the current trend of easier and reduced costs of communication and transportation across the globe, reducing transaction costs.
These situations are complicated, but they are still under a company control. At least, it has the ability to set prices accordingly with its strategies and goals. A worse scenario may arise when we start to see gray market practices due to other causes than prices set by the firm. In fact, very often grey market opportunities are out of control.
Grey Market Opportunities
In a traditional market dynamics processes, a manufacturer would buy raw material, build the product, and sell to a distributor, retailer or final customer. The same processes would apply for an exporter or a transnational company shipping its products to its affiliates across the globe, setting the target and minimum prices for each of its markets. Given the above process, grey markets could happen in the following situations:
Dive ...