Managing channel quality: The consequential impacts of the grey market

Abstract

In today's competitive markets, manufacturers increasingly rely on their authorised distributors to perform value-adding functions and improve service quality. However, if branded goods are sold through unauthorised distributors, channel quality will be problematic. Furthermore, the unauthorised distributors may cause customers dissatisfaction and the brand owner still should be liable for that. The grey market occurs when branded goods are sold through unauthorised marketing channels. To control the grey market from the demand aspect, managers of international brands must evaluate the influence of reactions to the grey market. This study examines the effect of the grey market and management's responses on consumers' attitudes toward a brand and a retailer. A conceptual model and six hypotheses are proposed. Experimental data collected in Taiwan indicate that the appearance of grey-market goods negatively affects consumers' brand trust; that comparative advertising negatively influences brand loyalty, and that increasing service fees for grey-market goods negatively impact consumers' store image. Implications for brand managers and directions for future research are proposed.