Inside Experts: Right product, wrong place

Why product diversion has a significant effect on brands—and how to mitigate it.

Many brand owners face a difficult problem when their products are sold through unauthorized channels. Unfortunately, this is a familiar problem for many brands worldwide. Sometimes dubbed “diversion” or the “gray market,” this issue differs from the sale of traditional “gray market goods” or “parallel imports,” which refers to the unauthorized importation or sale in the U.S. of products originally intended for and used in foreign markets that are materially different from the products intended for the domestic market. Of course, this problem also differs from “black markets” in which contraband products—counterfeit or genuine—are sold illegally. The concern over product diversion, however, is well-founded.

The sale of legitimate products in the wrong place or channel has become so ubiquitous that most consumers have unknowingly witnessed or been subject to the problem. This type of unauthorized market exists for seemingly every product imaginable, from health and beauty aids, food, electronics and apparel to prescription drugs and even broadcast signals. Indeed, product diversion, or leaks in the authorized supply chain that allow products to appear in unapproved retail locations, poses a unique problem for manufacturers and brand owners.

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Adrienne Logan

Adrienne Logan is associate general counsel of Godiva Chocolatier, Inc.

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