Brands rejig plan to tackle grey market

KOLKATA: Nikon, Sony, L’Oreal, Microsoft, Tag Heuer these are diverse brands united by one common factor: Their out-of-box approach in cracking the grey market challenge. From slashing prices to offering value-added deals and discounts, electronics and FMCG companies are tweaking their business strategies to tackle the challenge that the grey market poses to their existence.

In fact, some of them are even mulling to rope in stores in grey market havens such as Mumbai’s Heera Panna, Delhi’s Palika Bazaar and Kolkata’s Fancy Market as their channel partner.

“We have started to give extended warranty, bundling memory card, case and charger along with the camera,” said Hiroshi Takashina, managing director, Nikon India. “We have also managed to convert some of the grey dealers to our official sales partner.”

The real challenge for the Japanese imaging major in India has been the parallel grey imports, which have been fuelled by high duties. The company had to struggle with grey imports for almost two years since it set up its Indian subsidiary in 2007. The total duty component on digital camera is around 15%.

It was only recently that Nikon decided to cut prices in India, due to which the price difference with the products in the grey market has almost halved. Today, a Nikon camera is priced at about 15-20% higher than the grey channel, as compared to about 30% earlier.

A study by global consultancy KPMG and India industry body FICCI point out that parallel importers smuggle consumer goods from China, Japan, Singapore, Hong Kong and Nepal, and sell them to select Indian stores who then refurbish the products with new packaging.

According to industry estimates, the worst affected segments are premium watches, gaming consoles and digital camera. As per the estimates, the grey market for premium watches is almost 50% of the total sales of Rs 1,000 crore. While the grey market accounts for 30% of the Rs 400-crore gaming console market in India, it’s 25% of the Rs 2,000-crore digital camera market. Moreover, the FMCG industry in India loses around Rs 2,500 crore every year due to counterfeit and fake products.

In the console gaming segment, the import duties are at a staggering 35%. This has made Sony rationalise prices for PS2 to Rs 5,990 from Rs 6,990. It’s now bundling 2-3 games along with the portable PSP console, and is looking at ways to salvage the hi-end PS3 console that is being sold at Rs 19,990 as compared to Rs 16,500 in the grey market. Microsoft has earlier this month revised the price for Xbox 360 Arcade to Rs 12,990 from Rs 16,990, and is also bundling a free game.

“There is a limit up to which one can rationalise prices as margins are not very high,” said Atindriya Bose, country head, Sony Computer Entertainment. “With the rationalisation, the price gap has reduced by almost 30-50%, and this has reduced grey market sales to 10% from about 65% in 2007.”