Naturally drug companies that have been hit the hardest want to put a stop to the traffic. Glaxo Smith Kline the prescription drug marker has asked all Canadian pharmacies and wholesalers to self certify that they are not exporting its drugs outside Canada. The company also is warning US customers about imported Drugs in a new advertising campaign. Those that fail to comply will have their Glaxo supplies cut off – Glaxo products are approved by Health Canada only . Some feel that this move will not solve the problem even if Glaxo is able to stop. Canadian sales since Americans will be able to find less expensive drugs in other markets, like Australia and Ireland . The Internet trade will be hard to shut down as long as large price differentials persists among markets. Further US legislators are passing laws that allow such drug imports.
Exclusive distribution is a practice used by companies to maintain high margins in order to encourage retailers to provide extra service to customers, to stock large assortments or to maintain the exclusive quality image of a product that can create a favorable condition for parallel importing. Perfume and designer brands such as Gucci and Cartier are especially prone to gray markets. To maintain the image of quality and exclusive prices for such products traditionally they include high profile margins at each level of distribution characteristically there are differential prices among markets and limited quantities of product distribution is restricted to upscale retailers. Wholesalers prices for exclusive brands of fragrances are often 25 percent more in the United States than wholesale prices in other countries. These are ideal conditions for lucrative gray market for unauthorized dealers in other countries who buy more they need at wholesale prices lower than US wholesalers pay. They then sell the excess at a profit to unauthorized US retailers, but at a price lower than the retailer would have to pay to an authorized US distributor.
The high priced designer sportswear industry is also vulnerable to such practices. Nike, Adidas, and Calvin Klein were incensed to find products being sold in one of Britain’s leading supermarket chains, Tesco. Nike’s Air Max Metallic trainers, which are priced at £ 120 ($196) in sports shops could be purchased at Tesco for £ 50 ($80) . Tesco had brought £ 8 million in Nike sportswear from overstocked wholesalers in the United States. To prevent parallel markets from developing when such marketing and pricing strategies are used, companies must maintain strong control over distribution and prices.
Companies that are serious about restricting the gray market must establish and monitor controls that effectively police distribution channels. In some countries they may get help from the courts. A Taiwan court ruled that two companies that were buying Coca-Cola in the United States and shipping it to Taiwan were violating the trademark rights of both the Coca-Cola and its sole Taiwan licensee. The violators were prohibited from importing, displaying or selling products bearing the Coca-Cola trademark . In other countries, the courts have not always come down on the side of the trademark owner. There reasoning is that once the trademarked item is sold, the owner’s rights to control the trademarked items are lost. In a similar situation in Canada the courts did not side with the Canadian exporter who was buying 50,000 cases of Coke a week and shipping them to Hong Kong and Japan. The exporter paid $4.25 a case plus shipping of $ 1.00 a case and sold them at $6.00 a nifty profit of 75 cent a case. Coca-Cola sued, but the court ruled that the product was brought and sold legally. The reasoning was that once a trade marked item is sold the owner’s right to control the trademarked item is lost.
Source: International Marketing