Invaded by the Grays Page 2

Mr. Bumble was crushed. He felt sick to his stomach. Angry and humiliated, he maintained his composure long enough to ask Dr. Grinder to give him a day to consider it. They agreed that that was only fair, considering all of the time he had spent for Dr. Grinder's benefit.

When Dr. Grinder had gone, Mr. Bumble placed a call to Mr. Rosy, chief executive of Avian Acoustics, maker of the Peregrine loudspeakers.

"Sleazy's trying to make me pick up the soap," Mr. Bumble complained. "He signed the same contract I signed. He's not supposed to sell outside his area. Why do you let him get away with it?"

"You're right," Mr. Rosy replied. "But he moves an awful lot of product. For him, we make an exception."

"I worked hard to make this sale," Mr. Bumble continued, "It's not right that he can just take it away from me."

"Yeah, I hear you. But business is business...''

The phone clicked a couple of times, then Mr. Rosy came back. "Listen, Bumble, I know you'll do whatever it takes. I gotta take another call. Have a nice day."

Mr. Bumble went home. He discussed his options with Mrs. Bumble. He could protest by sending his remaining Avian inventory back to the factory and refusing to pay his outstanding balance, but that would damage his credit rating and guarantee a sale for the hated Mr. Sleazy. As a matter of personal honor, he could take the Peregrines back from Dr. Grinder and refuse to deal with him any longer. That also would guarantee business for Mr. Sleazy. His only choice, it seemed, was to match Mr. Sleazy's price; that, at least, would deprive Sleazy of the sale, though it was a feeble protest and offered scant satisfaction. Mrs. Bumble tried her best to console her husband. "Remember, dear," she told him, "Any profit is better than none."

And that, naturally, is the way it turned out: Mr. Sleazy lost a sale he hadn't earned, Mr. Rosy moved product, Dr. Grinder lived happily ever after with his beloved and hugely discounted Peregrine loudspeakers, and Mr. Bumble picked up the soap.

Wise Marketing?
What is the gray market? Unlike the black market, where contraband and other prohibited goods are traded illegally, in the gray market legal goods are sold "unethically." Gray marketing creates an enormously divisive controversy. A precise definition of what and who is "unethical" is hard to come up with because everyone has a different view of the subject; which is to say that everyone is pointing a finger at everyone else. One thing that is part of almost everyone's definition, however, is a "trans-shipper"---someone who is selling a product outside his designated area (whether town, state, or nation).

For an importer, the trans-shipper is every other importer. For a manufacturer, it's any "unauthorized" reseller, wholesale or retail. For a retailer, it's any other retailer who carries the same lines. For all of them, it's deep-discount mail-order operations and the huge, bustling used-equipment underground.

Three interactive variables affect a product's trajectory through a market,be it gray, black, or otherwise: desirability, availability, and price. A highly desirable item with low availability, such as a painting by Van Gogh, commands a high price. A moderately desirable product with moderate availability---a no-frills Ford Escort, for example---commands a moderate price. An item with relatively low desirability and widespread availability, such as a #2 pencil, commands a low price.

For high-end audio products, these three factors can make for some unexpected volatility. A hypothetical case: The Ecstatic Audio Corporation unveils its long-awaited, much-talked-about Behemoth amplifier, listed at a suggested retail price of $10,000. The Behemoth hits the showrooms of a few select dealers at about the same time a rave review appears in the hi-fi press: high desirability + low availability = high price, and next to no movement of this product into either the gray or used market.

Initially, Ecstatic Audio dealers are able to sell the Behemoth for close to list price. All's well and good for them: Sales are up, profits are high, and everyone is happy. For a while.