Gray-market sales threaten marketplaces and consumers. Why are they so hard to stop?

Here’s a summary of what this post covers.

Why marketplaces struggle to act on gray-market (unauthorized) sales and unauthorized sellers
Verifying every new seller and product that keeps appearing is practically impossible. And because a wide range of sellers directly drives marketplace revenue, platforms find it hard to crack down hard.What happens if unauthorized sellers go unchecked
- The customer experience suffers,

• Legal risk rises for both brands and marketplaces, and
• Brand trust takes a hit, which can cost customers over the long term.

On the MarqVision blog, we’ve been taking an in-depth look at the gray-market problems F&B, FMCG, health supplement and pet food brands face online. In our previous post, we looked at the growth of Korean e-commerce and the problems that come with it. In this post, we dig into the problems marketplaces face from a surge of unauthorized sellers, the harm to consumers, and why marketplaces don’t act.

As online markets grow rapidly, gray-market sales are spreading fast beyond fashion to F&B, FMCG, health supplement and pet food brands. In product categories that are consumed regularly, eaten or applied directly, unauthorized sellers and resellers have exploded, becoming a serious problem that threatens not only brands’ revenue but also consumers’ health and safety.

Today’s consumer purchase journey is clearer than ever. More people search for products online, compare prices and buy at the lowest price. That has given rise to many price-competition systems, such as Amazon’s Buy Box, Temu’s and Alibaba’s lowest-price strategies, and Coupang’s dynamic pricing.

But the fiercer price competition gets, the easier it is for gray-market sellers to get involved. Consumers struggle to tell a brand’s official channel from unauthorized sellers, and many simply buy whatever’s cheaper. According to an Opensurvey report, consumers name brand trust as the most important purchase factor, followed by trust in the sales channel. This shows that, beyond price, trust in both brands and marketplaces matters. But as low-quality gray-market products multiply, trust in marketplaces can collapse along with trust in brands.

Gray-market sales go beyond price competition and shake the customer experience, brand value and even trust in marketplaces. So why can’t marketplaces deal with unauthorized sellers and gray-market sales? This post offers a closer look.

Why marketplaces struggle to manage unauthorized sellers

1. A constant stream of new sellers

Countless new sellers register on marketplaces every day. Most marketplaces run basic screening before letting sellers in, but many get around it, making it hard to block unauthorized sellers entirely. With seller numbers exploding, verifying and managing every seller individually is practically impossible.

2. Unclear grounds for enforcement

Acting on unauthorized sellers requires clear grounds, but it isn’t easy to determine right away whether a product is genuine or whether a seller is official. Brands’ official stores, parallel importers and unauthorized sellers are all mixed together, and even marketplaces have limited ability to tell them apart. Sellers also often claim their products are genuine, which frequently makes strong action difficult.

3. Marketplace economics

Amazon data shows that more than 60% of its total sales come from third-party sellers, including agents, resellers and unauthorized sellers. For marketplaces, having a wide range of sellers generates more revenue, so there’s little incentive to actively exclude unauthorized sellers. And because marketplaces aim to offer consumers lower prices, they end up tolerating a certain amount of activity from all kinds of sellers.

For these reasons, marketplaces operate by partly accepting unauthorized sellers so consumers can buy at lower prices, rather than blocking them entirely. For brands, that makes having their own response strategy essential.

How gray-market sales affect brands and marketplaces

Gray-market sales cause financial losses for brands and can also deal a serious blow to marketplaces. What problems do unauthorized sellers create for marketplaces?

A worse customer experience

On marketplaces where gray-market sales are rampant, genuine products and counterfeits get mixed together and shoppers are confused. Some sellers even break consumer trust by falsely claiming products are eligible for official after-sales service when they aren’t.

Food and beverage products can cause even bigger problems. When products near expiration or stored under uncertain conditions are sold, consumers’ health and safety can be at risk. When shoppers who trusted the marketplace have repeated bad experiences, customer inquiries and complaints rise and negative reviews pile up, adding to the strain on operational resources.

Higher legal risk

Quality problems and consumer harm caused by gray-market sales can create legal liability not only for brands but also for marketplaces. If an unauthorized seller sells counterfeits, or an expired product harms a consumer’s health, it can escalate beyond reputational damage into a legal dispute.

And when harmed consumers raise the issue on social media, online communities or in the news, trust in the marketplace takes an even bigger hit. Preventing this takes active monitoring and a response strategy, along with stronger measures against gray-market sales.

Weaker relationships between brands and marketplaces

Brands that have signed contracts with marketplaces and opened official stores are directly hurt by gray-market sales. Unauthorized sellers sell products below the official store’s price, pushing the brand’s official store down in search results. Brands lose the chance to sell genuine products directly to consumers, and their trust and profitability suffer. If unauthorized sales continue, brands will push marketplaces to take action. If the response falls short, they may eventually review their contracts or move to new sales channels.

Marketplaces are in a tough spot: they need to manage unauthorized sellers while keeping prices competitive for consumers. But if unauthorized sales continue, brands, consumers and marketplaces all lose.

So how can brands solve the gray-market problem? In our next post, we take a closer look at effective ways to respond to the gray-market sales threatening marketplaces and consumers.

What gray-market harm do F&B brands experience?

See a range of cases in our previous post, and check your own brand’s situation with a free demo. MarqVision’s 7-day free monitoring maps your brand’s unauthorized sellers and comes with tailored consulting. Sign up now.