Why enforcement keeps failing, and what is actually left when the calendar is not yours to move
The call does not sound like a complaint at first.
Your distributor tells you that your product is showing up on marketplaces in their market, below the official price they set with you. Same product. Same packaging. Nobody broke the contract.
What they asked me for, the time this mattered most, was a realistic supply price. Not parity — they were explicit about that, they understood the distance and the market difference. And then, carefully, a second question: was there anything we could do about how the product was being distributed at all?
They did not ask for compensation. Hold on to that. It turns out to be the most useful fact in the whole situation, and I come back to it at the end.
Two explanations, both incomplete
There are two standard answers, and the internet gives you one of them.
The first is that this is somebody else's crime. Traders are buying your goods and moving them across a border they were not meant to cross. The remedy is enforcement: takedowns, test purchases, letters, serial tracking. Search for "parallel imports" and nearly every result on the first page is written from this position, usually by a brand-protection vendor or an IP firm.
The second is that it is your own fault. Your home market ran a deep promotion, and the discounted units walked.
In the case I know best, both were true at the same time. Promotions were running in the home market through other channels. Individuals were buying and reselling into the partner's market through their own routes. Neither one was the cause. Looked at honestly, it was a distribution management failure in aggregate, and no single party owned it.
That matters, because each explanation points at a different action, and both actions underperform on their own. To see why, you have to stop asking who did it.
What actually opens the channel is a gap
A parallel channel is not a moral event. It is an inequality.
< the official price in your partner's market
While that holds, the channel is open. Not because someone is dishonest, but because there is money lying on the table and someone will pick it up. Take that person away and the inequality recruits the next one. This is the reason enforcement feels like a game you keep winning and never finish.
So the question is not who is doing this. It is how wide is the gap, and who set its two ends.
Harvard Business Review put this question to brands back in 1988, in an article that is still the clearest framing I know of: is a grey market always a problem, and when is it a symptom of something more fundamental in how you sell? Nearly forty years later the answer most brands act on is still "it is a crime, call the lawyers."
Why the gap is not yours to close
Once you see it as an inequality, the fix looks obvious. Stop discounting so deeply at home, or at least tell the partner when you are about to. Align the calendar.
That advice assumes you can move the calendar. In most companies you cannot, and it is worth being precise about why, because the reason is structural rather than political.
Promotion calendars follow channel volume. The channels that move the most units get first call on the promotional plan, the stock allocation and the pricing exceptions. That is not a failure of judgment; it is the correct decision for the people making it. Their number is domestic sell-through, and they are hitting it.
An export partner two orders of magnitude smaller does not outrank that. You can send the email. You will lose the argument, and you will lose it again next quarter, because nothing in the decision changed.
Eliyahu Goldratt made the general version of this point in The Goal (1984): a system built from locally optimised parts — each function improving its own number — is not an optimised system. It is a set of teams each doing well while the whole performs badly. Grey market pricing is that problem wearing a customs declaration.
So what is actually left
Be honest about the menu, because it is shorter than the consulting literature suggests.
Does not work on its own
Enforcement. Removes an actor, leaves the inequality. You will be doing it again next quarter. It has a place — it buys time and it signals to the partner that you are not indifferent — but it is not a fix and should not be budgeted as one.
Asking for calendar alignment. Loses to volume priority, as above. Worth asking once so the answer is on record. Not worth building a plan on.
Matching the price. Closes the gap by collapsing your own side of it. This is the most expensive option on the list and it moves your price anchor permanently — the mechanism I wrote about in What to Do When Your Distributor Asks for a Lower Price.
Actually changes the economics — there are two
Outgrow the claim. If the export market's volume passes the domestic channel's, the priority order reorders itself and you stop needing to win the argument. Slow, and it is the one lever that moves the calendar without a fight. It also reframes the whole problem: you are no longer asking for protection, you are one of the channels being protected.
Split the product. A different SKU, specification or pack configuration for the export market. The inequality breaks because the goods are no longer the same goods, and a parallel unit stops being a substitute. It costs real money — separate forecasting, minimum production runs, packaging artwork, sometimes separate registration — and it works.
Helps, but does not fix
Give the partner visibility into the calendar. It does not close the gap. What it does is stop them being blindsided, and that is what keeps the relationship intact long enough to do one of the two things above. Do not sell it internally as a solution; it is a relationship measure.
The restraint in the ask was the real signal
Now go back to what the partner actually said.
They asked for a realistic supply price. Look at what that request is, mechanically: it closes the same inequality from the other end. Lower the supply price, the official price can come down, the gap narrows, the parallel route stops paying. They were not asking for a favour. They had done the same arithmetic and were offering the half of it that sat on my side of the table.
And they asked for it without asking for compensation. In cross-border distribution that is rarer than it should be. A partner whose opening position is a claim for damages is telling you where the relationship already is; a partner who opens with "can we make the price work, and is the distribution manageable at all" is telling you they still expect to be selling your product in three years.
Read that as an asset on your side of the ledger, and price the options accordingly. The expensive-looking option — splitting the line — is much easier to justify internally when you can say that the partner absorbed a pricing problem you created and did not send you a bill for it.
The five-line version
Your turn
Sources
- Frank V. Cespedes, E. Raymond Corey & V. Kasturi Rangan, "Gray Markets: Causes and Cures", Harvard Business Review, July 1988 — for the framing question of whether a grey market is a problem in itself or a symptom of how the product is sold.
- Eliyahu M. Goldratt & Jeff Cox, The Goal, North River Press, 1984 — for local optimisation: a system of individually optimised parts is not an optimised system.
- The arbitrage condition itself is standard economics and is not attributable to any one author. The academic literature on its channel effects is substantial — see, for example, Quantitative Marketing and Economics (2011) on the impact of grey markets on authorised distribution channels.
Cases are drawn from real appointments with countries, companies, brands, individuals and proprietary figures removed; only the structure remains. This is not legal advice.
Written from the brand side of this table — twenty-two years appointing and managing distribution partners across Asian markets, across categories and price tiers.
Previously in this series: How to Evaluate a Distributor Before You Sign · Exclusive or Not · When to Stop Selling Cross-Border and Set Up Locally · What to Do When Your Distributor Asks for a Lower Price · When Is a Market Ready for a Local Launch? · Marketing Money in a Distribution Agreement · When Your Distributor Stops Paying · The Month-Seven Test · How to Manage the Distributors You Never Visit.
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