By The Dental Insider
The gray market refers to the flow of goods through distribution channels other than those authorized or intended by the manufacturer or producer.
Unlike those on the black market, gray market goods are not illegal. Instead, they are sold outside of normal distribution channels by companies which may have no relationship with the producer of the goods. Frequently this occurs when the price of an item is significantly higher in one country than another. Entrepreneurs will buy the product where it is available cheaply, often at retail but sometimes at wholesale prices, import it legally to the target market, and sell it at a price that provides a profit but is below the normal market price there.
The gray market has been haunting the dental industry for over 20 years, but it has really come to life in the last five years. I partially blame that on Dentsply and their decision in 2006 to eliminate 172 dealers. Essentially, they created 172 gray market dealers for Dentsply products, and the trend continued when Danaher-owned Kerr went to a limited distribution model in 2008.
The problem seems to be greatest in New York, Florida, and California. Just flipping through The Dental Shopper (Southwest Edition), I count four dental suppliers offering 3M/ESPE, Kerr, and Dentsply products. Upon checking the aforementioned manufacturers’ “Authorized Dealer List” on their Web sites, none of the four appear on those lists. There is a trend in the industry that these gray market dealers are now getting space at some of the big trade shows, displaying their gray market goods and thumbing their noses at the manufacturers, who know there isn’t much that can be done to stop them. They are enticing the dental community with unbelievably low prices and in these economic times, dentists are looking for ways to cut expenses.
Who is this hurting?
Everyone in the industry suffers from the effects of the gray market, from the dental supply representative who isn’t getting the sale, to the manufacturers’ representative who isn’t getting credit for the sale, as almost all manufacturers pay their sales force based on zip code data reports. Let’s not forget about the dentist using a product that, for example, may have been subjected to heat while sitting in a container somewhere, and the product won’t work like it should. Everyone loses.
What is being done to correct the problem?
Most of the major manufacturers have addressed the gray market problem at one time or another. They all say they’re taking steps to prevent the gray market goods from entering the U.S. market, yet the problem persists and has gotten worse over the last few years. Several of the manufacturers I’ve spoken with say they’re trying new tactics to combat this problem. These include different packaging for overseas products, “one world” pricing (the price is the same for both U.S. and overseas markets) on new items, and changing the names of products for the overseas markets. I spoke with a manufacturer who is now challenging two gray market dealers through the legal system.
3M/ESPE is the only major company I know of that is making an effort to minimize gray market and educate the dental community about gray market products. They recently released a brochure on gray market products that is available through your authorized 3M/ESPE dealer. Unfortunately, I could not find this brochure on their Web site.
What we need now is for the manufacturers and DTA to band together and take a stand against the gray market. The manufacturers need to take a serious look at their exporters and hold them accountable. The dental supply houses need to educate dentists on gray market products and the consequences of using these products. Almost all major manufacturers will not honor a warranty or “free goods” specials on any products not purchased from an authorized dealer.
