The Free Market's Colorful Evolution

Free markets tend to evolve and mutate in quite remarkable ways. The more marketers attempt to restrict distribution, the more markets develop alternative channels.

Perfume is perhaps the best illustration of how manufacturers attempt to limit distribution to particular retailers. This is partly motivated by the need for a consistent price and also because perfume brands are uniquely vulnerable to being presented in the wrong kinds of retail settings.

As a result, however, the three shades of the market have emerged in perfume distribution: white, grey and black.

The white market is the approved market. For the manufacturer, this is the ideal distributor and hopefully the sole source of the product for consumers. For perfume, Selfridges is a white market. It has a tremendous retail brand that co-brands the perfumes. It rarely runs price promotions and when it does it is usually with the distributor's consent. Best of all, Selfridges has the space and setting to present each perfume in its ideal context: on its own island within the store populated by highly trained and motivated sales staff. Selfridges, like all white markets, is awarded a host of manufacturer-bestowed benefits such as in-store ad displays and exclusive promotional items such as towels or make-up bags.

Walk out of Selfridges onto Oxford Street and take a left turn. The Perfume Shop is a grey market because it does not usually get its perfume from the manufacturer but rather from the white markets who are able to sell on the product for a small margin or to clear stocks. The grey market has a very different market offering. The brands are sold at a steep discount, often up to 75%, and rather than being presented in exclusive manufacturer islands they are stacked up shoulder to shoulder against each other. There are no product service personnel and, devoid of manufacturer-supplied promotional material, the grey market stores usually uses framed magazine ads to present the illusion of manufacturer sponsorship.

Exiting the Perfume Shop you walk down Oxford Street. At some point on your walk you will spot the black market in action. A lone trader will be selling three or four perfume brands from a sheet of cardboard placed precariously on top of a rubbish bin. As a black marketer he must have broken the law, and not just a manufacturer agreement, in order to get his stock, so the perfumes are likely to be either stolen or counterfeit.

His only promotional aid is his verbal sales pitch and his only market intelligence comes in the form of his partner, the spotter, who remains out of sight watching out for any policemen on patrol. Rather than shun the white and grey markets, the black marketer actively seeks them out and attempts to market his products in close proximity to his more expensive competitors.

These three markets, black, white and grey, operate literally within a stone's throw of each other. Each offering apparently the same brand, and yet each representing a completely different form of distribution channel. Sometimes the beauty and complexity of markets can be literally right in front of us.

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