Grey market indicators

Image courtesy

Image courtesy

A thought came to me today, via the subconscious mind.

Imagine for example, a camera from Polaroid (this is just an example). Someone buys this from the grey market, manufactured in fact by Polaroid but without warranty at a reduced price. Another person buys this from a regular store, with bill and warranty. Does the price difference at which these two people have bought the cameras indicate anything? I think it does: the quality of the product, from the horse’s mouth.

Nonsense? Let me explain. Cost of manufacturing is decided by the total expense in manufacturing a product, divided by the total number of units manufactured. The cost of selling and after sales support is added to it, calculated similarly – finally the desired profit is added to arrive at the selling price.

My assumption here is that when purchasing something without a bill, the company only charges manufacturing price, with a marginal markup for profit. However, when purchasing in an authorised showroom, the full price, as I explained above is charged. Hence, the difference of those two prices is the cost of after sales support. Another assumption is that both of these are equally affected by the economical aspects of demand and supply. The higher this cost is, it means a higher percentage of units require servicing or fixing. Which translates to lower quality. Another assumption is that both of these prices are equally affected by the economical aspects of demand and supply, and therefore if we take the difference, it indicates as discussed.

An example:

Brand A Brand B
Price @ showroom (with warranty included) 5500 7000
Price @ grey market 3900 4100
Difference 1600 2900

To me this indicates Brand A is more ‘stable’. Would be interested in doing this as an experiment: someone could take it up as an MBA project. Please let me know if you are interested.



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