You never want to believe it could happen to you. When hiring a company to securely destroy a product or prototype, it is assumed the vendor has a solid understanding of how important it is to ensure your product will not enter the grey market. However, time and time again companies fall victim to unauthorized grey market distribution of their products when they thought they had taken proper precautions. One study revealed grey market sales could exceed $40 billion annually (1).
The “grey market”, which is also referred to as the parallel market, is defined as the situation when a product is sold through a legal, but unauthorized channel. The difference between grey market and black market is the black market involves illegal or counterfeit products whereas the grey market deals with legitimate products being sold when they should not have been.
As much as the industry is aware of this risk, the issue remains. One major software company, sued their recycling vendor on more than one occasion even after they had audited their service provider. In one of their incidents they handed over 70,000 copies of a product for destruction, and later found those same items were instead being sold online. This put outdated copies of their product into the hands of consumers and forced them to take action toward the protection of their trademark.
In general, grey market risks can incur,
- Loss of revenue,
- Damage to your brand reputation,
- Complications with authorized dealers or distributors, and
- Shrinking profit margins.
When all is said and done, this company had taken efforts to prevent this from happening but still had a major problem. Therefore the loaded question remains, what can you do to avoid grey market distribution? While we cannot speak on behalf of anyone else, we can certainly provide guidance and help you know what to look for. Here are four things you can do to get started.
- Understand what types of devices are high risk.
It is a good idea to first have a good understanding of what items would be desired for grey market distribution. General categories include (but are not limited to) units that are,
- Defective, and
- Decommissioned (and are expected to be recycled or destroyed).
- Research all available service offerings.
Always, always, always do your research. Often we get comfortable with our existing service providers and trust they are keeping abreast of evolving security and product destruction protocols, and industry service offerings. Over time newer innovative offerings could provide enhanced security. Go with a leader or stay in tune yourself with security enhancements.
There has been a significant shift in the electronics recycling industry to focus more on security features and service offerings. The industry is evolving and companies will continue to search for ways to build trust with clients. Research such as Gartner’s “Market Guide for IT Asset Disposition” can indicate leaders in the market and would be a great place to start.
- Ask the right questions when reviewing your options.
In general your options for electronics recycling will include,
- Physical destruction (with options for witness destruction),
- Asset tracking,
- Reporting (including certificates of destruction), and/or
- Revenue-share resale opportunities.
Outweighing the risk vs. opportunity here can be critical to successful electronics disposal and data destruction. Most manufacturers have strong questions they present in their RFPs but without daily involvement in reverse logistics, there are questions you simply may not know to ask.
If you have an existing relationship with someone in the recycling or IT asset disposition industry it is a good idea to run your questions by them. They could offer insight on best practices, certifications, standards and additional industry information. However, don’t let it stop there.
Find a template or guide to ensure you are covering all your bases. This can bring up questions you may have not previously considered.
- Conduct a site visit to have a better understanding of the process.
When you take the time to visit an electronics recycling facility in person, you can very quickly understand their infrastructure, security and professionalism. Site visits are one of the most effective ways to review a vendor’s security features and to feel more confident about where your devices are going.
While cumbersome, a formal program that is managed appropriately can help eliminate the estimated $5 billion in profits that IT manufacturers are predicted to be collectively losing in profits annually(1). Placing your focus on security and ensuring you have documentation and certificates to assure you of material destruction is vital to the success of your ITAD program.