May 4, 2020

B2B, B2C, & Grey Markets

B2B (business to business) refers to a business selling goods or services to another businesss a manufacturer selling items they produce to a retailer.  B2C (business to consumer) refers to a company or services directly to consumers.  

If I, as a consumer, want to buy a new vacuum, I don’t go to the vacuum manufacturer, I go to the vacuum store, a B2C business.  Manufacturers get their goods into consumer’s hands through several established B2B and B2C businesses; these are referred to as their forward sales channels.  By controlling these forward sales channels, they control who distributes, and who sells, their product, and where they sell it.  But what about reverse logistics inventory?  Does the same system work in reverse?  

For many years, the largest liquidation companies have acted like large distributors, B2B businesses selling reverse logistics inventory to other businesses.  Once sold to those businesses, manufacturers lost control over where that inventory was subsequently sold and who was selling it.  

Those businesses could be selling anywhere, and to anyone, there was no way to tell and no control.  In the early days of the industry, sales volumes were low enough that companies would essentially ignore it, aware of it, but not investing much to address it.  As the industry has grown, something referred to as “The Grey Market,” has emerged, where legitimate items are sold through illegitimate sales channels.  

As sales of reverse logistics inventory has grown to hundreds of billions of dollars annually, manufacturers are now gravely concerned that the Grey Market will negatively impact new product sales in their established forward sales channels.  In short, they’re afraid people will buy an older model that is less expensive from an unauthorized retailer, rather than a new and more expensive model from an authorized one.  As a result, more and more manufacturers want control over who sells their reverse logistics inventory and where it is sold.  They are looking to engage the services of a liquidation company that only sells B2C in a way that can be both controlled and limited geographically.  In essence, they want their liquidation company to become an authorized retail channel that they can control.  Many liquidation companies claim to have a B2C component, but in reality, that component is usually just selling items on Amazon or E-Bay. Rather than limiting the Grey Market, that simply moves it online.  

For a B2C liquidation solution to be effective at limiting the inventory reaching the Grey Market, that solution must be geographically exclusive; it has to be contained within specific areas.  Using any solution that ships products, especially when offering to ship in bulk, increases the effect of the Grey Market rather than limiting it.  This is one area in which long-established liquidation companies are struggling to meet the current needs of modern business.

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