1. Mike Cordano Executive Vice President, Sales and Marketing
The Gray Market
Mike Cordano
Executive Vice President, Sales and Marketing
July 25, 2019
Maxtor Confidential

2. Agenda Gray Market Defined Examples Reasons for Existence Impact
Solutions
July 25, 2019
Maxtor Confidential

3. What is the Gray Market?
Unauthorized sale of new, authentic, branded products
diverted from authorized distribution channels or
imported into a country for sale without the consent or
knowledge of the manufacturer.
Not unique to the IT industry
Luxury goods
Pharmaceuticals
Recording and Film industry
Source: AGMA
July 25, 2019
Maxtor Confidential

4. Examples of Gray Market
OEM system manufacturers
Selling excess inventory out the back door
July 25, 2019
Maxtor Confidential

5. Examples of Gray Market
Selling outside designated territory
VAT Carousel Fraud (European Union)
Smuggling / Illegal Importing
July 25, 2019
Maxtor Confidential

6. Examples of Gray Market
Abuse of discount programs
Providing fraudulent contract or end user information
Providing forged documentation
Asserting false claims of competitive situation
Price protection abuse and price forwarding
July 25, 2019
Maxtor Confidential

7. Example – Price Protection Abuse
Distributor POS Reporting
Week 1
Reported POS: 0
Actual POS: 1,000
BOH Inventory: 4,000
Week 2
Week 3
Week 4
Reported POS: 4,000
EOH Inventory: 0
List Price $50
List Price $45
Distributor claims Price Protection for 4,000 units sold
after list price decrease. 4,000 x $5 = $20,000
Actual PP claim should be = 1,000 x $5 = $5,000
July 25, 2019
Maxtor Confidential

8. Why does the Gray Market exist?
Profit opportunity and price advantage
High import duties
China
Brazil
High brand preference
Prevalent amongst high volume, low margin, commodity products
17%
47%
July 25, 2019
Maxtor Confidential

9. Range of price advantage obtained on Gray Market-sourced product
Percentage of respondents
Range of price advantage
July 25, 2019
Maxtor Confidential
Source: KPMG and AGMA study February 2003

10. What is the Impact of Gray Market?
Loss of profit margin
Pricing instability
Erosion of brand equity
Decreased customer satisfaction
Creates false demand
Increase in warranty returns
Source: KPMG and AGMA study February 2003
July 25, 2019
Maxtor Confidential

11. Initiatives to Mitigate Gray Market
Monolithic pricing
Consistent contractual agreements
Distribution compliance audits
Integrate sales and incentive data to better control incentive claims
Dedicated resources to manage gray market issues and monitor partner compliance
Time for a change?
Consignment Inventory
July 25, 2019
Maxtor Confidential