Indore (Madhya Pradesh): Can companies earn higher profits by selling fewer products? A study co-authored by Prof Nitin Koshta of Indian Institute of Management Indore (IIM Indore) suggests that blockchain technology can help manufacturers achieve this by curbing unauthorised sales and protecting brand reputation.
Titled “Is It Wise to Adopt Blockchain Technology to Cope with the Unauthorized Domestic Gray Markets?”, the study has been accepted for publication in IEEE Transactions on Engineering Management. It examines how manufacturers can balance profitability, sales growth and brand protection.
Grey markets involve genuine branded products sold outside a manufacturer's authorised distribution network. Domestic grey markets arise when authorised retailers divert products to unauthorised sellers within the same country, while international grey markets involve unauthorised resale across national borders.
Discounted gray market sales can divert customers from authorised retailers and damage brand reputation, although they can also expand market reach and increase sales.
The study finds that blockchain can help consumers verify product authenticity, origin and seller authorisation before purchasing. By improving transparency, the technology can guide buyers towards authorised retailers and significantly reduce grey market sales.
Blockchain adoption is particularly beneficial when consumers have limited awareness of authorised sellers, differences between sales channels are small and implementation costs are manageable. Manufacturers can earn higher profits despite declining overall sales if increased authorised sales and reduced reputational damage outweigh the loss of grey market business.
The benefits are especially significant for luxury brands and businesses whose value depends heavily on reputation, exclusivity and consumer trust. For these companies, protecting brand identity may be more profitable than maximising sales through unauthorised channels.
However, when brand value is relatively low and differences between selling channels are limited, gray markets can help increase sales and profits. In such cases, expanding market reach may be preferable to restricting unauthorized distribution.
The study also highlights the role of planned discounts through authorized retailers. These can retain price-sensitive customers, clear excess inventory and reduce product diversion to unauthorized sellers, particularly when customers face little disadvantage from waiting for discounts.
However, blockchain involves additional costs and may increase retailers' purchase costs, leading to higher prices for both regular and discounted products. Manufacturers must carefully assess pricing and implementation expenses. The research also indicates that blockchain can improve consumer benefits and overall social welfare.
To strengthen oversight, manufacturers can use sales audits and contractual penalties to discourage retailers from diverting products or reporting sales inaccurately. Such monitoring, however, adds administrative and financial costs that must be weighed against its benefits.
Future research could compare blockchain with smart packaging and market-specific product variations, which may help distinguish authorised products but could complicate production and distribution.
The study concludes that blockchain adoption should depend on brand value, consumer awareness, market conditions and implementation costs. Combining it with pricing strategies, inventory management and retailer monitoring can help manufacturers protect their reputation and improve profitability.
