Posted in Marketing and Strategy Terms, Total Reads: 414
In marketing a diversion (or product diversion) is the phenomenon in which a product is diverted to be sold in a different market than its intended market. This happens usually without the knowledge of the producing company. There may be cases in which a diversion may take place with the knowledge of the producing company.
A product diversion may take place because of several reasons. Product diversions may take place in the domestic market without the knowledge of the companies. In these cases, the products may be sold in the black market because of excessive regulations in the original market because of which the price inflates. Also, the demand for the product may be more than that being supplied because of which there is a possibility that the product is sold at a higher rate (for e.g. blacking of movie, cricket event tickets). There can be many such cases. There can be places where the product being diverted can be sold at a lower rate (for e.g. stolen goods from a shipment being sold at different place at a lower price).
There will be cases where product diversion takes place with the knowledge of the producer. In these cases, the diversion takes place where the utility of the product is critical for the consumer. These may take place with the government’s permission and intervention. The diversion may or may not be beneficial for the firms involved. An example of these would be of pharmaceutical companies. A companies may have to sell the drugs for a lower price in poor countries than in developed and rich countries.
There are several ways by which companies stop the undesired product diversion. Diversions in products mostly take place from inefficient supply chain management. Companies try to plug in loops in their supply chains by having a strict control on them. Outsourcing of supply chains should be done to companies which are reliable. Another way is of regulating the pricing of the products so that the demand in black market reduces. Making consumers aware of the disadvantages of buying products from the grey/black markets may help.