DECA Hospitality and Tourism Cluster Practice Exam

What is a potential reason a channel member might permit gray-market activity?

1. Increases company profit.

2. Strengthens its brand.

3. Decreases company expenses.

4. Taps unidentified market segments.

The correct answer is: Taps unidentified market segments.

Permitting gray-market activity can provide a channel member the opportunity to tap into unidentified market segments. Gray markets arise when products are imported and sold through unauthorized channels, often at lower prices than authorized retailers offer. This activity can allow businesses to reach consumers who might not otherwise purchase their products due to price sensitivity or lack of availability in their region. By allowing gray-market sales, companies can increase their exposure and potentially attract customers who are interested in their products but may not have been targeted by traditional marketing efforts. Utilizing gray-market channels can also provide insights into consumer demand and preferences that companies might have overlooked, thereby creating opportunities for growth in untapped or neglected demographics. This approach can be strategic, especially in competitive markets where every customer segment is valuable to a brand's overall success. The other options discuss benefits related to profits, brand strength, and expenses but do not specifically highlight the unique opportunity of accessing new customer segments, which is a prominent reason to allow gray-market activity.