Product diversion as an opportunity arises from the variances in pricing structures, which brings about a situation whereby a product maybe sold at differing prices in different markets and circumstances. Companies looking to scale their global business has led to an increased risk and allowed more opportunities for product diversion to happen.
An example of how this works is as follows:
Step 1:
US company “Whizzy Gadget” is planning to move into the European market and forecasts sales of 100,000 gadgets. To successfully enter the market a low price point is required.
Step 2:
At a trade show, Whizzy Gadget meets with a local distributor, “Eurosales” who believes they can sell more, and purchases 150,000 gadgets.
Step 3:
Eurosales takes delivery of the units but secretly diverts 50,000 units back to the United States where they can undercut Whizzy Gadget’s price and make a substantial profit.