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Compendium
September 2019
Volume 40, Issue 8

Online Purchasing: How to Avoid “Gray-Market” Dental Products

Scott Drucker, DMD, MS; and Shawn M. Gregg, MBA

The U.S. Census Bureau News estimates that nearly 10% of retail volume in the United States is transacted online, and online retail purchasing is growing at roughly three times the rate of traditional retail.1 E-commerce continues its relentless growth, shifting consumer expectations of purchasing, distribution, and delivery. Moreover, as e-commerce has exploded in the broader retail sphere, it has gained a foothold in niche industries as well, including dental supplies. A recent Goldman Sachs industry survey estimates that as much as 11% of the dental supply market has already shifted to online sources.2

Traditional and Nascent Supply Channels

The dental supply industry has utilized traditional distribution models for decades. Most commonly, large manufacturers sell their products to authorized distributors, or dealers, who then resell those supplies to dental practices. The three largest distributors, for instance, together account for 80% of the domestic dental supplies market.3 Most 3M Oral Care (3m.com) products, for example, are sold to dentists in the United States through one of more than 30 authorized distributors, who then sell them to dental offices across the country either directly or through authorized marketplaces, such as Supply Clinic (supplyclinic.com).

Some manufacturers sell directly to the end user, namely the dental office. This direct distribution model is most often used for burs and specialty items, such as orthodontic brackets and implant products. Other manufacturers take the opposite approach, selling their products through multi-step distribution. In such cases, products are sold from the manufacturer to a large third-party distribution center, which then sells the appropriate products to smaller dealers across the country. In yet other cases, multi-step distribution involves even more intermediate steps between the manufacturer and the dental practice.

With the increasing popularity of Internet commerce, this distribution paradigm has begun to shift. Just as the broader retail landscape has been moving online, so too has the dental supply space, as most distributors, including the largest ones, maintain websites through which customers are able to purchase supplies.

However, while offering the potential of unprecedented convenience, commerce transacted via the Internet introduces new variables and possible risks to the sale and purchase of supplies. By enabling an entirely new paradigm of purchasing, the Internet can make it difficult for buyers to distinguish an authorized distributor from an impostor. Unauthorized distributors often have websites too, and may sell "gray-market" materials online. Furthermore, the Internet even enables a secondary market of dental customers who have the tools at their disposal to resell supplies online for a profit.

What Is "Gray Market," and How Is It Harmful?

Authorized channels are comprised of distributors that have contracts with manufacturers to buy products from the manufacturer directly or from an authorized warehouse. Conversely, unauthorized distributors do not buy product directly from the manufacturer or from manufacturer-approved sources. Gray-market products are those sold through unauthorized channels. This is generally precipitated by regional or international discrepancies and enterprising businesses that seek to capitalize on the pricing arbitrage opportunity. A company, for example, may buy a product abroad, ship it to the United States, and sell it domestically. Even products sold exclusively in the United States can be "gray market" if sold through unauthorized channels.

More troublingly, gray-market goods are hard to distinguish from goods that are counterfeit or tampered with. Unfortunately, the prevalence of gray-market goods can help shield these tampered or counterfeit products from being detected.

Even if a gray-market product was not deliberately altered, it may be degraded, chemically changed, or otherwise suboptimal. For example, a supplier may buy products intended for a foreign market where the formulation or labeling of these products may not comply with US laws and regulations. Additionally, there is no guarantee that products have been shipped or stored correctly, potentially compromising product efficacy and patient safety.

Identifying Gray Materials

Many manufacturers, such as 3M Oral Care, have authorized distributor lists available on their websites. Those that do not can be contacted at their publicly listed phone numbers. Manufacturers are motivated to ensure that customers buy legitimately sold products rather than gray-market materials and usually are glad to answer questions pertaining to supply chain. Items purchased through other channels (ie, not from an authorized dealer or a marketplace listing authorized dealers) are gray-market products.

Once a product is obtained, it can be challenging for even the most experienced practitioner to identify it as gray market. The packaging may have been falsified to mirror authentic products. Even if the product is authentic, it may have been relabeled to conceal a past due expiration date or important safety data.

What Dental Professionals Can Do

While pricing discounts online often are substantial and attractive,4 practitioners need to be extremely careful to ensure they do not purchase products through unauthorized channels, where gray-market practices abound. Again, as an example, 3M Oral Care lists more than 30 authorized domestic dealers on its website. These dealers purchase 3M's operatory products directly from the manufacturer, and either sell directly to dental practices or through an authorized online dental marketplace such as Supply Clinic. Supply Clinic verifies supply chain back to the manufacturer, allowing only authorized dealers to list. Other, broader online sources, including sites like eBay.com, Amazon.com, and Alibaba.com, may not necessarily take such precautionary measures and have the potential to facilitate the sale of gray-market products.

Practitioners and other dental office staff can always call the source from which they purchase to inquire about the security of supply chain. Additionally, they can call the manufacturer directly with specific questions regarding the channel of distribution, especially if they have the product in hand with the lot number and expiration date.

Conclusion

The ongoing shift away from traditional full-service dental supply distributors and toward nontraditional online sources comes with both opportunities and risks. Online sources often allow for potential savings and increased efficiency but also necessitate that dental professionals understand how to navigate the procurement of legitimate products sold through an authorized and secure supply chain. Awareness and a healthy suspicion of the gray market is crucial for optimal product use and dental care.

About the Authors

Scott Drucker, DMD, MS
Co-founder and President,
Supply Clinic, supplyclinic.com

Shawn M. Gregg, MBA
US Business Director,
3M Oral Care Solutions Division

References

1. US Dept of Commerce. U.S. Census Bureau News. Quarterly Retail E-Commerce Sales, 1st Quarter 2019. Washington, DC. Census Bureau of the Department of Commerce; May 17, 2019.

2. Rich N, Jones RP, Hartman K, et al. Americas Dental. Assuming coverage of core Dental and upgrading XRAY to Buy: Attractive entry point for an early turnaround. Goldman Sachs, Equity Research; October 19, 2018:61.

3. Consolidated Class Action Complaint, No. 1:16-CV-00696-BMC-GRB. In the United States District Court for the Eastern District of New York. Document 49. Filed March 11, 2016. https://www.cohenmilstein.com/sites/default/files/Dentists%20Consolidated%20Class%20Action%20Complaint%20UNSEALED%20FINAL.pdf. Accessed July 17, 2019.

4. Rich N, Jones RP, Hartman K, et al. Americas Dental. Assuming coverage of core Dental and upgrading XRAY to Buy: Attractive entry point for an early turnaround. Goldman Sachs, Equity Research; October 19, 2018:52.

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