Bangalore: One in four people who bought the approximately one million digital cameras in India in 2007 got them from the grey market, according to IDC India Ltd.

The good news is that aggressive marketing and promotions by camera companies has meant that the number of grey market buyers is down from two out of five in 2006 and is expected to fall to one out of five in 2008, says the market researcher.

The grey market represents unauthorized dealers or shops that import the product bypassing India-based, official distribution levels. A digital camera is often likely to be available at a lower price in the grey market though it is unlikely to have any manufacturer’s warranty. Such grey markets thrive in major cities such as New Delhi, Kolkata, Mumbai, and Bangalore and operate relatively openly, such as Palika Bazaar in the heart of the nation’s capital.

According to IDC, Canon India Pvt. Ltd. led the digital camera market in India with 24.5% market share, slightly ahead of Sony India Pvt. Ltd. (22.2%) and followed by Kodak India Ltd. (20.4%), through September, the last month for which industry data is available.

Shiladitya Sarkar, a senior research manager at IDC India, says the declining overall share of the grey market is partly related to growing awareness among potential buyers.

“More and more consumers are going for quality and brand, which they feel is compromised in the grey market,” he says. “Camera vendors are emphasizing on after-sales support and maintenance. Attractive promotional schemes, bundled offers and competitive pricing are also luring the customer away from the grey market.”

The grey market is losing ground even on the cost factor as digital camera vendors have become aggressive in pricing their offerings.

Manufacturers such as Sony, Canon, Kodak, Nikon India Pvt. Ltd. and Samsung India Electronics Pvt. Ltd. have significantly increased their product portfolio with India-specific pricing, introduced schemes and are concentrating on widening their retail presence across the country.

The industry also got a boost in September when the Central Board of Excise and Customs decided to exempt digital still cameras from basic customs duty, which stood at 6%. As a result, prices of digital cameras have fallen between 6%-10% since October. Earlier, a digital still camera was classified as both a still and a video camera, thus attracting higher duties. The new tax structure brings cameras in line with taxes levied on computer hardware.

Still, manufacturers point to India’s high duty and taxes for cameras as a barrier for increasing sales.

“The duties and taxes levied in India are 20% higher than that in China,” says Alok Bharadwaj, vice-president of sales and marketing at Canon India. “We are trying to urge the government to lower the countervailing duty and value added tax, which is currently 16% and 12.5% respectively.”

Meanwhile, as more retail outlets open, a more streamlined distribution network is generating better margins for resellers. Camera vendors, who traditionally have been selling their products through stand-alone electronics outlets, photography shops, and stores that sold computers and peripherals have also begun selling through specialty stores, electronics chains and single-brand stores.

Canon has already teamed up with 13 retail chains that operate 55 outlets across India for its digital cameras and plans to add more stores in 2008. It also expects to add seven more retail chains that will sell its cameras next year. About 15% of Canon’s digital camera revenue comes from such retailers, which the company hopes will double next year, even as revenue from its traditional sellers, photography shops, are likely to come down to 30% from 35% in 2008. Canon also plans to open 35 Digiclick stores in 2008.

Sony India has a broad retail presence through 7,000 channel partners and 260 Sony outlets. Says Sachin Rai, product head of digital imaging at Sony India: “Our exclusive retail store network contributes 35% to our business and it has helped a lot towards narrowing the gap between the grey market and Sony’s organized market.”

Sony also plans to add 35 stores in 2008. While Sony introduced 17 digital cameras in 2007, Rai wouldn’t comment on product strategy for 2008.

Ravi Karamcheti, managing director and country business manager of Kodak India’s consumer digital imaging group, says: “We got an early headstart over others in terms of our retail network. We believe that the surge in retail expansion holds great potentialfor us.”

Kodak says its digital cameras are already available in at least 50,000 outlets spanning some 330 towns, including at least 1,600 Kodak Express outlets.

Samsung India also plans to significantly boost its presence in the photographic channel, up from 400 locations where it sold its digital cameras to atl east 1,000 locations. Samsung also has 115 Samsung Digital Plazas.

“By the end of (2007), our market share in the digital camera business is around 7%,” says R. Zutshi, deputy managing director of Samsung India.

“We expect to double our market share every year, over the next two years. We are also tapping large retail stores, such as Croma (from Infiniti Retail Ltd.), Reliance Digital (from Reliance Retail Ltd.) and Jumbo Electronics LLC.”