By ScanTrust Marketing on Mar 25, 2020 12:01:30 PM
How big of a problem is counterfeiting?
Counterfeiting represents 3.3% of all global trade¹. That translates into billions of dollars lost and It goes far beyond a luxury good knock offs problem. Any product in any category that has a large enough margin is just as likely, or more likely depending on the industry, to be counterfeit². As one might guess, the cost of this mounts up rather quickly. In Europe, pharmaceuticals are currently up to a 4.4% loss in annual sales representing €10.2 billion in lost revenues. Clothing and accessories are seeing an annual loss of 9.7% of sales for a whopping total of €26.3 billion. This accompanying graph shows losses in Europe, broken out by category, listing loss in euros, followed by the percent of annual sales lost for that category. While it is the least affected of the industries listed, sporting goods brands alone are losing no less than 500 million euros every year to counterfeiting of their products. (Data source: oecd.org)
These figures give us a sense for how costly counterfeiting is to individual industries, yet It’s impossible to know exact and accurate numbers for how much is lost and at what dollar figure. The best anyone can do is make educated estimates, like these. Counterfeiting is by its nature obscured in shadows. Of course, the overall cost to brands and society at large cannot be so easily hidden. The OECD recorded a 154 percent increase in international counterfeit trade, from US$200 billion in 2005 to US$509 billion in 2016. This kind of growth would be impossible without the cultural changes that came with e-commerce, namely the success of behemoth selling platforms like Amazon and Taobao. Buying and selling online has come with great conveniences gained, but it also paved the perfect runway for counterfeiting activity to skyrocket. Traditionally and before e-commerce became so successful, brand owners relied on investigative agencies, legal options, local sources, distributors, and of course law enforcement to track, monitor, and respond to counterfeit concerns. Unfortunately these legacy solutions were already falling short against a challenge with increasing scale and sophistication, and that was even before the age of Amazon. Thinking along those lines, it’s clear to see the futility of legacy responses.
One specific issue that has been growing at quite the pace recently is gray market goods. Gray market goods are those made to be sold in specific markets but that end up sold in other geographies e.g. an iPad meant for the U.S. market and priced for the U.S. but being sold in Finland at the preferable, U.S. price. Consumers are naturally attracted to gray market goods because they think they are buying genuine goods at that preferable, lower price. Why pay more? Because of that comforting logic, counterfeit goods use gray market sites as an avenue to sell counterfeits, taking advantage of a great way to reduce suspicion of counterfeiting while shaking some of the more traditional protections brands build around the sale of their goods, like authorized dealerships or the such. Brands have had an especially hard time with this because of the complexity of trade routes which is compounded by the speed and convenience of modern e-commerce. It’s ironic that the same, efficient trade routes and convenience for online buying that should be nothing but benefit to brands actually creates almost insurmountable challenges with regard to transparency in supply chains and commerce, but that is indeed the state of things.
Aside from the cost in dollar terms, the longer lasting problem that brands experience from counterfeiting is a hit to brand reputation. Lost reputation due to fake goods often costs businesses their customers indefinitely. According to MarkMonitor’s Global Online Shopping Survey 2018, 26 percent of customers that inadvertently bought counterfeit goods said they stopped spending money on that brand. 22 percent said their perception of the brand had, at minimum, worsened. There are also the clear dangers counterfeits create for human health and safety, putting consumers directly at risk. This is unfortunately more common than not and is exactly what happened in the United States in March 2020 when the U.S. Customs and Border Patrol officers revealed a new trend in fake COVID-19 coronavirus test kits in a high profile interception on the West coast. Especially when people are most desperate, criminals are most emboldened to make the best of them. Counterfeiting makes the crime in those situations almost too easy.
Counterfeiters are opportunistic.
“We are facing a global crisis unlike any in the 75-year history of the United Nations, a human crisis that calls, above all, for solidarity.”- António Guterres, Secretary-General of the United Nations
While the whole world was coping with the Covid-19 pandemic, there were those parties that saw it as an opportunity for profit in a growing state of disorder and anxiety. When demand for face masks boomed in China at the beginning of the outbreak, nervous buyers began stock piling masks both online and from retail stores. Some vendors took advantage of the shortage caused by the rush and reduced production levels. Others acted quickly to produce and sell counterfeit, low-quality face masks. By February 26, 2020, Chinese public authorities reported that they had seized more than 31 million such masks.
As the virus spread across the world, illicit activity followed closely behind. By mid-March, the U.S. was in the thick of rapidly rising infections and a shortage of infection test kits. News media reported the same, creating panic and people began looking for their own test kits. It was in the thick of that environment that the U.S. Customs and Border Patrol announced the interception of a package containing illegally labeled, and likely ineffective, COVID-19 test kits arriving from the United Kingdom. A response to these novel, criminal efforts came from Interpol in the form of Operation Pangea XIII. They also announced a bust on March 19, 2020.
“Counterfeit face masks, substandard hand sanitizers and unauthorized antiviral medication were all seized under Operation Pangea XIII, which saw police, customs and health regulatory authorities from 90 countries take part in collective action against the illicit online sale of medicines and medical products.”³
As one US congressman stated,
“During times of panic and anxiety, like we’re currently experiencing with the spread of coronavirus here in the United States, bad actors try to prey on consumers.’’
Active brand protection: how we provide robust security against counterfeits and more
ScanTrust uses a process by which we associate a physical good with an online identity. Once a physical item is bound to an online identity, any interaction with it contributes to an active updating of its characteristics, and in doing so activates a protective feature. This binding can be implemented at a unit-by-unit level or for millions of unique products by integrating into existing labeling and package printing processes. The benefit is an all but undefeatable anti-counterfeiting solution and an exceptionally effective tool against parallel importation, otherwise known as gray markets.
Counterfeiting is lucrative. As long as it is, criminals will always jump on opportunities to create and sell fakes. In spite of that enthusiasm, our team at ScanTrust is motivated to put an end to criminal conduct, especially those activities that detract from brand’s earnings and most particularly those activities that target the most vulnerable of people in times of crisis. That’s why more than ever, we are working to apply our Active Brand Protection solution to physical goods that are the lifeblood of our clients’ businesses. Our mission is to improve the bottom line for our clients, but also to alleviate the bigger picture, global challenges that are affecting us all, not just now but also in the unknown future.
If you’re interested to read about a live example of how we went about applying Active Brand Protection to Lockcon anti-doping test kits, you’ll find the use case here:
What’s next? How to protect your brand with ScanTrust Active Brand Protection
When setting or re-evaluating a brand protection strategy, you’ll need to define your budget, which teams will be involved, and the expected outcomes. Some additional points to consider:
- Who needs to ensure that your goods are real: authentication actions can be performed by internal staff, by inspectors checking distribution lines, or by end user consumers using their own smartphones. Who you want to empower with the capability to authenticate a product will affect how you roll out your active brand protection campaign
- Which products need to be protected?: Whether Active Brand Protection should be applied to individual products or to whole product batches, implementation and workload can be significantly different. In fact, this decision becomes obvious with a clear understanding of the challenge.
- Choosing a technology solution: there are many anti-counterfeiting technology options available to build a strategy for gaining back losses or to increase revenues around brand protection. Our team will help you choose which technology is most suitable for integration into your existing operations and to most easily achieve your desired outcomes.
We are a long way off from living in a world without fakes. Counterfeits cost brands billions of dollars and in some cases consumers are at special risk of paying even more dearly. But the situation is far from hopeless. ScanTrust offers proven, effective solutions, but brand owners must take the decision to protect their own brand and through the goods they sell, protect their customers as well.
¹Statistic is from a report by the Organization for Economic Co-operation and Development and the European Union Intellectual Property Office estimates: https://www.oecd.org/newsroom/trade-in-fake-goods-is-now-33-of-world-trade-and-rising.htm
²Read the report on counterfeiting by the Better Business Bureau at: https://www.bbb.org/globalassets/local-bbbs/st-louis-mo-142/st_louis_mo_142/studies/counterfeit-goods/BBB-Study-of-Counterfeit-Goods-Sold-Online.pdf
To receive a proposal on how ScanTrust can provide Active Brand Protection to secure the authenticity of your physical goods, get in touch with us at: https://www.scantrust.com/contact-us.