Countering the costs of counterfeits

Fakes of all kinds are big business. The OECD estimates that the value of counterfeiting is at least 250 billion USD per year. This does not account for non-monetary damage caused by illness or death. Brands are, at best, cheated of profits from what they are selling. At worst, they can suffer in the long term from damage to their brand reputation and consumer trust. At the same time, consumers spend money on items and don’t get what they pay for. And in the worst case scenario, they are at risk from unsafe products. How can brands start countering the costs of counterfeits? 

Counterfeits are everywhere

Counterfeits are everywhere. Fueled by the rise of e-commerce and the global nature and complexity of supply chains, the counterfeit phenomenon poses extraordinary difficulty in understanding the true scale of its effects. And because the far-reaching damages are hard to grasp and quantify, countering the costs of counterfeits is even more challenging. 

As Interpol cautions, “Toys, food, engine parts… No product is safe from being falsified, counterfeited or adulterated. Medicines, alcohol, electronics, and construction materials are also targeted.” The most commonly counterfeited products include fashion and beauty, electronics, pharmaceuticals and automotive and aircraft parts. Adulterated or fake foods are also a common – and lucrative – form of counterfeiting. Apparel, footwear and accessories dwarf all other categories combined. All counterfeit fraud exacts a toll on brands and consumers. 

Economic consequences of counterfeits

The obvious economic consequences of counterfeits include the immediate revenue decline or direct loss of sales. The legitimate brand owner loses out instantly from the financial hit. A Forrester study commissioned by Rockwell Automation found that 47% of companies polled reported losing between 11-60% of sales income annually due to counterfeiting and grey market diversion. 

Brand reputation 

A more corrosive and more difficult to calculate form of economic damage is harm to brand reputation. The brand’s longer-term profitability is tied to customer trust and loyalty. The inevitable dilution of brand image has a real cost. Consumers raise questions around brands’ commitment to product quality, ensuring authenticity, and caring for the customer.

While counterfeit goods plague all industries and segments, luxury brands in particular suffer reputational damage with the loss of exclusivity when their products are replicated and sold at a fraction of the price. Consumers who can’t afford genuine luxury items may turn to counterfeits, further diluting the brand’s cachet. By extension, in attempting to defend themselves, brands can easily end up mired in legal battles fighting counterfeiting. This depletes resources but, more critically, can further tarnish the brand image.

Health and safety consequences of counterfeits 

Naturally, health and safety considerations add another layer to counterfeiting’s consequences. While negative reputation damage deals a blow to brands, no damage is greater than that associated with causing life-threatening or fatal outcomes for consumers. 

Fake pharmaceuticals can lead to ineffective medical treatment. Contaminated baby formula can lead to illness or death. Fraudulent or mislabeled beauty and cosmetics goods can cause illness. Counterfeit parts can lead to malfunctions, performance problems and even fatalities (a counterfeit bolt that caused a fatal plane crash led to the creation of the Kezzler company). 

Any time a brand becomes associated with jeopardizing the health and safety of consumers, there is an urgent need for the brand to spring into action to counter the counterfeits – and the long memory of reputational damage counterfeits cause. Regulators, too, must step in to safeguard consumer trust. 

But for brands and regulators alike, this is where things get more complicated. 

Countering counterfeits with connected products technology

Identifying and countering counterfeit products systematically requires granular traceability, serialized identities, supply chain visibility to understand where a given product is at any given time, and transparency in the form of both institutional/organizational openness to sharing data and technical openness to the interoperability of data. Up to 45% of organizations cite a “lack of clear ROI” for not implementing traceability and serialization, despite knowing traceability initiatives remedy counterfeiting and diversion problems.

Introducing traceability throughout the supply chain using unique digital IDs for individual products creates a pathway for countering the costs of counterfeits and avenues for recouping the investment in ROI. By creating a connected product, consumers can verify the authenticity of the products they buy, and brands can safeguard their reputations. 

Tune in for our upcoming webinar, “Counterfeits: The Silent Killer of Brand Reputation” to find out more about advanced technologies and strategies for strengthening your brand security and consumer trust.