Harvard Business Review Contribution.
To cope with this massive phenomenon, companies have to compete on both sides, supply and demand.
Medicine, electronics, shoes, clothing, car parts... Consumer goods in almost every sector are counterfeited these days by all types of businesses, including SMEs. It is a sector that reached $1,200 billion in 2017 and is expected to reach $1,820 billion in 2020. The emergence of e-commerce and major retailers such as Amazon and Alibaba have only made it easier to buy and sell counterfeit goods: 70% of all counterfeit products are now sold online. Encouraged by new technologies that speed up the process of manufacturing fake products at lower costs, many organized crime players have reoriented themselves into these highly profitable markets. This is even more alluring when the imposed penalties are often weak and do not serve to deter. For example, for every $1,000 invested, a criminal can generate between $200,000 and $500,000 from trafficking in fake drugs, whereas for the same investment, heroin trafficking brings in just 20,000 dollars.
According to the INPI, counterfeiting is defined as “the reproduction, imitation, or total or partial use of an intellectual property right without the authorization of its owner.” The range of counterfeit products extends from quality counterfeits (which resemble the original and illegally use the legitimate brand name) to look-alikes (imitations that duplicate the original product with a different brand name) and poor-quality, unconvincing imitations. Therefore, depending on the quality of the copy, the counterfeit may or may not be misleading.
Dangers for the Consumer
With deceptive counterfeiting, buyers often do not even know they are buying counterfeit products. These results are significant health and life threats. In the case of non-deceptive consumption, the consumer voluntarily and knowingly purchases the counterfeit product, thereby becoming an accomplice to the counterfeiting. This behavior is far from fringe; in France, 37% of the population (15 years old and over) declare having voluntarily purchased counterfeit goods, in particular clothing, leather goods, and perfumes.
Despite the risk, many consumers do not hesitate to buy fakes. Most often, they justify their purchase because they believe that the price of the original is unjustly excessive, an imitation offers better value, there is a limited risk, or the original product is not available in their market. Whether for luxury brands or companies in general, counterfeiting is a major threat. It weakens their reputation, reduces the demand for legitimate products, leads to additional costs to protect themselves, lower revenues and profitability.
Counterfeiting is a complex problem that requires mixed approaches. However, in order to define an effective anti-counterfeiting strategy, it is essential that all areas of the company (from upper management to manufacturing lines and sales teams) are aware of the risks and consequences of counterfeiting. This will enable the company to mobilize the right skills and put an organizational structure in place that is dedicated to the protection of its brands and products. By investing in the necessary human, financial and technological resources, the company can keep a step ahead of the criminals. An anti-counterfeiting policy is only effective if it consists of strategies and actions aimed at defending both legitimate businesses and end consumers.
Acting on the offer
The objective for companies is to implement anti-counterfeiting measures with better protection of the product, making it more difficult to copy.
Protect. First, it’s essential to protect all tangible and intangible assets through registered trademarks, patents, models and Internet domain names. This sends a strong signal to counterfeiters that companies will not stand idly by in the event of an attack. Secondly, companies must adopt new technologies that allow them to secure, guarantee and products:
- the blockchain: this technology allows owners and brands to link to their physical goods through a unique digital certificate;
- the Internet of Things (IoT) and connected objects: for example, Pernod Ricard puts a QR code on its bottles in China, enabling consumers with smartphones to quickly check the authenticity of the product;
- chemical tracers: the integration of a chemical substance in the product or its packaging also makes it possible to verify the authenticity.
- holograms: The Canada Goose brand parka uses holographic labels that are difficult for counterfeiters to reproduce.
Increasingly complex supply chains and the multiplication of players in a globalized market have made consumer goods even more vulnerable to counterfeiting. Suppliers and distributors should, therefore, be carefully selected and promoted as partners, as they are in direct contact with products and can better monitor sourcing, distribution, and delivery to prevent counterfeits from entering legitimate channels.
Some large companies have a department dedicated to the fight against counterfeiting. However, it is possible to implement an active defense strategy to identify the type and source of threats and assess them, regardless of the company’s size. A vigilant Internet watch must be maintained to monitor search engines, social networks, auction or classified ad sites, etc. It is also necessary to be vigilant in the field to analyze customer feedback or a suspicious drop in sales, for example.
Collaborate. Individual companies cannot win the battle against counterfeiters alone. Inspections are too costly and too slow in relation to their production and distribution systems, so cooperation between all legitimate players is essential. Companies must work together at the national and international level with appropriate organizations—government agencies, judicial and political institutions, police forces and customs services—in order to strengthen the protection of their rights, to implement means of surveillance of real and virtual markets, and to strengthen law enforcement.
They must also unite and participate in the functioning of associations set up to protect intellectual property rights and fight against counterfeiting on a global scale to achieve greater lobbying power. Additionally, partnerships with other brands, payment service companies, social networks, auction sites, and consumers are necessary to achieve stronger authentication and protection.
Defend. In order to defend themselves against counterfeiters, some companies have set up monitoring systems and investigative means, both internally and through external legal agencies. This is the case, for example, of the pharmaceutical company Sanofi, which created the Central Laboratory for Counterfeit Analysis (LCAC) in 2008 to analyze counterfeit medicines and disseminate its detection techniques in developing countries. In the event of proven counterfeiting, companies must react and have their rights recognized by prosecuting the perpetrators, whether they are counterfeiters, Internet service providers (blocking websites) or auction platforms. In 2007, for example, L'Oréal took legal action against Ebay to court for allowing the sale of counterfeit perfumes and obtained a financial settlement in its favor.
Acting on demand
Demand is one of the main causes of the scale of counterfeiting. Businesses, therefore, need to raise consumer awareness of the negative effects of buying these products, help them identify counterfeiters and counterfeit products, and emphasize the benefits of genuine products (including guarantees). Information on the dangers of counterfeiting is crucial to the success of any anti-counterfeiting strategy. Only then can the demand be curbed and consumers transformed into "ambassadors" of authenticity.
Inform the general public. The perception of counterfeiting varies by country and type of product. In the case of non-misleading counterfeiting, consumers tend to underestimate the differences between originals and copies. It behooves companies to reveal the hidden face of fakes (sweatshops and child labor, criminal organizations, trafficking in human beings) and to warn them of the risks involved, whether legal or safe. Studies show that awareness of these negative externalities can delay the purchase of a counterfeit product by the consumer. The documentary "The Fake Trade", the Lebanese integrated campaign "Fake It All", poster campaigns such as "Don't go on a fake holiday" are all initiatives that have proven effective. The same goes for event marketing: the Diesel jeans brand opened a DEISEL pop-up store in 2018 in New York to protest against copies.
In the case of deceptive counterfeiting, studies by the pharmaceutical company Sanofi have shown that consumers on all continents feel inadequately informed. It is, therefore, necessary to focus on risk awareness, vigilance training and recognition of fakes at the same time. For example, the #fakemed awareness campaign in the United Kingdom was a great success despite its limited budget, and in France, the Institute for Research into Anti-Counterfeit Medicines (IRACM) launched a serious game aimed at young consumers in 2017.
Finally, companies need to raise awareness among their employees, sales staff and distributors. The fight against counterfeiting is an ongoing effort. Brands need to be more inventive and innovative to do so. In the past, these products entered Europe via containers in the main ports and were thus easily identifiable. Nowadays, e-commerce is leading to fragmentation of shipments, and this has caused confusion. Faced with this new situation, companies will need to reorganize internally to protect and defend themselves and collaborate externally with the relevant bodies and consumers. Counterfeiting is a problem that is not going to go away overnight. This is because—as in all competitive markets—supply will always become available as long as demand is strong. This does not mean that companies cannot act to defend their rights and protect their products. Inversely, it calls for an even greater joint effort by all to protect legitimate products from fake ones.
This article is an English translation of a French article published In the Harvard Business Review " Comment mieux combattre la contrefaçon".