As technology grows and allows counterfeiters to closely reproduce more products, brands and retailers are in a continuous cat-and-mouse game to stop them. The same technologies that allow retailers to grow their businesses also allow counterfeiters to produce more fakes and easily sell them around the world. Organizations throughout the retail chain need to remain vigilant regarding the threats to their brand and what products are passing through their hands.
Counterfeiting is one of the largest underground industries in the world. According to the World Customs Organization, counterfeit goods account for nearly 10 percent of worldwide trade — valued at approximately $500 billion annually. Haydn Simpson, product director at brand protection firm NetNames, says counterfeiting affects all major industries and global brands, from luxury goods and pharmaceuticals to food and consumer electronics.
Counterfeiting is especially troublesome for high-end products in the fashion and clothing industry. The Department of Homeland Security reported that in 2012 alone, 500 million fake handbags, belts and wallets worth $1 billion were confiscated. Law enforcement spends billions every year to try to capture counterfeiters, but “It is a growing prevalent issue for every retailer and brand,” says Simpson.
The third-party risk
On the surface, counterfeiting could seem to only impact the bottom line of companies missing out on lost sales. David Price, NetNames’ director of pirating and counterfeit analysis, says it is an issue that can cause problems for parties throughout the retail supply chain, from manufacturing to distribution. Because many online retailers now enable third-party sales, they have to be especially careful they are not facilitating the sale of counterfeit goods.
“They want to be seen as a reputable place for commerce,” Price says. “It’s a problem retailers need to be aware of and they need [the trust] of the brand owners and of the consumers who are spending their money there.”
NetNames helps keep more than 1,200 global businesses one step ahead of scammers and counterfeiters. Its anti-counterfeiting services use proprietary technology with anti-counterfeit analysis and enforcement teams to detect and enforce infringements across all online channels.
NetNames works closely with owners to identify the nature of the threats on the Internet. The source of counterfeits, and how the counterfeit products are marketed and sold, may be different for high-end handbags than for sports team apparel. NetNames adapts and customizes its proprietary technology to suit the needs and characteristics of the brand, then uses an analytical process to scour the web in search of infringements.
Simpson says NetNames analysts “break down” the Internet into manageable pieces of intelligence, using a robust online enforcement team located in eight different countries.
“We use a proprietary technology to find the [counterfeiting] threats for the particular brand, then we give them the information to fix the problem or act on their behalf,” he says.
Another growing risk is “scam sellers” — sellers who simply advertise a product on a website, then take the money and run. Simpson says it can be especially problematic before the holidays or immediately before and after the launch of a high-demand product.
NetNames noted an explosion in deals on the latest PlayStation 4 and Xbox One consoles during the months leading up to the 2013 holiday season, with more than 100,000 scam listings across marketplace sites. The high demand for the product and limited supply meant that some consumers were willing to take chances they normally wouldn’t to get the product in time for the holiday.
“It’s a common problem you see early in the consumer electronics lifecycle,” Simpson says. “They simply take your money and supply nothing. You wouldn’t even get an empty box.”
Brands can’t be held liable for the crimes that counterfeiters or scammers perpetrate, but it can still leave an awful brand perception in the eyes of victimized consumers. Simpson says one of the easiest ways to identify scam sellers are improbably discounted prices. If big-box stores are selling a product for $400 and an online independent seller is offering the same product for $250, something’s wrong.
“If someone is selling [electronic products] pre-release for a third of the price from a territory such as China, it’s usually an indicator of something,” says Simpson.
Brands that want to fight counterfeiting first need to have a comprehensive understanding of the threats they face and the way that the Internet can facilitate the distribution of counterfeiting. They also need to ensure that their supply chains are secure — NetNames has encountered factories that manufacture real goods during the day and produce counterfeits on the night shift.
Even when offenders are identified, it isn’t possible or practical for brands to go after everyone. NetNames helps clients make strategic enforcement decisions by offering in-depth analysis services to find, profile and enforce action against key infringers.
“The understanding of the threats and offenders feeds into the decision-making process of how to best protect the brand and how to create a robust anti-counterfeiting policy,” says Simpson.
Finding counterfeits starts by scouring the web on a regular basis and monitoring advertisements and promotions. Another tactic is to scan paid search ads that appear with terms relevant to a brand’s products. Enforcement generally starts with the biggest offenders and the counterfeit goods that generate the largest sales by dollar volume.
Counterfeiting and brand theft also carries into domain names, where criminal organizations “squat” on sites with similar names; consumers misspell the name and wind up at a fraudulent site that attempts to obtain their payment information. Price says scam sellers and counterfeiters often list their wares on reseller sites, rogue or independent websites and unauthorized profiles on social media sites to steal customers and sell counterfeit goods. Some even use unauthorized mobile apps that lead customers into being defrauded or buying counterfeit goods.
No matter how they are perpetrated, these actions can result in a loss of revenue, reputational damage and brand dilution.
“It’s about having good product knowledge and being vigilant through software and human analytics that will allow you to make educated and informed decisions as to what is a scam and what is not,” says Price.
Price point is a common indicator, but other clues can be found in the design, labels and stitching of luxury handbags and apparel. And because those who deal in counterfeit products are often trying to move large volumes with multiple listings, catching one bogus listing can lead to hundreds, if not thousands, of others.
“Some products are easier than others to determine if they are counterfeit or not,” Price says. “With handbags or the fashion industry, you can often tell by the country of origin and the photo.”