The Cost of the Counterfeit

November 21, 2019

The Cost of the Counterfeit

How Much Does Counterfeiting Cost Your Business?

By Garth Zambory

The global counterfeiting market is expected to reach a grand total of $1.82 trillion by 2020, resulting in significant loss for the millions of companies affected. The continued rise of counterfeiting is due in part to globalization and technology advancements that make it easier for bad actors to evade detection and keep fakes in circulation. In today’s expansive global supply chain, perpetrators have more opportunities than ever before to compromise product before it reaches the end user. In 2017, online counterfeiting alone amounted to $323 billion in losses. But besides a loss in sales, where else is capital drained when a compromised good makes it to market?

Direct Costs

In today’s expansive global supply chain, perpetrators have more opportunities than ever before

to compromise product before it reaches the end user.

When counterfeits reach the marketplace, whether online or brick and mortar, companies lose large numbers of customers. Brands in certain sectors, such as the luxury goods market, are disproportionately affected. In fact, fake luxury merchandise accounts for 60-70 percent of the total trade of fakes, which equates to about $30.3 billion worth of sales lost.

With more modern consumers harnessing digital forms of payment like Venmo and PayPal, and more online marketplaces such as Instagram and Facebook, the opportunity for counterfeiters has never been greater. According to Ghost Data, Instagram is an ideal platform for counterfeiters to set up shop, advertising via the Story feature, which disappears after 24 hours to protect their name from being discovered by law enforcement.

Liability Costs

While a direct loss in sales is harmful, liability costs are arguably even more costly, particularly in industries where consumer safety is on the line. For example, pharmaceutical manufacturers have an obligation to conduct business under civil tort law and take a proactive approach to counterfeiting. Furthermore, they could be held liable for injuries suffered by purchasers of defective goods if the counterfeiting was foreseeable, if the company took part in creating the risk, or if the company failed to take reasonable action to reduce that risk.

There were 4,405 counterfeit incidents concerning pharmaceuticals in 2018, up from 196 in 2002. In some cases, these drugs were found with traces of toxic substances. With such an expansive global supply chain, global traceability is essential in order to protect patients and companies alike.

Brand Costs

When consumers purchase goods they believe are genuine, but are in fact counterfeits, brand equity suffers. When a product malfunctions or fails to adhere to expected quality standards, the dissatisfaction that results is then attributed to the brand. In fact, 73 percent of consumers that discover a product purchased at full price was inauthentic stated they would stop buying from the company that sold it, 67 percent would try to return the product, and 63 percent would tell friends and family about their negative experience.

Amazon, in particular, has been facing numerous accounts of fraud on its site, with many counterfeiters still registered and listed as “ships from and sold by”. For instance, Jessie Steele started selling unique aprons and mitts via Amazon in the late 2000s and stopped in 2014 as her annual sales fell from around $5 million to around $500,000 due to competition from businesses copying her products and selling them under her name. Amazon is trusted by millions of buyers, but its massive scale makes it challenging to regulate the integrity of every item.

Inventory Costs

Rebounding from a counterfeit does not end when the affected product is discovered. Rather, negative effects linger internally for quite some time. When a fake product adorning your logo hits the marketplace, you may experience an increase in negative reviews and product malfunctions that are falsely associated with your brand. In the wake of this negative sentiment, demand falls out of alignment with operational costs, often resulting in excess or expired inventory.

Harnessing Product Security & Traceability to Combat Counterfeiting

The cost of a counterfeit is immense, from a direct loss in sales to an indirect hit to brand equity. Counterfeiting is enough to bring a company to bankruptcy—but its risks can be mitigated with the right solution. ProLinc® by Ashton Potter is designed to affirm the authenticity of every item throughout the global supply chain by pairing complete product serialization with scanning technology that creates a comprehensive genealogy for every product in circulation. Contact Ashton Potter today to see how we can help you combat counterfeiting in your business.

Tags: , , , ,