Counterfeiting stands for the creation of fake products to sell them as original ones. The economic impact of counterfeiting is massive. OECD estimated global trade in counterfeit goods to be more than $460 billion, which is 2.5% of global trade. Besides lost revenue, it can damage brand reputation and lead to a lack of customer loyalty.
Financial Losses for Brand Owners
Counterfeiting is commonly faced by various industries worldwide, such as medicine, fashion, electronics, and even groceries. Each of them loses billions each year because the market is flooded with fake products that steal sales from legitimate businesses. In 2020, counterfeiting cost the apparel industry €26.3 billion in lost sales annually. According to Altria Group Inc., forgery currently accounts for over 60% of the e-vapor market.
Businesses and governments often bear substantial financial costs as a result of legal disputes and operations against counterfeiting. As an illustration, in 2012, the U.S. The Department of Justice confiscated more than $1.5 million in earnings from the internet sale of fake sportswear originating from China. During this process, three domain names used for selling these fake goods were also confiscated.
Enterprises also lose money because of frequent returns and recalls related to counterfeiting. Customers often purchase such items without knowing, and then find various defects or malfunctions in them. After that, they file a return and place a complaint about a brand. The business not only pays twice for shipping and restocking but also loses customer trust in the long term.
Brand Reputation and Consumer Trust Erosion
Customers and business owners suffer from counterfeiting. The worst aspect is not loss of money but danger to consumers. According to the OECD, during 2017–2019, pharmaceuticals made up 5% of the global market for counterfeit goods, which implies serious threats to patient health due to their ineffective components.
How else can fake items harm those who buy them?
- Unregulated components included in fake beauty products may cause skin allergies.
- Fake vehicle parts can malfunction and lead to dangerous crashes.
- Counterfeit electronics may burn or overheat due to poor quality.
- Forged food and beverages may include toxic ingredients that cause poisoning.
As a result, business not just loses income, but also customers’ trust. Many customers may not realize the product is fake and blame the brand instead. This can lead to expensive lawsuits and scrutiny from government regulators.
For instance, in 2022 Amazon and Cartier filed a suit against a blogger and 8 companies that were promoting counterfeit Cartier jewelry. The items were advertised on Instagram and sold on various external websites. To avoid being caught, these counterfeiters listed generic products on Amazon using deceptive schemes, giving the impression that those items were authentic.
Undoubtedly, serious cases of counterfeiting will appear in the press, potentially damaging the brand’s public image. In addition, in our age of social media, information is spreading with the speed of a sound. So, all the unsatisfied customers quickly post negative reviews about the poor quality of brand items, not knowing those were fakes. Such word of mouth is never good for the original manufacturers.
Supply Chain Disruptions and Compliance Risks
The economic impact of counterfeiting doesn’t end with the reduced revenue due to the loss of customers. Such goods can enter legitimate supply chains through corrupt suppliers, untrustworthy distributors, or poor monitoring.
Forgery can occur when purchasing raw materials or from third-party vendors. This can lead to serious distribution problems in the supply chain, including delays, and product recalls. Also, this can potentially ruin business partnerships. In addition, supply chain problems can cause inefficiency and added costs, which can harm a company’s business.
What’s worse, when counterfeits are distributed on a brand’s network, the company is at serious risk of violating regulations and laws. Governments can impose enormous fines on brand owners for not stopping the sale of counterfeit goods, even if they did not know it was taking place.
Furthermore, regulatory bodies might demand large-scale investigations, which can slow up business processes. Violations of intellectual property or product safety laws can damage a company’s reputation and cause long-term problems, including limited market access or litigation.
The Hidden Costs: Innovation and Market Growth Slowdown
Since counterfeiting lowers the revenue required to invest in research and development, it considerably slows down innovation. Counterfeiters produce fake products without paying a high cost of R&D, so legitimate companies are less encouraged to innovate. As the companies gain less profits, they become discouraged from investing in new technologies and product improvements. As a result, technological progress and economic development are sabotaged.
Additionally, the economic impact of counterfeiting extends to efforts at expansion into new markets. Once fake products flood the market, the brand loses its presence and struggles to create and grow its market share. It becomes hard for buyers to tell what products are authentic, and what are fake. This leads to confusion and mistrust, also making it difficult to break into new markets, limiting prospects for growth and money-making.
In order to fight counterfeiting, companies have to spend more on security precautions, investigations, and authenticity verification methods. Employing advanced anti-counterfeiting technologies and legal actions is costly. These costs drain company resources and take them away from other important areas, such as product development and marketing, and affect overall profits.
How Brand Owners Can Fight Back Against Counterfeiting
Luckily, blockchain, AI, and authentication methods let companies fight falsification. By analyzing descriptions, photos, and price patterns, specific AI-integrated systems can effectively spot counterfeit goods in retail.
Blockchain technology provides a clear and reliable means of tracking an item’s path from manufacturer to customer. The users can verify authenticity through tamper-proof digital records. Advanced identification methods such as RFID tags give customers real-time access, therefore making goods more difficult to replicate.
Collaborating with law enforcement agencies and policymakers helps in fighting counterfeiting. Shared resources and information make it easier to detect counterfeit products and prevent their sales. For example, Amazon’s Counterfeit Crimes Unit works with brands and law enforcement to bring legal action against counterfeiters. Such partnerships are vital in the fight against piracy and consumer protection.
The newest technologies can also help brand owners in counterfeit protection. A lot of companies use cutting-edge invisible security features that make it hard for counterfeiters to imitate. They provide a discrete method for customers, merchants, and authorities to validate products while protecting product authenticity without changing the object’s look.
These technologies include:
- Invisible ink
- Thermal Markings
- Digital Watermarking
- Unique Product Fingerprint
- UV Markings
- Secured QR Codes
AlpVision: A Proven Anti-Counterfeiting Solution
Counterfeit protection is easy with AlpVision. We are the world’s leading provider of anti-counterfeiting technology. Our high-security cost-effective solutions are used in billions of branded items in various industries globally. They are massively employed in medicine, the alcohol market, tobacco, precious metals, lubricants, and almost any manufactured items imaginable. The goods can be verified for counterfeit with a smartphone.
We have been providing digital authentication technologies for 24 years. Our solutions can be found in products worldwide.
The product’s authenticity can be verified via smartphone without changing its look. To protect products from piracy, we integrate invisible security features into them. These features can’t be seen with the naked eye, making replicating the products hard. Validating the product as original involves special equipment, so invisible security features are often seen as the most reliable methods.
AlpVision offers cutting-edge solutions for invisible anti-counterfeiting.
AlpVision Fingerprint is an anti-counterfeiting solution that authenticates a product using the unique natural bumps and grooves on a product’s surface. No marking or alteration is needed – products are verified by scanning the surface with a smartphone app and comparing it to a digital database. AlpVision Fingerprint is most commonly used on molded plastics, electronic parts, and luxury goods.
Our Cryptoglyph technology uses micro-defects spread on printed items like packages, cartons, and labels. These pseudo-randomly printed markings are applied on the surface with no changes to the current product design and using standard inks.
As an enhancement to the traditional track and trace system, we have added an invisible anti-counterfeiting feature to standard QR codes. Our Secured QR Code technology incorporates microscopic holes into the black modules of standard QR codes when they are printed. The changes are invisible to the naked eye and don’t alter the code’s appearance or function.
To improve product authentication, we use AI in our mobile authentication solution. AI helps correctly differentiate between genuine and counterfeit products by analyzing surface patterns, hidden security features, and specific product attributes. You can easily check the product with a smartphone even if goods are damaged or the lighting is poor.
Our technologies don’t require additional labels, barcodes, or modifications. They also don’t require special paper or ink, so there’s no need to improve the production process. All of them are smartphone-enabled: you just place it over the product and scan it with our app.
To find the best counterfeit protection solution, contact AlpVision for a consultation. We’ll be happy to maximize security for your business.
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