The Rise and Risk of Counterfeit Products

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Counterfeit products are nothing new, but today, with the continued rise and impact of influencer culture and increase in market vulnerabilities, they pose a greater threat than ever.

With the cost of living continuing to bite hard and consumers increasingly targeted with consumer products (including counterfeits) on social media channels, Adem Kulauzovic outlines how brands can protect their business from illicit trade, and raise consumer awareness of the risks associated with counterfeit goods…

The rise of counterfeits

Globally, total counterfeit sales each year are estimated to be around $1.7 to $4.5 trillion. Fake products make up 5% of all goods imported to the EU and, in certain regions, could make up as much as 40% of all goods sold. While counterfeiting is not a new problem, it is undoubtedly increasing. Data from the Pharmaceutical Security Institute shows that illicit trafficking of medicines in 137 countries increased by 38% between 2016 and 2020, with the bulk landing in North America, APAC, and Latin America respectively.

When purchasing counterfeit goods online, young people are particularly susceptible, driven by a lack of spending power compared with older generations, price rises at luxury brands, economically-driven financial difficulties, and “thrift culture”. Indeed, among 22,021 people aged 15 to 24 that the EU Intellectual Property Office surveyed in 2022, 37 per cent of respondents said they bought at least one fake product in the previous 12 months, up from 14 per cent in 2019.

Counterfeit products and materials

Counterfeit products can be divided into two categories – deceptive and non-deceptive. A non-deceptive counterfeit can be easily identified as a fake product from its price, quality, and sales location. For example, consumers know it’s a ‘buyer beware’ type of situation when dealing with certain online sellers who offer high-end luxury brands for a fraction of the retail price.

In 2021, a report for the Intellectual Property Office found that the role of influencers was key to affecting consumer purchases of non-deceptive counterfeit products. Of 1,000 women aged 16 to 60 surveyed, 13% said social media endorsements had prompted them to buy counterfeit products, while some websites are actively advertising ‘dupes’ on social channels.

Conversely, deceptive counterfeit products are often identical to authentic products in price and packaging but not in quality. Consumers place orders for items they believe to be genuine but receive something else – something substandard that may break after a few weeks of use and, in a worst-case but very real scenario, cause them direct harm.

A recent US Government Accountability Office test suggested that as many as two of every five brand name products available online through third-party retailers may be counterfeited. Other studies indicate that over 25% of consumers have unknowingly purchased counterfeit products online.

Counterfeit products aren’t limited to high-end designer brands, electronics, and fashion. Some of the most common counterfeit goods on the marketplace include medication, supplements, makeup, and skincare – with the influencer market particularly active in the promotion of these latter items.

Business & consumer impact

The creation and sale of counterfeit products may impact a business in many ways – from an initial loss in sales to damaged relationships with business partners. Counterfeiters also leave legitimate businesses to deal with the fallout from counterfeits, necessitating significant investments in both time and money.

Counterfeit products pose a significant threat to consumers. A counterfeit lipstick or perfume might seem innocent – but such products are regularly found to contain harmful or untested ingredients, making them entirely unsuitable for their intended use – with potentially devastating effects.

Indeed, some of the most dangerous counterfeit items are cosmetics.  In recent years, fake cosmetics have been found to contain hazardous materials, including “cyanide, arsenic, mercury, lead, urine and rat droppings”. Figures from the National Crime Prevention Council (NCPC) state that fake goods cause around 70 deaths and 350,000 serious injuries yearly in the US.

Taking collaborative action

The most effective approach to combat counterfeiting is a collaborative one, where supply chain partners, consumers, and authorities work together to detect counterfeit products, share intelligence, and prosecute offenders. For businesses, a great place to start is in ensuring that products are equipped with unique identifiers which can be used to verify that a product is legitimate and that its source materials and ingredients are traceable and authentic.

In recent years, countries across the globe have introduced legislation requiring unique identifiers and product-level serialisation in specific sectors, including prescription pharmaceuticals, medical devices, tobacco, and over-the-counter medicines, to facilitate track and trace, and stop illegal, stolen, or counterfeit products from persisting in the supply chain.

These regulations are supported by databases and systems which facilitate the track and trace of serialised products to allow retailers to check the efficacy of their goods. The same technology can be used as best practice to provide this capability to logistics partners, retailers, and consumers, whether or not a brand is required to do so by law.

A serialised, smartphone-readable QR code or Data Matrix code can also be used by consumers as a vehicle to verify the authenticity of a product. Once on the product packaging, a 2D code can direct consumers to a website to verify its legitimacy. Counterfeiters can easily replicate the look and feel of product packaging – but will be unable to create a QR code with unique and valid serialisation capable of tricking legitimate systems into validating it as ‘authentic’.

For smaller businesses, the daunting expenses and extensive efforts involved in managing serialised codes for effective product tracking along the supply chain have rendered the notion of implementing such solutions distant and unachievable. However, in recent times, an increasing number of logistics providers have recognised the significance of upholding their suppliers’ brand reputation. For that reason, many of them are now offering services, e.g., Amazon Transparency, to provide unique numbers and track those numbers through their shipments for a small fee.

In parallel, technology firms specialising in traceability services are experiencing a rapid ascent, offering comprehensive turnkey solutions that seamlessly integrate into existing production lines. While the prospect might initially appear financially prohibitive, a multitude of providers present viable alternatives by furnishing hardware, assistance, and overall maintenance for their traceability packages at an affordable monthly rate. This shift from CAPEX to OPEX investment has democratised the accessibility of advanced traceability measures for many.

Conclusion

The fight against counterfeits is global and reaches every industry, from industrial goods, electronics, and automotive to food and beverage, life sciences, and personal care. Today, with economic pressure on the cost of living and the rise of the social media-led influencer culture, the risk of counterfeit products is more real than ever.

Facilitating traceability and transparency in global supply chains and increasing consumer awareness of product authenticity will be key for both regulated and unregulated sectors. To remain resilient, brands should collaborate with supply chain partners, fighting counterfeits through product identification and data sharing.