The Counterfeit Problem
The Value of the Counterfeit Market
The scale of the Global Counterfeit Market has been estimated at between 5 - 7% of world trade</u>. More specifically, the US Government estimated that the counterfeit market in 1996 was valued at $200 billion (US businesses only). An OECD report estimated the world market for counterfeit trade at $250 - $350 billion in 1995. This chart extrapolates world trade and the counterfeit market to the year 2000 and suggests a figure of $560 billion. Assuming the year 2000 estimate of counterfeit goods is correct at $560 billion, and that this represents 5-7% of world trade this defines the amount of world sales vulnerable to counterfeiting at between $6-$8.4 trillion.It is also the case that despite an estimated street value, for counterfeit items, of around a half a trillion dollars annually, total spending on anti-counterfeit strategies totals only around $45 billion. This, however, may not not be as strange as it seems at first glance. It equates to a little less than the maximum benefit that 100% effective counterfeit techniques could be expected to deliver in terms of increased sales. In other words it is a recognition that for every 10 counterfeits you prevent, only one extra sale will result. The other 9 potential customers are not prepared to pay the price so they either do without or buy a cheaper alternative. Clearly, if this is true, then corporate finance directors would not tolerate - given a choice - spending more than, say, a million dollars on a problem whose solution will only net a million dollars.
One obvious conclusion is that any prospective solution must cost no more than manufacturers are already spending. It should also promise either significantly better results or significant savings for the same level of protection. Preferably it should offer both significant savings and considerably better results. There are two other factors which, in our experience, influence anti-counterfeit budgets. First is the effect of "bad" counterfeits on Brand value, either through poor quality or safety related shortcomings. Second is the increasing tendency for governments to insist on accountability, to the extent that proposed legislation on both sides of the Atlantic may soon have the effect of making Brand Owners liable for damages caused by counterfeits if a court should be satisfied that the manufacturers have put insufficient effort into making their goods difficult to counterfeit. Both these factors could potentially increase anti-counterfeiting budgets above the commercial payback level but would nevertheless be unavoidable. As yet, however, there is no sign that these pressures have begun to increase spending.
Counterfeit Online
The Internet offers a relatively anonymous outlet for the sale of counterfeit goods and some 4-8% of Internet sites are overtly advertising counterfeit goods. Not surprisingly, several studies suggest that a key concern for consumers who have yet to make their first web purchase is the doubt raised by the frequent stories of fraud (of various kinds, including counterfeit) taking place on the the internet. Clearly anything which helps to allay such fears is going to benefit not just merchants trying to sell their wares online but the consumers who buy them and the economy in general.
Two Different Counterfeit Markets
Finally there are two distinct markets for counterfeit goods and they require radically different approaches. The first is the straightforward "full deception" (FD) market, where the counterfeiter attempts to persuade the consumer that they are buying the real thing - often at or near the full normal retail price. Here, the counterfeits need to be of at least apparent comparable quality to the original with identical packaging, logos etc.
The other market is the "co-conspirator" (CC) market, where the consumer "more or less" co-operates with the counterfeiter. The consumer knows, or is pretty sure, that the goods are not the real thing, but is more than happy to take a counterfeit at a fraction of the price of the real thing, providing that the counterfeit is likely to be of real value. The most obvious and widespread examples of traded goods in the CC market are software and music, where the digital copies are likely to be 100% as good as the originals.
$10 Rolex watches and fake Nike trainers or Levis generally sit at the CC end of the scale. (Most people know they're buying a fake but, if it looks good enough to pass for real and doesn't fall apart in their hands then the "status" it brings can supply sufficient self-justification for the purchase.) The counterfeiter is, of course, always on the lookout for the gullible consumer who might even be enticed to part with near full price for the goods (or half price with a convincing storyline to back up the reason for sale) so sometimes these counterfeits edge towards the FD market.
Tackling the CC counterfeit problem is vastly more complex than the FD counterfeit. With the FD items, we are closer to the "banknote" scenario in that you have the consumer on your side. The Brand Owner and Consumer share a vested interest in ensuring that the product is an authentic branded item. CC consumers, of course, are more inclined to share the interests of the Counterfeiter.
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