Taking on the counterfeiters

Fakes exceed $700 billion


One of the world’s most serious concerns is that of Brand Theft. Addressing and countering this problem involves a complex framework of technologies, communication, supply chain management, legislation, policing, enforcement and consumer protection combined with industry-wide initiatives and, quite often, nations acting in concert.

In polls conducted at various seminars, conferences and industry meets over the last few years, it has emerged that everybody’s overwhelming concern and the one issue just about everyone wants discussed most urgently is brand theft.

There are various forms of brand theft. Some of the most important of these are:
– Counterfeit products
– Look-alikes
– Duplication
– Substitution
– Diversion or unauthorised distribution
– Organised retail theft
– Tampering with or without terrorist intent
– Returns and warranty fraud

Of these, the predominant concern and the one that causes the most damage is counterfeiting, which takes various avatars. We could have counterfeit products in genuine packages, genuine products in counterfeit packages or a completely counterfeit system with counterfeit products in counterfeit packages.

Brand theft could have implications ranging from loss of sales, loss of product “premium”, liability risks, irreparable damage to brand or corporate image, serious erosion of brand equity (that takes years of effort, massive financial investment and commitment of resources to build up), product recalls, punitive statutory or legal action and public disquiet and outrage all the way to widespread injuries, impairment of health or even fatalities. Recently, fears of product tampering with terrorist intent have also assumed serious proportions and new legislative measures or directives are being implemented to address this concern. The infamous 1982 Tylenol tampering incident that led to multiple deaths and withdrawal of entire batches of the product from the market caused a major upheaval in the packaging world and highlighted just how serious this threat could be!

The problem is universal and affects every one of us. In fact, with the proliferation in e-commerce and the slew of “bargains” we now see being offered on the internet, one is never quite sure whether the product being supplied is the real Mckoy.

Just how serious is the problem? Estimates on the size of the market for counterfeit products vary from 8% to 10% of world trade (the International Chamber of Commerce puts the figure at 8%). If one considers that global trade is presently estimated at some $ 8 trillion, the counterfeit element is a staggering $ 700 billion or more. What is even more frightening is that this market is supposed to be growing @ almost 15% per annum (i.e. about 3 times the rate of growth in world trade). It was once believed that counterfeiting was more rampant in the case of more expensive products but, contrary to this perception, Procter & Gamble have reported that the highest incidence of fakes they come across is for one of their cheapest products – the hair care sachet that retails for less than 10 cents each. P & G estimate their annual losses attributable to counterfeiting as $ 225 million.

Table 1 shows Pira International’s estimates of segment-wise distribution of counterfeits. Of special concern is the pharmaceutical market where the wrong product or lack of active ingredient actually results in many cases of large-scale deaths. One estimate claims that about 10% of drugs on the South East Asian market are spurious; in China, the authorities estimate that, for some drugs, the counterfeit element is as much as 50%.

The accompanying chart gives the impact of counterfeiting on brand values as presented by Dr. Llewellyn of AWA at the recent Info Label 2006 conference.

Another prime target of counterfeiters is tobacco products. According to a major US manufacturer, the number of counterfeit cigarettes produced in China alone total 100 billion units per year; this is equivalent to one-third of the total market in the USA. What is more, about 5 years ago, it was easy to identify the fake products because of poor packaging and presentation quality but now the average consumer cannot make out the difference.

One of the problems is that, more often than not, by the time the fake is detected, the damage is already done – the product has already been sold or even used (sometimes with disastrous consequences). Therefore, it becomes important to not only authenticate brands and products to ensure that consumers buy only the genuine article but also to detect the presence of spurious products in the system and to trace and apprehend the perpetrators in question. Hence, industry uses two kinds of approaches – overt devices (e.g. holograms, colour-shifting inks, watermarks, security threads and intaglio printing), which can be identified by even relatively lay and untrained people like consumers without the use of sophisticated methods or  detection equipment, and covert devices (e.g. taggants, security fibres embedded in substrates, hidden print marks etc.), which are aimed at concealing the fact that the product is being tracked and can be identified only by designated or trained personnel using special detection equipment.

The use of overt technologies necessitates that consumers or potential buyers, retailers and policing authorities be educated on how to identify genuine products; in the process, counterfeiters are also aware of exactly what devices are being used. On the other hand, while covert devices ensure that counterfeiters are not aware of the “surveillance” or how it works, they cannot help consumers or retailers to authenticate products at the point of purchase. Each approach has it’s own utility and, quite often, one sees both kinds of methods being used together.

Time was when a complicated enough print design using a large number of spot colours (especially by rotogravure or flexography) was sufficient to thwart producers of counterfeits or look-alikes because there were a very limited number of convertors with the requisite printing capabilities to reproduce it. However, with the rapid development of digital pre-press processes and an abundance of relatively low-cost presses capable of effectively “copying” tricky graphic designs and delivering good print reproduction, this approach is no longer a good enough deterrent. In fact, at the rate at which technology development is taking place, most anti-counterfeiting devices give original manufacturers at best something like a 6-month lead before they are mastered by counterfeiters. Hence, experts aver that the only way to stay ahead is by using a combination of overt and covert technologies and by frequently changing the devices being employed to keep ahead of the game. In a recent report entitled “Combating Counterfeit Drugs”, the USFDA points out that both prescription drugs and OTC products are at risk. Although the USA is well regulated and considered better protected against counterfeiting, in May 2003 alone, almost 20 million doses of Lipitor had to be withdrawn from the distribution system. FDA strongly recommends a multilayer strategy that combines multiple overt and covert technologies along with RFID and constant rotation of packaging strategies as the best defence against counterfeiting.

Ensuring brand security and product authentication is an expensive and, sometimes, heart-breaking business but, if one values one’s reputation and acknowledges that the value of even the most carefully built up brand can be destroyed overnight by a single unfavourable incident, one has really no alternative to protecting oneself against brand attack. The more valuable or expensive the brand, the more vital it becomes.

Furthermore, with mandates on suppliers like those from Walmart and the US Department of Defense and on manufacturers and retailers like those from the USFDA and EU authorities that demand efficient traceability across the entire supply chain, this necessity will only intensify.

As a well-known manufacturer of security devices puts it, “if you can make it, someone can fake it”!

In forthcoming issues, we will evaluate various options available and track the developments and trends in this area.

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