- One of audio brand Sennheiser’s executive board members Volker Bartels talks about how the company combats counterfeiters
- Director of anti-counterfeit shopping directory Brand-i, Jenny Dalton, discusses how being open about counterfeits to consumers can make your brand stronger
- Click here for the creative perspective from Pitch
A new wave of black market operations is taking counterfeiting away from market stalls selling poor imitations of luxury goods into three distinct new territories – sophisticated imitation websites, search and social media communications; low-cost everyday consumer goods; and bogus branded retail outlets.
As much as 5-7% of the world merchandise trade is fake, according to the International Chamber of Commerce. This statistic has prompted the UK government to take action, with culture secretary Jeremy Hunt last week unveiling plans to increase pressure on search engines and internet service providers to close down fraudulent sellers, along with a proposed industry body to better identify counterfeit websites.
But what can brands do to prevent online traffic, store footfall and even product revenues falling into the hands of counterfeiters?
Marketing Week talks to those businesses bringing brand protection closer to their marketing strategies in order to win the fight against the fakers.
Online counterfeiting is forecast to cost businesses $135bn (£85.6bn) this year, according to research from corporate security business MarkMonitor. The threats range from the likes of Google and eBay inadvertently allowing counterfeiters to use their sites to reach consumers and fakers buying search keywords trademarked by rivals to fraudsters setting up bogus online retail sites.
Deborah Greaves, general counsel for luxury jeans brand True Religion, says the company “has seen a definite transition from bricks and mortar counterfeit sales to online”. She notes: “One of the reasons online fraud has exploded is because it’s easier for the counterfeiters to maintain their anonymity.”
It is not just people selling bogus denim through sites like eBay that concerns Reeves; she sees entire fake retail websites claiming to represent the brand and its products.
“The people running these counterfeit websites are putting a lot of effort into their marketing. They claim they are authorised factories and the items being sold are excess stock,” she says. “They are even lifting content from our actual websites. A consumer who is looking for a deal on jeans is going to go for it.”
Global counterfeit market values
Electronics $100bn (£63.3bn)
Prescription drugs $72.5bn (£45.9bn)
Food $49bn (£31bn)
Automotive parts $45bn (£28.4bn)
Toys $34bn (£21.5bn)
Clothes $12bn (£7.5bn)
Shoes $12bn (£7.5bn)
Sporting goods $6.5bn (£4.1bn)
Tobacco $4bn (£2.5bn)
Cosmetics $3bn (£1.8bn)
Weapons $1.8bn (£1.1bn)
Alcohol $1bn (£63m)
Watches $1bn (£63.2m)
Pesticides $735m (£463.8m)
Purses $70m (£44.2m)
Lighters $42m (£26.5m)
Batteries $23m (£14.5m)
5-7% of world merchandise trade is counterfeit
240,000 visits per day – the combined traffic to 48 selected sites selling counterfeit goods
141,000 visits per day – the combined traffic to 26 selected sites selling counterfeit prescription drugs
98,000 visits per day – the combined traffic to 12 selected sites selling counterfeit luxury goods
$25 million revenue – the amount generated by 6,000 suspect sites selling around 1.2 million sports shirts and jerseys, attracting 56 million visits a year
Sources: International Chamber of Commerce; 2011 MarkMonitor BrandJacking Index; Online Piracy and Counterfeiting report January 2011
Online faking poses more of a challenge than physical distribution of bogus goods, Reeves adds, because it is easier to press criminal charges against someone running a counterfeit store or stall than it is someone who runs a website, whose physical whereabouts and even identity can be hard to detect.
To fight this often unseen threat, True Religion has developed a comprehensive anti-counterfeiting strategy involving the combined efforts of its marketing, IT and legal departments. The tactics employed include security tools, providing customer information on their own sites, naming and shaming counterfeit sites, working with MasterCard to suspend dodgy merchants’ accounts and persevering in acting against fake Google search results.
Reeves admits that it is a multilayered approach, but insists that by making attacking counterfeiters a part of normal business, it is possible to keep the problem under control.
“When we see a counterfeit site come up in a search result, we notify Google so it will take that listing down,” Greaves explains. “Once you have done that a few times, it starts costing the counterfeiters more money to relist so they will have to either change their domain name or move on to a different brand. By continuing to attack them, they eventually give up.
“We have managed to contain what’s going on. It doesn’t go away but it’s not as bad as it used to be because we are so diligent – every day we are doing something to prevent it.”
It is not just Google and eBay that brands need to monitor for search terms or phoney goods. As many businesses are now investing significant sums of money into their social media operations, counterfeiters are now targeting platforms such as Facebook.
Jenny Dalton, director of anti-counterfeiting shopping directory Brand-i, agrees that social media sites’ display and targeting options mean they are increasingly becoming avenues for advertising counterfeit goods. “It’s certainly something anti-counterfeiting bodies are looking at more,” she admits.
Earlier this year, shopping site Dealzon saw a fake page set up on Facebook by a business called Grabswag, which posted ads under Dealzon’s brand offering iPads for just $11.37 (£7.20). Those people clicking on the ad were taken to Grabswag’s site, where they had to pay for each bid to ’win’ an iPad.
Dealzon’s co-founder Ian Ybarra claims that because Facebook makes money from people clicking on its ads it does not act quickly enough to shut down such bogus advertising.
“Facebook doesn’t have an incentive to shut this down,” stated Ybarra at the time, also claiming Facebook did not initially respond to his complaints about the false representation.
While there is no set legal precedent yet for faking ads or brand pages on Facebook, Kirsten Gilbert, a partner at law firm Marks & Clerk, believes that the principles of a court ruling earlier this year that eBay should not be exempt from liability if it is proved to have knowledge or control over companies advertising counterfeit goods on its site could also apply to Facebook.
Counterfeiters are often quick to work out what sells… Whatever is big in the real market will be replicated in the counterfeit scene
Gilbert adds: “We need to look at how people are using Facebook to sell counterfeit products. If it operates differently, those earlier judgments may not apply. This will be the next thing to watch to see what happens.”
Facebook, meanwhile, states that it has “stringent policies and processes in place” to deal with the issue. It says it filters ads before they go live to check their content and this is not allowed to violate copyright, trademarks, privacy or other proprietary rights.
In addition, Facebook says its users can “report adverts they believe infringe on their intellectual property”. People can click “fix this” on a branded page to complain it is not the official company page. Brands should make sure that staff updating and managing their social network pages make sure that “fixing” any such issues become part of their daily tasks.
Social network counterfeiting is not the only new area for brands to worry about. The arrival this month of the new .xxx web domain name for the adult entertainment industry may also have a negative impact on brands, which must come forward to exempt their name from the registry and prevent counterfeiters from falsely registering their brand.
Stuart Lawley, chief executive of .xxx parent company ICM, insists the registration processes have been formulated to safeguard the interests of legitimate brands, such as conducting checks on applicants to ensure they are the legitimate brand owner for the domain they are registering.
Marks & Clerk’s Gilbert agrees that there is little “scope for abuse” within the new .xxx domain, but Brand-i’s Dalton argues that the availability of more domain names means more opportunities for counterfeiters.
Fake everyday items
Although the internet offers endless possibilities for counterfeiters, many have turned their attention to everyday, low-cost consumer goods (see Q&A, below).
Brand-i’s Dalton says she has received reports of fake sports supplements, pet food and even bicycles. The China Daily published reports last year of counterfeiters trading fake Pantene, Head & Shoulders and Vidal Sassoon shampoos. The BBC also reported last year that this new wave of counterfeiting comes with tactics such as selling products at prices slightly under the genuine market rate to fool shoppers into thinking they are buying genuine brands at wholesale prices.
Not only are margins high for traders, but so are the risks for both consumers and brands. China Daily has reported accounts of consumers complaining of painful side-effects from digesting some bogus products. While brands might not be at fault, their names being implicated in a major health scare is enough to push the crisis management experts into action.
David McKelvey, director of investigations firm TM Eye, which works with jewellery brand Pandora to help prosecute counterfeiters, comments: “A lot of the fake Pandora stuff comes from China and is made from nickel and lead, so there are real public health issues around this.”
While Brand-i’s Dalton says the appeal for such small-scale products is that they are easy to replicate and ship, McKelvey suggests that counterfeiters are moving into more varied products in response to consumer trends and new market growths. If people are buying more low-cost products in these tricky economic times, these will be the ones fakers choose to imitate.
“Counterfeiters are often quick to work out what’s popular and sells. They’ll identify new lines and styles and they will get things manufactured in vast numbers,” he says. “Whatever is big in the real market will be replicated in the counterfeit scene. Counterfeiters are quick to pick up on make-up, clothing and technology trends.”
To protect its items from falling victim to such counterfeiting, German fashion brand Gerry Weber is deploying radio frequency identity (RFID) chips across its entire inventory.
The brand’s chief information officer Christian von Grone says the technology was introduced to keep in check suppliers that were purposely producing excess stock for unauthorised sale, as well as improving the efficiency and data quality of the stock counting process.
While von Grone believes RFID tagging is catching on across the fashion sector, he warns that brands must be careful about applying such technology to its whole portfolio. As the tags act as tracking tools, this can have implications for consumer privacy.
He notes: “It could be dangerous for customer privacy if you have RFID tags hidden without the consumer knowing. We have signs in the entrance of our stores and fliers at our counters explaining our use of RFID tags in our clothes. We incorporate our RFID tags into the care label and there is also a sticker on the garment
that advises the customer to remove the tag before wearing.”
Bogus retail outlets
Fake clothing or toiletries is one level of counterfeiting but replicating entire retail store branding, in-store formats and even products is now becoming an issue in China. The Wall Street Journal reported last month that brands such as Ikea and Subway had fallen victim to store copycats, whose detailed replication of fonts, logos, colours and layouts leave shoppers none the wiser.
Even gaming properties such as World of Warcraft aren’t safe – a Chinese theme park features a section that appears to be an unauthorised version of the game brought to life.
And Apple, which prides itself on the experience of its own-branded retail outlets, has succeeded in shutting down 22 imitation resellers that opened in China. Confusingly, these stores sold what appeared to be genuine products but under the facade of a bogus official store.
In addition to working with Chinese authorities to resolve the problem, Apple has recruited employees from Viagra-maker Pfizer to use the skills they gained from working with counterfeit pharmaceutical dealers to help it win its counterfeit battle.
While Apple has acted swiftly to counter this threat, other brands are still debating the implications of counterfeit stores. An Ikea spokesperson comments: “We see it as very important to protect our intellectual property rights and are dealing with this matter together with our legal counsels to evaluate whether this could be considered as an infringement or not.”
Meanwhile, Subway told the Wall Street Journal that brands need not be entirely demoralised by counterfeiting because the imitation may even go some way towards increasing brand awareness in such a crucial new market.
Marks & Clerk’s Gilbert says it is surprising to see such blatant new forms of fake activity considering that Chinese authorities are eager to improve the country’s international reputation and pave the way for its emerging high-end brands to enter lucrative western markets.
“A lot of pressure was put on China during the Beijing Olympics in 2008 to take better steps against counterfeiting to ensure Olympic partners weren’t going to be undercut by counterfeiters,” she notes. “But the Beijing Olympics were a few years ago, so perhaps this focus is waning now and that’s why these stores are popping up.”
Volker Bartels, audio brand Sennheiser’s executive management board representative, admits Chinese authorities are much more co-operative today in regards to counterfeiting than they were 10 years ago (see Q&A, below). But he urges brands not to rely on government intervention, noting that the brand’s success in tackling counterfeit operations comes from the strength of its own teams based in the country.
The value of genuine marketing
The majority of a brand’s anti-counterfeiting resources needs to be allocated to its technology and legal departments, but the role the marketing division plays in this strategy should not be underestimated.
As MarkMonitor’s BrandJacking report states: “This underlines the crucial role that brand owners and law enforcement personnel trained by brand owners play in determining whether a site is offering counterfeit goods. Technology can be used, but the in-depth market and product knowledge of brand owners is vital.”
The most important role for marketing is to educate the customer – to make the problem public and be in close touch with customers
Gilbert at Marks & Clerk confirms that there is a trend for marketing directors to speak more often to heads of legal because many are now incorporating anti-counterfeiting strategies into their marketing strategies.
She points out that policies around counterfeit distribution via Google and eBay are a result of brands voicing their concerns, so it is vital for businesses to be vocal about this issue because many consumers still feel buying fake designer clothes and accessories is acceptable.
Consumers will respect anti-counterfeiting activity by brands, according to Brand-i’s Dalton. “Brands have got to be willing to stick their necks out and talk about it – many companies don’t want to talk about it because they think it is going to devalue their brand to admit this exists,” she says. “We think it actually makes their brand appear stronger if they are willing to share this kind of information with their consumers. It can be a positive marketing tool.”
This view is echoed by Bartels at Sennheiser, who says the most important role for marketing is to educate the customer – to make the problem public and be in close touch with customers, through websites and social media, with advice on identifying fakes and what someone should do if they have inadvertently bought a fake. Customers are grateful for this advice, he says.
TM Eye’s McKelvey sums up: “By telling consumers about the actions they are taking to combat the threat of counterfeit goods, brands are making the huge budgets they spend on advertising a cost-effective brand investment and protecting both their income and reputation.”
Q&A: Volker Bartels, executive management board member of German audio brand Sennheiser
Marketing Week (MW): How much of a problem is online distribution of counterfeit goods compared with offline?
Volker Bartels (VB): Online sales are a bigger problem. We scan websites for fake product offers, we buy products advertised online that we think are fakes and check them. Once we determine it’s a fake, we close the website, take the person to court and make it public to let them know we won’t just let it happen.
MW: With many fake goods still coming out of China, what sort of operation do you have in that territory?
VB: We have people in place there who speak the language and know local customs. It’s very hard to monitor activity in China from a remote base – you have to be on the spot and work with local agencies. The Chinese authorities are much more co-operative than they used to be. The country has been trying to improve its reputation as a reliable trade partner. But this will only continue if brands speak up. If brands find it too intimidating to make this problem public, it will continue.
MW: What kind of resources do you dedicate to tackling counterfeit goods?
VB: Each year we have had to dedicate more budget. We have many people in our legal, marketing and engineering departments dealing with the problem. If we don’t fight this problem publicly, our reputation will suffer.
MW: What else can you do internally to discourage the production and sale of counterfeit goods?
VB: Speed is our asset – we can develop new products quicker than they are being copied. Once we know a product has been copied, we take it off the market and quickly come up with its successor.
Viewpoint: Jenny Dalton, Director of anti-counterfeit shopping directory Brand-i
Many consumers buy fake goods online without realising they are counterfeit. We get emails daily from people complaining that something looked legitimate on a website and they only realised they had been ripped off when they opened the package.
It is happening more frequently now because the retail websites that the counterfeiters set up look increasingly convincing. They steal the graphics and branding from the actual brand to make them look like the real thing. Both the Abercrombie & Fitch and Hollister counterfeit sites look exactly the same as the genuine sites. You have to examine the smallprint to realise that it is not the genuine brand site.
Clues are if the email address does not contain the brand in the server name, if the company is based in China, if the delivery time is over a week and if the seller is requesting money transfer by something like Western Union.
The requests we are getting from consumers are pointing us at new markets that we weren’t aware of when we first started. For example, headphones now take up a huge slice of the online fake market. Likewise, batteries and medicines are hugely counterfeited, and we’re getting lots of complaints about things like sports supplements and even pet food. It’s a much wider problem than brands and consumers are aware of.
Educating consumers should be a collaborative approach. They are, in fact, the key because if they turn against counterfeiters you reduce the demand and could get rid of the problem altogether.
Many companies think it will devalue their brand if they admit this problem exists. However, we think it actually makes their brand appear stronger if they are willing to share this kind of information with consumers. It can be a positive marketing tool.
Creative viewpoint: Seb Joseph
As technology advances, brands invariably become more vulnerable to counterfeiters, who are using more sophisticated tools every year to emulate well-known products.
To combat this, especially in the design sector, agencies need to work more closely with clients to make brand protection more aligned to marketing strategies instead of treating them as separate aspects of the same brief.
Design industry experts claim that more products than ever are being developed to emulate strong brands rather than blatant copying. These lookalike brands are particularly prevalent in the West, where the counterfeiting market isn’t the same as the Far East.
Legal loopholes make it difficult to prosecute against lookalikes, so increasingly agencies are trying to make their branding and design difficult to copy by investing in the definitive qualities that make a brand resonate with consumers.
Last year, design agency JKR did exactly this when it redesigned Guinness cans to feature a golden harp, bringing to the fore a brand symbol associated with the stout brewery for 250 years. JKR chairman Andrew Knowles explains: “The harp is unique to the brand and moves away from visual clichés, making it harder for other breweries to copy.”
With counterfeit products expanding online to everyday products and even retail stores, brands need to invest more in how they’re perceived by consumers and agencies can help with that. After all, brands matter and what consumers are prepared to pay for them is only what they perceive they are worth.
To see what design agencies Seymour Powell and Echo Brand Design had to say about counterfeiting, visit the Pitch blog here.