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Protecting Brand Integrity Online: A New Approach
December 21, 2007
A New Approach to a Monstrous Problem
By Travis Brown
The "It was the best of times; it was the worst of times" quote from Charles Dickens precociously puts a finger on the tension underlying the enormous growth in e-commerce today.
A merchant or seller of any kind can now offer his wares to every shopper in the world with an internet connection through a virtual storefront. But scam artists—selling fake goods marketed as authentic—can also set up these virtual storefronts and offer wares to that same audience. Never has the enormous equity built into major brands been so vulnerable to destruction by pirates of all sorts. E-commerce is now a battleground for asymmetric commercial warfare.
Only recently has a technology been available that can suppress the sales of fakes and harness the power of consumer choice to redirect sales along the path of demand for genuine goods.
E-Commerce: E-Perfection or E-Nightmare?
Good news: E-commerce retail sales in the US are growing at about 20 percent a year—six times the rate of growth in the underlying retail economy.
Bad news: Online sales of counterfeit goods are growing at twice the rate of all online sales. At current growth rate, counterfeit goods will outstrip sales of legitimate goods online in 2010 about 3:1. This is very bad news for any brand owner, manufacturer, or honest seller of legitimate product.
Unfortunately, the dynamics of e-commerce create a uniquely favorable environment for scam artists. Here's why:
• Sellers tend to have more information than buyers, but this effect is amplified on the Web. The legendary cartoon showing a dog on a computer explaining to another dog best illustrates this issue: "On the internet, no one knows you're a dog." In other words, reputational markers of the brick-and-mortar world—location, inherent promise of permanence, community reputation, etc.—are missing on the Web. This creates an immediate disadvantage for consumers and scammers flock to this environment
• Powerful trends make counterfeiting a high-reward, low-risk crime for a number of reasons. For one, digitization of photos and other media make copying easy. The massive production capacity in China and elsewhere means factories will bid very low for extra work. In addition, consumers place a high importance on brand names, which only further validates the desirability of goods, especially luxury ones. Lastly, the prevalence of search engines as a gateway to online shopping means traffic can be manipulated in new ways.
• Globalization of manufacturing, increasingly complex supply chains and porosity of national borders all mean that customs departments face a number of challenges in stopping the global trade of "fakes." In addition, the Internet is ideally suited to protecting the anonymity of the operator behind such trade. Web sites are easy to set up, easy to take down and scam operations are easy to relocate. Local police are no match for this.
The Internet can be a tough and frustrating environment for owners and sellers of name-brand merchandise and for those consumers who want authentic goods but don’t want to pay more than market price. It’s a lose/lose/lose proposition for these brand owners, honest online merchants, and consumers who still want to buy genuine goods. The only winners are the bad guys.
Limits of Conventional Approaches to Suppressing Sales of Fakes
So what can brand owners do to combat this threat to their most valuable property—the integrity of their brands? Let's start by listing what they have done in the past. Common tactics include:
• Hiring private detectives to chase down counterfeit product and determine its source and path through the distribution chain. If these investigative efforts yield real information, they attempt to build legal cases (civil and criminal) against counterfeiters and their distribution chains, despite the near impossibility of getting jurisdiction over the most effective counterfeit producers.
• Lobby governments to deploy resources against the problem—more and better trained customs agents, better intelligence to go after counterfeiting rings, higher awareness of the nexus between counterfeiters and organized crime and even terrorist groups, consumer education, etc.
• Build harder-to-counterfeit products, either by high technology (microscopic ID tags, hidden serial numbers, etc) or low technology (some luxury goods manufacturers make their product more labor-intensive to manufacture, making it more expensive to copy).
• Employ various authentication tactics to help police and other experts identify genuine products.
What do all of these tactics have in common? They are all essentially reactive, attempting to go after the fake goods after they have already been injected into the stream of e-commerce. And they are effective in capturing only a very small percentage of the amount of circulating illicit goods. These actions resemble the popular Whac-A-Mole arcade game—as soon as one is whacked, another pops up.
A New Ally: The Consumer
Brand owners need to get smart about harnessing the power of consumers to express their preferences for genuine goods. But wait: aren't consumers the problem? Don't they buy the fakes? Yes and no.
There is a certain sector of consumers that knowingly want to buy a fake Hermes or Gucci purse, but a much larger proportion of consumers want to buy the real thing at a good price, and are frustrated by the difficulty of how to do that without risk. The increasing rate of counterfeit sales does not necessarily reflect demand for fakes: it reflects the low level of reliable, transparent information on most e-commerce sites and the ease with which illegitimate sellers can camouflage themselves as legitimate.
How Does this Work?
The simplest and most powerful way to enable consumers to discriminate between real and fake goods is not to focus on the goods, but on the merchants. Instead of chasing "bad" merchants, consumers need to be able to identify "good" merchants. One firm that does this is buySAFE, Inc. When buySAFE, Inc. allows a merchant to display the buySAFE Seal, it means that the merchant has been inspected by buySAFE, is determined to be trustworthy and is continuously monitored to keep that status. This way, the customer knows in advance that she takes no risk around buying a fake, or any other breach by the merchant.
This simple solution flips the existing situation on its head. Armed with reliable information to identify good merchants, consumers who choose to buy genuine can now do just that…with confidence, safety and peace of mind.
How to Defeat the Barbarians at the Gate
The most effective way to harness millions of online decision makers to tilt the market back toward legitimate product is for suppliers to insist that their e-resellers become bonded by a third-party trust company as a condition of being an authorized reseller for that brand. This will revolutionize the marketplace to let the consumer buy real goods without risk, without fear, without hesitation. It would split the marketplace into the honest market and the black market.
Conclusion
For the counterfeit trade, the key to making quantum changes is to change the amount and type of information the online consumer relies on in making buying decisions. If brand owners require their online resellers to be certified and bonded by a third party, it would be the beginning of the end of the flourishing counterfeit habitat. Brand owners owe themselves no less.
Travis Brown is General Counsel and VP Business Development & International for buySAFE, Inc. For more information on buySAFE, Inc., visit www.buysafe.com.
Sales & Marketing Management Magazine
This article is brought to you by Sales & Marketing Management, the leading authority for executives in the sales and marketing field.
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