According to Frontier Economics, counterfeit and pirated goods could put 5.4 million worth of legitimate jobs at risk by 2022.[i]
In the e-commerce age, marketers not only need to make sure their products are available in the right places, but they also need to ensure consumers favour official sales channels over unauthorised third parties selling their products, or worse, counterfeits of their products.
What are Competitor Sales Channels in Ecommerce?
There are four main types of players that can capture a sale away from the brand. Let's examine what approaches brands should adopt in each scenario, and how they can leverage data, from monitoring to serialisation.
1. Authorised resellers
Contracted resellers are obviously not a problem. Brands sell their stock to these wholesalers so that they can sell the products on their behalf. However, brands should monitor these resellers regularly to ensure the content and messaging stays on brand.
2. Non-authorised sellers sourcing genuine inventory legally
Brands have two main opportunities to fight against these non-authorised sellers. The first action brands can take is identifying where non-authorised resellers get their stock: is it from a clearance sale at a physical store, or some online promotion they exploited to amass a lot of inventory at a very low price? From there, brands can take appropriate measures. For instance, if a retailer store is closing, brands should explore the option of buying back the stock to sell it through their online channels, instead of letting the closing sale take place. The second opportunity arises when contracting with platforms. Some platforms offer exclusive contracts and can technically block anyone else from selling products on their properties, which eliminates the third-party seller problem at once. However, this option really comes down to the terms marketers can negotiate with the platform. As exclusivity means the platform won’t generate revenue from other sellers, the terms of the contract may be very stringent for brands, and sometimes won’t be as good as if brands were battling the third parties themselves.
3. Non-authorised sellers sourcing genuine inventory from the grey market
This scenario happens when, for instance, unauthorised sellers purchase their goods overseas in a market where brands have to price their products lower. This practice allows these sellers to get a very low price, and then resell stock in a higher-priced market, but still at a lower price than the brand. It is often very complicated for organisations to fight against these sellers. They can lobby regulators to take stronger legal stances against this kind of behaviour, but results can take time and are uncertain. On a shorter term, brands can take actions regarding how they sell, blacklisting sellers when they manage to identify them, or limiting the units purchasable per person. This is far from perfect but can help limit the damaging impact of these sellers.
Another measure marketers can take is to monitor prices across e-commerce platforms with tools like Sonar. This is critical as many marketplaces set the price based on algorithms designed to optimise the profit margin. For instance, a third-party seller can decide to slash the price on Amazon to win the Buy Box and get rid of their stock. In another example, Walmart.com, which monitors Amazon prices, sees the reduced price and slashes its own price. Then, Amazon’s own algorithms, monitoring Walmart.com, will in turn slash the price on Amazon, but this time on the products sold by the brand, cutting margins. In order to stop this algorithmic race to the bottom, brands need to monitor where these price changes start. From there, they can take actions such as a pricing limit, or defining a timeline for which they will hold a certain profit margin even if it means selling fewer units.
4. Counterfeiters
Counterfeiters are particularly present on marketplaces, where the mass of sellers makes it difficult to identify them efficiently. However, brands do have some means to fight against counterfeiters on their own and with the help of platforms.
Industries Most Hit by Counterfeit and Pirated Goods
% Shares of Total Value of Seizures, 2016
Source: OECD/EUIPO (2019), Trends in Trade in Counterfeit and Pirated Goods, Illicit Trade, OECD Publishing, Paris[ii]
5. What brands can do with each platform?
Platforms have a strong responsibility and interest in ensuring their properties are safe for consumers to shop. For instance, lots of Chinese luxury consumers prefer to purchase cross-border because they are worried about fake products, and not all the platforms within China are able to stop the influx of bad third parties. This cross-border commerce is not limited to luxury items and extends across day-to-day categories. For instance, baby formula domestic players are still struggling to regain the trust of Chinese consumers since the 2008 milk scandal (more than half prefer foreign brands[iii]), and some consumers prefer to go overseas to buy massive amounts of instant formula because they are concerned about fakes making their way into the marketplaces and the platforms within their country. In order to continue their relationship with the consumer, platforms recently multiplied increased safety initiatives.
Tmall has built a separate space for luxury brands, Tmall Luxury Pavilion, which is by invitation only and guarantees consumers to purchase authentic products from well identified brands. Amazon has also started a dedicated programme: Project Zero Typically, when a brand wants to take down a counterfeit or a problematic third-party seller on Amazon, it would have to fill out some forms and file an official takedown notice. Project Zero somewhat streamlines the process through a self-service counterfeit removal tool, giving time back to the brands. Another interesting part of Project Zero is product serialisation, which enables brands to create a unique code for the product at the manufacturing point, so that Amazon can then check this code upon receipt to ensure the item is legitimate.
6. What brands can do outside the platform?
Brands can work with companies non-affiliated with platforms. For instance, iProspect proposes a two-tier system, combining scraping software that monitors more than 1,000 e-commerce sites to identify counterfeits early, and a team of specialists who confirm what the software detects and then perform manual searches. iProspect can then conduct test buys online or in store to determine if an item is counterfeited. Brands can conduct similar investigations on their own if they have the right team, are capable of working across a large array for markets and languages and have the right technology.
Brands can empower consumers to verify for themselves the genuineness of their purchases. For instance, they can manage serialisation in-house, generating unique numbers at the manufacturing point and incentivising consumers to enter the code on their website to check for matches in the brand’s database. Radio Frequency Identification (RFID) tagging technology is also gaining momentum among brands. This technology, used, for example, in the Amazon Go stores where people simply pick up items and walk out, can be added to tags so that users can read the chips with their smartphones and confirm whether the product they purchased is authentic.
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SOURCES:
[i] OECD/EUIPO (2019), Trends in Trade in Counterfeit and Pirated Goods, Illicit Trade, OECD Publishing, Paris
[ii] McKinsey & Company, 2017 China Consumer report: Double-clicking on the Chinese consumer
[iii] Frontier Economics, The Economic Impacts of Counterfeiting and Piracy, commissioned by the International Trademark Association and the ICC’s Business Action to Stop Counterfeiting and Piracy, February 2017
