4 Ways That Counterfeiting Affects Brands

Brand Protection
January 18, 2021
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4 Ways That Counterfeiting Affects Brands | engage™

What is the impact of counterfeit goods on brands? Well, there are many ways that these fake items can hurt businesses. Not only do counterfeit items hurt a business from a financial standpoint, but they can also damage a brand's reputation, which can cost a company the loyalty and trustworthiness of consumers. A buyer might mistake a fake item for the original one, be put off by the underwhelming quality, and never shop from that brand again. At engage™, we know first-hand how important brand protection is, not only for businesses, but also for keeping consumers engaged. Today we're discussing four major ways in which counterfeiting affects brands, to help you gain a better understanding of what this illegal activity means for the economy.

1. Direct loss of revenue

The most obvious effect of counterfeiting on a company is direct loss of revenue. The math here is relatively simple -- if you put time and money into the R&D of your product, into its manufacture and its distribution, you need your customers to purchase that product at a particular market value. If a counterfeiter then makes a low-quality knock-off and sells this more cheaply, that means less revenue for you.

This may also lead you to overestimate how many products you need to produce in order to fill public demand. If you end up with stock that won't sell because of a saturated market, this is going to reduce your profitability, too.

In the United States, for instance, the average profit margin for small and medium-sized enterprises in the manufacturing and retail sectors is 2%. This does not leave much room for maneuvering, and businesses can quite quickly find themselves in trouble if counterfeit products begin to eat into those profits. This, of course, has a knock-on effect on other economic aspects, too. In 2020, it was estimated that the counterfeit drugs and medication trade could be costing anywhere from 57,000 American jobs to almost 248,000.

2. Loss of reputation with customers

Counterfeiting can have one of two broad effects on customer psychology. It can turn customers off altogether, driving them elsewhere in search of guaranteed quality and reliability, or it can draw them in with low prices and savings. Either way, this can be damaging for a business.

An independent study conducted by Sapio Research found that 35% of customers stated that they "would be less likely to buy a certain brand's products from online marketplaces" if they "knew it was relatively easy to buy counterfeit goods of a particular brand." Meanwhile, 27% stated that they would be less likely to buy these products via social media platforms. 

These statistics seem to demonstrate a wholesale aversion to counterfeits and fraudulent products, but there is more to it than this.

34% of the survey's respondents said they would be less likely to buy products directly from the brand's website, possibly indicating that they would be happier to receive a substandard product as long as the price-point was lower. 5% went so far as to say they would "actively seek out the brand's products on counterfeit websites".

It's no surprise that a significant number of customers are motivated by price and price alone, and don't mind seeking out fakes. However, the number of customers who seem to be averse to counterfeit products appears to be greater, which would seem to be good news for businesses.

The problem is, many customers who buy counterfeit do so unintentionally. They may not know that a particular item is counterfeit, and so, when they encounter problems with the item, they are not at all pleased. They tell their friends, family members, colleagues, and the business' word of mouth reputation suffers, through no fault of its own.  

3. Loss of reputation with reviewers

Word-of-mouth reputation loss is damaging, but there is even more at stake. Reviews from customers and industry publications are seminal to your success as a business. You have produced a great product, and you're confident that reviewers will agree. Their glowing write-up could even land you a serious uptick in revenue.

But what if reviewers get hold of a counterfeit product, thinking it's real? They will be reviewing features and designs that you have no control over, and any faults or defects, they will attribute to your company and your quality control measures. Even if you notice what has happened and ask the platform that hosts the review to issue a retraction, the damage is already done -- your reputation is harmed.

You might think that this would never happen, but in fact, it has, and the results were highly damaging for the business involved. In 2016, Fuse Chicken watched their Amazon Marketplace sales tank after a strong few months. The reason? Fake products were making their way through the marketplace and into the hands of reviewers. These published reviews spread damaging misinformation about the Fuse Chicken product, resulting in a huge lawsuit levied against the selling platform.

4. Legal liability costs

In most countries around the world, products are covered by strict quality control regulations and legal liability. However, when products are counterfeited, this becomes a problem. Counterfeiting is an illegal operation in most parts of the world, and so the products do not go through the same kind of checks as those produced legally.

It is estimated that around $125 million is spent each year in the U.S. alone on providing treatment for injuries related to counterfeit products. Legal settlements related to deaths caused by counterfeit products resulted in far greater economic impact, totalling $18 billion overall. And problems like these occur in every single market in the world.

Injuries and deaths are tragedies in their own right, and should not be allowed to happen -- highlighting once again how counterfeiting is certainly not a victimless crime. However, someone still needs to pick up the tab for these expenses, and often it comes down to the manufacturer of the goods to prove that the item was a fake, something that is not always easy. If your business is found to be liable for a personal injury or even a death, and you cannot prove that you were not at fault, the resulting legal action is likely to be expensive.

Looking for a way to keep your business protected from the effects of counterfeit goods? The engage app is a digital solution designed to help your business register its goods and protect itself from fraudsters. Reach out to find out more and get a FREE DEMO of our innovative tool.

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