How Can A Luxury Brand Owner Protect Itself Online from Counterfeits?

Luxury brand owners have a huge problem.  How to stop the growing online sales of counterfeits and how to protect the integrity of their brands?

The Problem

Luxury brand owners are groping for ways to protect their brands from online sales of counterfeits, which annually costs billons of dollars in lost sales and profits.  They continue to fight the problem with a variety of tactics:

1) They push law enforcement to try to stop the distributors. 

•  In Prato, Milan, Italian police recently confiscated more than 650,000 imitation Louis Vuitton and Gucci bags during a raid on a counterfeiting factory, according to Reuters.   (Note… given they believe this could be approx. 10% of the fake handbag population, this implies total fake handbags of 6.5 mm ... If you assume the luxury-brand owners suffer $50 per item in lost profit, that's $300 million net profit lost to legitimate producers and (if margins are 33%), as much as $1 Billion in lost revenue annually.)
•  In 2005, more than 13,000 counterfeiting proceedings and 6,000 raids were launched by law enforcement around the world, leading to the arrest of almost 1000 counterfeiters.  Unfortunately, for every one counterfeiter shut down and arrested, there are at least two more that spring up.

2) They employ teams of people and armies of lawyers to help find the perpetrators to supplement law enforcement’s efforts

• For example, Louis Vuitton has a team based in Paris, with offices around the world, dedicated to fighting counterfeiters

3) They are suing online marketplaces where counterfeits are commonly sold.

• The French luxury brand owners Louis Vuitton (LVMH) and Christian Dior Couture are suing eBay for $47 million over widespread counterfeits and fakes sold on the eBay site, according to the Financial Times

• Tiffany is suing eBay for the very same reason after they conducted a study that found that the vast majority of the Tiffany product sold on eBay US is counterfeit as detailed here. 

Unfortunately, these tactics are ones they’ve used for years and yet the problem continues to grow, especially online (see Ted Richardson’s blog on this topic for more great insights).  With eCommerce growing at more than 25% a year and the anonymity of selling on the internet a big advantage for counterfeiters, the online sales of luxury brand counterfeits is a major problem for the brand owners.

It’s really shocking how easy it is for counterfeiters these days.  To test this for myself, I just went to Google.com, typed in “Louis Vuitton handbag” and clicked through on the 2^nd highest paid search link (on the right hand side of the search results page).  Try it yourself!  The paid search ad is for a website called www.ask228.com While they claim to sell “100% authentic” and a listing for a Gucci handbag says “Made in Italy by Gucci”, I’m pretty much positive these are not authentic.  The website is based in  Beijing, China.  China is arguably the largest producer of counterfeit products in the world); they will only accept payment via bank wire, money transfer or Western  Union (red flag!); and its hard to imagine that a legitimate re-seller would advertise “100% authentic”.  Lastly, the prices of the Gucci handbags on this website are unbelievably low.  I can get a Gucci handbag here for ~$100, vs. on the Saks or Neimans websites where the cheapest bag I could find was around $600.  I’d say it’s a pretty safe bet that although they claim its the real thing, made in Italy, it would be a fake that shows up in my mailbox.  Given they are an advertiser on Google, I now wonder which other Google advertisers are also selling fakes? How many millions of other people who’ve had a similar shopping experience have asked themselves that same question? What is the impact to eCommerce globally if consumers conclude that they simply can’t know if they are buying genuine or fake goods?

So, if you were the owner of a luxury brand and counterfeiters from all over the world were selling fakes of your product to thousands of different distributors and retailers, how would you try to stop them?  Here’s my take… 

The Solution

I believe there are two components to the problem that need to be solved for:

1) Preventing online buyers from unknowingly buying a counterfeit and

2) Stopping buyers who intentionally want to buy a counterfeit

In the unknowing buyer scenario, which I believe makes up the vast majority of the problem, luxury-brand owners need a way to ensure buyers can be 100% confident – before they make a purchase – that the item they are buying is real and that they are buying from a legitimate and trustworthy retailer.  The luxury brand owners need a solution that works for thousands of online retailers and that does all of the following:

1) Provides buyers a clear signal that the item is legitimate and authentic and from a merchant authorized to resell that brand;

2) Ensures the signal is believable, valid and not easily faked by sellers of counterfeit items; and

3) Provides buyers with full recourse (100% protection) in the event the item sold by an authorized merchant turns out to be a fake.

The only solution that that exists today that can provide all of these is bonding the sellers of legitimate luxury items.  While this may sound self-serving coming from the CEO of an eCommerce bonding company, I fundamentally believe it to be true.  We’ve spent the last three years building and testing a risk management system that provides a highly scalable solution for bonding online merchants.  buySAFE 1) rigorously inspects online merchants to ensure they are legitimate, reliable and trustworthy, 2) continuously monitors each buySAFE Merchant’s performance in transactions with their buyers to ensure they consistently deliver on the promises they make (to ensure they always sell authentic product and fully deliver on their other terms of sale) and 3) buySAFE and our partners (Liberty Mutual, Travelers, ACE USA) also put our money on the line by financially guaranteeing each transaction – up to $25,000 - with a surety bond from a trusted financial institution.  This means that if a retailer doesn’t fully perform on all his terms of sale (including authenticity), buySAFE will step in and make the buyer whole (and you can be sure that merchant will never again be a buySAFE Merchant!).

Why this approach works so well is that it also benefits the merchants themselves. When buyers know for certain they are getting the real thing, they buy more often and they are willing to pay a fairer price.  It’s a real win – win – win solution.  Requiring every merchant that sells legitimate luxury-branded goods to be bonded, would solve this part of the counterfeit problem completely. Pure and simple.

The second piece of the problem – stopping the buyer who wants to buy a fake – is the smaller but  tougher aspect to solve for as it requires finding a way to change buyer behavior.  I believe the answer here lies in what we do for other illegal activity – help people understand it’s wrong, that buying fakes hurts people and that it’s illegal.  If the luxury-brand owners kicked off an education and awareness campaign that was effective at getting the message out, it could have a remarkably significant impact on the average person’s willingness to buy a fake.  Since those buying fakes are trying to be “fashion-conscious”, if you make it very “unfashionable” to buy a fake, you can play into their deepest fears. 

I can envision an industry-wide campaign that says knock-offs are theft – don’t be a thief!  You might think it’s good for you, but arguably so is shoplifting …that doesn’t make it right, legal or a cool thing to do.  An education campaign would also help people understand that the purchase of a counterfeit in fact helps fuel the underground economy … it creates sweatshops, it supports black market in other illegal goods and it provides huge flows of capital to bad people.   Implication: buy a fake Chanel, sponsor a terrorist, help launder drug money.  This is un-cool. 

The current approach -- cops and robbers, trying to find, capture and prosecute or sue every “bad guy” – is all too porous and ineffective to solve the problem. This approach combines a focus on identifying, highlighting and protecting the “good guys” (via bonding) and a public consciousness building campaign to let consumers know the implications of the choices they make. Consumers want to know what they are buying and, with a transparent choice, would act on their values and buy the genuine thing. This would create a “virtuous cycle” where designers, artisans, and brand owners are rewarded for their designs, and fraudulent sellers, knock-off artists, and their backers live in a much smaller and darker marketplace.  This doesn’t force consumers to be detectives – or dupes -- to buy luxury goods online, it simply allows for complete transparency so that everyone can make a fully informed decision. If you eliminate the risk in a transaction and ensure the consumer has completely accurate information on which to make a buying decision, they will make the right choices. As Pierre Omidyar, the founder of eBay, always said, “people are basically good.” Give them the means to do the right thing and most will.

Comments

[Nishant]

Very informative post...thnx indeed..

In addition to the approaches you have described, can technology be any enabler in this ? I mean, wouldn't it be good if there r widgets on ecom sites which sense these glaring price differences by comparing with authentic sites, and alongwith other identified parameters, present some stats to the user, so that he makes an informed decision.

[Steve Wolfson]

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