Four Ways Counterfeit Electronics are Killing Your Profits and Steps to Fight Back A PLAYBOOK FOR THE ELECTRONICS INDUSTRY

Transcription

1 Four Ways Counterfeit Electronics are Killing Your Profits and Steps to Fight Back A PLAYBOOK FOR THE ELECTRONICS INDUSTRY

2 INTRODUCTION We all know that counterfeit products exist on the market. Whether it s faux electronics and accessories online or iphonys in knock-off markets, the products are out there in surprising numbers. Fake electronics cost brand owners $100 billion each year1. And the best counterfeiters make products nearly identical to the real thing, allowing them to charge full retail price and steal up to 10 percent of a brand owner s revenue. Also what happens when consumers try to contact the manufacturer for returns, warranty work or other types of service? And how do these genuine fakes impact your brand identity, reputation and revenue stream? Here are four ways that counterfeit products could be eating into your profits and impacting future revenue by damaging your brand s reputation. Plus, a summary of the best way to fight back against fakes

3 1 LOSS OF REVENUE FROM SALES DIVERSION Some brands see up to 20 percent of the fake versions of their products sell at full retail price. Even more fakes sell at a price the brand offers on genuine products during special discounts. In fact, one recent study found that about 18 percent of consumers who bought fakes believed the product was real 2. This loss of sales cuts directly into your bottom line. These customers would have purchased a genuine product, but instead, they got scammed. Even worse, it can impact future sales if the product is faulty and the customer has a bad experience. The best way to cut down on consumer purchases of genuine fakes is to identify and pull fakes off the market. Easier said, than done, right? One leading electronics accessories brand found it to be easier than they thought. When it discovered counterfeit products circulating widely across the globe, it looked for a way to easily identify genuine products from the fakes. This led to the deployment of secure serialization to support real-time digital authentication. The brand owner s staff can now quickly verify products as genuine or fake. The customer service team can authenticate products within an existing ERP, helping to streamline operations for warranty and returns work. Plus, real-time alerts and analytics have helped brand managers pursue brand protection and enforcement activities. Only months after stepping up enforcement activity and implementing Verify Brand technology, the brand reported raids on 162 retail stores worldwide with nearly 30,000 counterfeit items seized. In addition, 39,000 counterfeit items were removed from digital channels, estimated at a value of $1.3 million revenue that could now go to the brand instead of the fake.

4 2 RETURNS FRAUD Even worse than consumers that mistakenly purchase counterfeit items are ones that purchase counterfeit items intentionally, with the goal of defrauding the retailer and manufacturer through the returns process. The consumer buys a fake electronic product knowing it s fake and also buys a genuine product. The fake version is returned to the retailer in legitimate packaging and the consumer is refunded the cost of the real product. For retailers, training employees to identify counterfeit items in this scenario is nearly impossible. The retailer and the manufacturer both get scammed and end up giving away a genuine product for free, decreasing profitability and sales. Up until recently, there haven t been any tools that allow an untrained person to easily identify counterfeit items during the returns process. But now there is. By applying unique item identifiers to electronic products, retailers and brand owners can quickly and easily check to make sure each product is genuine during the return process using a secure website or even a mobile app. The process is so easy it requires almost zero training but it allows employees and supply chain partners to stop return fraud in its tracks, refuse the return, or alert managers so they can gather information to start an inquiry. This software also keeps histories of product life cycles and returns, in order to identify trends and analyze the outcomes of anti-fraud initiatives. Four Ways Counterfeit Electronics are Killing Your Profits and Steps to Fight Back 4

5 3 SOARING WARRANTY COSTS Most popular electronics brands know knock-offs drive some of their warranty costs. But most don t realize up to 30 percent of products returned for warranty work can be counterfeits. The challenge is that many counterfeit items sent for warranty work are well-designed fakes, and identifying them takes time and effort. Some consumers even know the products they re sending in for warranty work are fakes. Warranty fraud impacts revenue because buyers are able to defraud manufacturers out of genuine components or products. Even when warranty fraud is identified, it s likely that the manufacturer has already lost money identifying it. Add in the product shipping and the time invested by the customer service and warranty support departments, and the costs of fakes add up. In fact, just identifying fakes during warranty work can cost some brands more than the original product. Warranty work on counterfeits is tough to eliminate. In a best-case scenario, the fakes are identified quickly, before time and effort are expended to address the customer concern or product complaint. Item-level serialization is one of the few ways to simplify the identification of counterfeits before the costs creep up. Item-level serialization gives manufacturers a cost effective tool that helps quickly and easily identify genuine products. It can be used across customer service representatives, warranty and repair teams, internal investigators and even consumers. Serialization tools can be used via text messaging, mobile apps and with call centers, so no special tools or equipment are required just a simple look-up can verify a legitimate product or a counterfeit one. Four Ways Counterfeit Electronics are Killing Your Profits and Steps to Fight Back 5

6 4 REPUTATION AND BRAND EROSION In the electronics market, the sheer volume of counterfeit products can have an impact on your brand, and your reputation. When a consumer knowingly buys a fake, they have a reasonable expectation for performance. But consumers that unwittingly purchase counterfeit products, and then experience poor quality or performance, may never even know that they have a counterfeit. This, in turn, impacts their perception of the brand, and the potential for future purchases. Even worse, social media allows unhappy consumers to vent their brand dis-satisfaction to a wide audience. For years, electronic product, component and accessories brands have tried to make it difficult to create copies of bestselling products. But counterfeiters still seem to find a way. A different approach that has proven to work better at combatting fakes is to strip the profitability out of the fraud model. A multi-billion dollar company experienced serious brand confidence issues when fatalities resulted from the use of what appeared to be its product. Multiple physical security packaging efforts were tried with little or no impact. But when the company applied Verify Brand serialization and item-level product authentication for consumers and supply chain partners, there was a dramatic decrease in counterfeit product entering the supply chain. Enabling manufacturers, partners and even consumers to easily check the authenticity of a product can decrease the ability of counterfeiters to successfully get away with selling fakes and perpetrating fraudulent claims. Although we ll never eliminate consumer demand for some knock-offs, we can employ strategies that make it much more difficult to profit from this business, leading to a significant decrease in counterfeiting efforts. Four Ways Counterfeit Electronics are Killing Your Profits and Steps to Fight Back 6

7 The Verify Brand platform is our most powerful brand protection tool, helping us increase enforcement seizures by 20%, theft recovery by 30% and as much as 10% uplift in revenue. Counterfeit products were jeopardizing our brand and causing deaths. Verify Brand provided the solution that put confidence back in our supply chain. [We ve recently] removed more than 39,000 individual listings offering counterfeit products online worth an estimated $1.3 million. Four Ways Counterfeit Electronics are Killing Your Profits and Steps to Fight Back For more information contact 7