The internet has brought great opportunities for retail, but it’s not all positive. We look at the growth of the counterfeit goods market and how retailers can protect themselves
The growth of online shopping has been steady for a number of years, and with the global pandemic introducing many consumers to the convenience of e-commerce in everyday life, those numbers are now higher than ever.
The European Union Intellectual Property Office (EUIPO) reported that 70% of Europeans bought something online in 2020. US e-commerce sales, meanwhile, are projected to exceed $1tn in 2022 and to make up nearly 22% of total retail sales by 2026.
Such figures show the extensive reach, growth, and value of the e-commerce market, but where there is great value, there is inevitably the risk of bad actors – in this case, from the burgeoning online counterfeit goods market.
How big is the counterfeit goods market?
According to recent figures, the value of the global counterfeit goods market was $449bn in 2019 – larger than the entire economy of Ireland.
Furthermore, in March of the same year, the Organisation for Economic Co-operation and Development (OECD) reported that trade in counterfeit and pirated goods makes up 3.3% of global trade and stated that this figure was continuing to rise.
These are startling figures – and when you consider the potential impacts the fake goods market can have on economies, businesses, and everyday people, they become even more concerning.
What proportion of the counterfeit goods market is traded online?
While it is difficult to provide a definitive figure, a joint EUIPO-OECD study found that between 2017 and 2019, over 50% of counterfeit goods seized on entry to the EU were related to online transactions.
This could be seen as an indication of the potential overall scale of the problem. The knowledge that it is this significant online certainly makes sense when you consider that largely unregulated digital environments allow criminals to better maintain their anonymity and remain as elusive as possible to the authorities.
What are the impacts of counterfeit goods on businesses?
The effects of IP theft and counterfeiting on businesses are huge. In 2020, global losses resulting from the sale of bogus goods amounted to €26.3bn in the clothing sector alone.
But while the sale of fake products at cheaper prices can have a big impact on bottom lines, the wider issue is the effect it can have on a brand’s reputation.
Counterfeit goods can lower customer satisfaction and erode brand value. For example, if a consumer receives a product they believe is genuine, they will expect a certain level of quality. Therefore, if that product is a substandard fake that arrives faulty or fails shortly after purchase, they will understandably be disappointed.
Research shows that 77% of consumers regularly read reviews when researching local businesses and that only 3% would consider buying from a business with an average rating of two stars and under.
In a marketplace where reviews are this powerful, dissatisfied customers can be particularly damaging to a brand’s reputation.
Additionally, businesses could find themselves wasting time and resources dealing with undeserved complaints and even making unnecessary refunds.
Learn more: Brand protection: The problems and solutions around keeping your brand safe online
What are the impacts of counterfeit goods on consumers?
From a consumer’s point of view, counterfeit goods can present a tempting opportunity to buy expensive items at a fraction of their typical retail price, but this is often a false economy.
Rock-bottom prices usually go hand in hand with rock-bottom quality. This means it is likely that counterfeit items will need to be replaced long before their genuine equivalents would, which ultimately means higher costs in the long term.
The negative impact of fake goods isn’t just financial. In many cases, it can also pose a serious health risk.
One example is the global trade in counterfeit pharmaceuticals, which the EUIPO and OECD estimate is worth up to $4.4bn (and, according to the World Health Organization, has harmful effects in every region in the world).
Ineffective or weakened pharmaceuticals can leave ailments untreated or contribute to drug-resistant infections, while unknown ingredients could provoke unexpected side effects, allergic reactions, and, in some cases, even death.
Another example is electronic goods. A report from UK charity Electrical Safety First states that faulty electrical products are the cause of more than 7,000 house fires a year in the UK. The report goes on to state the results from tests of a number of counterfeit products, including phone chargers and hair straighteners, many of which were found to have posed a serious safety risk.
Finally, an often overlooked negative impact of fake products is that of privacy. There are reports of fake software updates and cases of Android phones being imported from the gray market with malware pre-installed, both of which are designed to expose a user’s personal data to fraudsters.
What are the impacts of counterfeit goods on society?
There are many implications that counterfeit goods have on a country’s economy, and the most obvious of these is the loss of tax revenue. Because revenues bypass official channels, governments lose funds from value-added tax, corporate income tax, and personal income tax that could otherwise be invested for the good of communities.
One OECD paper reported that in 2016, forgone tax revenue from the UK retail and wholesale sector amounted to £3.1bn. The same paper stated that at least 86,300 jobs were lost due to counterfeiting and piracy.
Other knock-on effects include an increase in the prices of legitimate products, as brands try to recoup the billions of dollars of global losses, and the aforementioned dangers to public health.
There is also a major humanitarian issue to consider. The United Nations Office on Drugs and Crime (UNODC) identifies clear links between counterfeit goods and transnational organized crime networks, stating that the sale of fake products could be connected to the trafficking of drugs, firearms, or people.
The role of images in the online counterfeit goods market
Before the days of e-commerce, it was possible to hold, inspect, and even test the product you were buying before handing over your money. However, in today’s digital environment, all you have to go on is the presentation of the website, the description of the item, and most importantly of all, the images used.
As it currently stands, anyone can go to a brand’s website and make copies of every official image they can find using a right-click, drag-and-drop action, or a screenshot. Using these images, they are able to create highly believable online product listings.
Possibly the most common place where fraudsters list their bootleg products online is e-commerce marketplaces. It is relatively quick and easy to set up a seller profile on one of these websites and, in doing so, criminals can gain fast access to a truly global market.
Alternatively, counterfeiters will often build an entire website that’s little more than a clone of an official site. By copying logos, matching brand colors and typefaces, and most importantly of all, using stolen official product photography, these websites can be astonishingly convincing.
How to combat the sale of counterfeit goods online
The big players in e-commerce have measures in place to stop the sale of counterfeit goods on their platforms. For example, eBay’s VeRO program and Amazon’s investment in AI to help weed out the fakes.
However, many believe it is too little too late, with Birkenstock having already left Amazon.com, and Nike having withdrawn as a first-party vendor from Amazon worldwide, each due to concerns over counterfeiting.
Preventing image theft
While any efforts to tackle the problem of counterfeit goods online are of course well-received, prevention is often better than cure.
A highly effective step towards achieving this is for brands to protect their images from theft at source. After all, the fake websites and listings mentioned above would be far less convincing without the use of official product photography.
By streaming images instead of displaying them in formats like JPEG and PNG, brands can ensure there is only ever one high-quality copy of each product photograph online.
For example, each of the images you can see in the body of this article is being streamed. This means they are protected from theft and can be displayed on an unlimited number of URLs without a single copy being made. It works in a similar way to embedding a YouTube video.
It is even possible to monitor where an image appears and control its distribution by preventing unwanted domains from embedding it. Furthermore, by attaching captions and credits at source, which will follow the image wherever it is embedded, it is possible to ensure the image always appears in context.
By preventing bad actors from stealing and repurposing valuable product photography, there’s no doubt that a counterfeiter’s job becomes much more difficult.
Conclusion
The online counterfeit goods market is undoubtedly a big issue for brands, consumers, and governments around the world. There will never be a quick fix for a problem of this scale, and indeed no single solution. However, by making changes to the way in which products are promoted, and protecting a brand’s assets at the same time, it could be possible to restrict these criminals’ ability to appear legitimate.
Learn more about image-streaming technology and see how it can help content owners protect, enhance, and monetize their online content
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