You want the best possible deal on a new TV, so you go online to a well-known auction site. You see the exact popular brand and model you want at a price you can't resist. You look at a thumbnail of the TV: it's exactly what you saw in the showroom of the expensive electronics store. You look at the seller's reputation: five stars, fast delivery, and inexpensive shipping. You buy it now!
Six months later, the display dies. It's past the online seller's warranty, so you contact the manufacturer and give them the serial number, but you find out that they did not, in fact, make that TV. It's a counterfeit. Your TV had an expensive brand name on the outside and cheap, unauthorized parts on the inside. It's a theft of your money and the brand's reputation. By some estimates, this type of fraud affects up to 20 percent of consumer electronics inventory.
Why is Counterfeiting So Attractive?
A number of factors make counterfeiting consumer electronics a profitable endeavour.
Intense direct-to-consumer advertising drives consumer purchasing behaviour, assigning significant value to expensive, star brands: consumers identify products by their names, not their functions. You don't buy a gaming platform, you buy an Xbox or a Playstation. You don't buy a phone, you buy a Droid™ or a BlackBerry. Legitimate manufacturers pay the marketing costs for these strong brands; consumer demand for the brands increases; and counterfeiters reap the rewards by stealing the brands, affixing them to lesser-quality goods, and selling them at higher prices.
It is easy to create compelling counterfeit labelling and packaging. Today's $500 desktop computers are good enough to empower the average consumer to create professional-looking full-length movies, interactive websites, and online shopping experiences, while today's $100 home printers and copiers offer eye-catching, high-resolution and full-colour capabilities that have made the local print house a thing of the past. The ubiquity of such comparatively inexpensive and difficult to trace equipment empowers anyone to be a counterfeiter, making authentic brand identity much harder to protect.
The Internet offers counterfeiters the perfect advertising and distribution platform for global illegal activities. There is virtually no barrier-to-entry as far as marketing and sales are concerned: counterfeiters can offer goods on any number of sophisticated, unregulated sites and can generate considerable fraudulent sales volumes before anyone is the wiser. Consumers have become accustomed to seeing lower and lower prices, and indeed some sites now offer online bargaining. This furthers an attitude of, "if it's too good to be true, it might just be a good deal."
Lastly, the penalties for counterfeiters, besides being very difficult to enforce in the multinational Internet environment, are just not that substantial compared to the potential profits. And, the penalties are very hard to enforce. Product counterfeiting reduces profit margins and fraudulently asserts a higher level of quality, but it doesn't draw as much attention or sense of urgency as drug trafficking or armed robbery.
One big problem is that consumers are often complicit in this fraud. If they think they're almost getting the real thing for a substantially lower cost, they'll look the other way. With complex electronics, they may not understand why working with a reliable brand through their authorized channels is important. they're willing to take chances with something cheaper as long as a big-name brand icon is affixed to the front of the item and printed on the box.
So, with all these factors working against them, how can manufacturers protect their brands without alienating consumers? There are, in fact, quite powerful solutions.
Engaging Consumers in Brand Authentication
Consumers often greet authentication with a groan. Authenticating identity can mean long lines at airports. Authenticating a credit card can mean pulling out a driver's license as backup. Proving that "you're you" online means remembering any number of usernames and passwords. we're willing to do it, but there's rarely any joy in it.
The key for manufacturers trying to engage consumers in effective authentication is to create a positive experience: entertain the user in some fashion and show that they're getting value. The simplest way to entertain is to offer visually pleasing graphics. For example, holograms can be constructed that show elaborate motion. Labels can integrate these holograms with pigments that shift colours as viewing angles change. These are called overt authentication techniques because they are clearly obvious to any viewer.
These visually pleasing, overt techniques work because the expertise and materials needed to create and manufacture sophisticated, pigmented holograms and labels are hard to obtain. Counterfeiters can't create holograms with flip images and microtext in a garage, nor can they buy sophisticated pigments on the open market. Consumers can immediately tell the difference between a highly designed, expensive-looking label and a cheap knockoff. And it's a pleasing experience: the consumer sees the quality and relishes the value.
Digital tools can complement overt visual effects to both enhance the robustness of an authentication program and to engage the consumer in a different way. One example is where a product's ID is tracked throughout the distribution cycle and the customer purchase. With this technique, the customer's involvement in the process generates a stronger brand and greater customer loyalty. Here's how it can work:
- The manufacturer generates an ID code for a particular product.
- A specialized printer integrates the code onto a sophisticated, overt-authentication label.
- The manufacturer affixes the label to the product and/or its packaging.
- Tracking data for the code is managed by a data centre: when and where it was shipped, customs information, when it was sold and by whom, etc.
- The end-consumer can go online and register the code in exchange for a warranty, special offer, or other incentive.
The customer experience reinforces the exclusivity of the brand and opens a line of communication between the customer and the manufacturer. This increases brand loyalty and offers greater sales opportunities for the manufacturer. It is a win-win solution that can reduce losses to counterfeiting significantly.
The counterfeiting of consumer electronics is a serious, expensive problem. The technologies and techniques are in place to stop a large proportion of it. Fortunately for manufacturers, stopping this kind of fraud can improve the customer experience, increase margins, and generate even stronger brand loyalty.
Adam Scheer, Authentication Solutions Expert, JDSU, has been active in the authentication industry for nearly a decade. A frequent speaker at industry events, he currently serves as Chairman of the International Hologram Manufacturers Association.