In the OECD report, it was highlighted that 58.5% of counterfeit and pirated products traded worldwide in 2016 were sold to consumers who actually knew they were buying fakes. The remaining 41.5% of consumers purchased counterfeit items unknowingly. This is an alarming statistic. The percentage have not really changed much till now.
In essence, brand owners are losing a significant percentage of their rightful revenue while also losing consumers who might have been unsatisfied with the purchases, they thought were genuine.
Typically, counterfeiting affects and destroys a brand and the business through 4 stages:
Stage 1 – Entry
At the start, normally, small volumes of fake products would penetrate the supply chain and reach consumers. The loss of sales by the brand in this stage is often hard to detect. Usually at this stage, brand owners and official distributors are unaware about the presence of the fake goods.
Stage 2 – Growth
As time goes by, sales of the counterfeit items will grow. At the growth stage, the sales volume of fake goods increases significantly due to their low prices, prompting more fake suppliers to jump onboard. In this stage, the volume of fake products will scale up while the volume of genuine products will begin to decline. Brand owners and their distributors start to become aware of the counterfeit products as they see some losses in sales and revenue. However, many companies ignore them or are uneducated in terms of how to tackle issues of counterfeiting effectively. Once brands reach this stage, it is noted that they will generally progress to stage 3 very quickly.
Stage 3 – Critical
At the critical risk stage, the sales volume and growth of counterfeits have overtaken that of the real products. This is also the stage where retailers would start selling fakes openly or even mixing the real and fake products to sell to consumers. This then becomes a do-or-die situation for the brand. Businesses need to take swift actions to counter the counterfeiting if they have not done so earlier.
Stage 4 – Fatal
When it reaches the fatal stage, consumers cannot or do not want to differentiate between the real and fake products anymore. They have lost their trust in the brand and are no longer keen to buy the product. Consumers would then start to look for competitor brands. The product, brand and business then incur fatal damage and falls to a point of no return. Sales volume of genuine products nose-dive in this stage. The volume of counterfeit products will also start to dwindle as demand drops.
With shrinking demand, the stronger counterfeiters would then look for other brands which are more lucrative for them to fake and the cycle starts again.
Once a brand gets negative publicity due to fakes and is deemed harmful, consumers would start shunning them as well. A good example would be the fake milk powder (Abbot & Beingmate) scandals in China. Beingmate, reported by SCMP, observed a net income decrease of 90% in 2014 after the incident.