Counterfeit Goods Costs for Companies

In the past, we’ve written about counterfeit goods, from electronics to medicine to pet food and designer handbags. While we’ve always highlighted the dangers of having such things present, we have yet to talk about why fake products are bad in general.

For the sake of this article, we’ll be using all definitions of counterfeit goods that we’ve used in the past, including products made with inferior or incorrect components, inferior products in general, used goods sold as new, expired goods sold as new, knockoff products sold as name-brand, and more. Basically, any product that is misrepresented as to its quality or origin can be considered counterfeit.

Customer Confidence

One of the most important aspects of business, if not the most important, is trust. Every single deal is predicated on the parties doing business in good faith. Often, this faith is enforced by legally binding contracts, but whether or not papers are signed, everyone involved needs to believe the other side will keep their end of the bargain. Otherwise, there is no point in doing business.

Counterfeit goods violate this important principle. Whether it’s a multi-million dollar deal, or a few bucks at the grocery store, finding out you didn’t get what you paid for is always a sting. This can cause customers to change their buying habits. If a store consistently sells fake products, knowingly or unknowingly, then customers will not shop there anymore. This can cause even the largest of companies to go out of business, or at least take a severe hit to their reputations.

And it’s not just the business in question which can suffer. The entire industry can take a hit when something big enough occurs. In 2016, Chipotle restaurants were found to be selling burritos with e-coli-tainted lettuce. This was an unavoidable issue, but severely impacted the food nonetheless, and it took far too long to discover the culprit behind sick customers. While the chain itself lost over $600 million in sales that year alone, it dragged the rest of the Mexican fast-casual chains down too.

People stopped or slowed down on eating burritos thanks to one bad ingredient making a product they thought was safe into something toxic.

Brand Confidence

Similarly, counterfeit goods can affect a brand’s profits and reputation with customers. Brand piracy is when counterfeit goods are made to look exactly like, or enough like, a name-brand product to fool customers into believing what they’re purchasing is a genuine article. This can cause problems for the companies that have spent money developing and designing consumer products. The well-known versions of this are knockoff Rolex watches and designer clothes, but this can occur with any product. Brands that make electronics, food, pharmaceutical products, and more can fall victim to this.

While it’s tempting to think it’s harmless, that few people buy fake goods instead of real ones, or that it’s only a problem in other places in the world, many companies have been losing profits based on the easy availability of counterfeit products. Louis Vuitton, Cartier, Lacoste, Benetton, and Levi Strauss & Co have all encountered issues with bootleg products cluttering the market, and the music industry has lost $4.6 billion dollars worldwide thanks to the proliferation of fake media.

It’s true that some people will seek out fake goods for a variety of reasons. Many people pirated digital media in the Wild West days of the internet, and software companies have gone out of business because of it. Tourists visiting large cities often find the cheapest goods they can, such as knockoff handbags, bootleg videos, and off-brand electronics. These people know that what they’re buying is going to be a cheap counterfeit product, though, which is different from people who believe they are purchasing the real thing and are being scammed. Most people won’t know that the things they bought are fake until it’s too late and the terrible quality makes the item fail.

In an upcoming article, we’ll be talking more about supply chains in general, and how blockchain technology can improve tracking, as well as what IDLogiq is doing to combat counterfeit items.