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(originally published by Booz & Company)


Exploring the Supply Side of Fake Goods

Desperados care even less about the health of consumers. They mostly produce easily mimicked expensive goods whose quality can be almost impossible to verify before purchase — such as pharmaceuticals or spare automobile parts. Desperados balance the threat of severe penalties against the opportunity for considerable profit. To reduce their risk, they mostly produce on a small scale.

“Desperados are probably the most difficult opponents to fight because they may stay profitable even if a large share of their goods is seized,” the authors write. They also use expensive shipping methods, which makes their products harder to confiscate. Companies should consider campaigns to encourage potential customers to carefully investigate products, to avoid non-certified Internet retailers and products advertised in spam e-mails, and to contact the manufacturer of the legitimate goods in case of doubt.

Smugglers, the final group, are a special case. They primarily earn their money by evading taxes at international borders — bringing in shipments of alcohol and tobacco products, for example, that might be real or fake but were never meant by the manufacturer to be sold abroad, especially at the smugglers’ typically discounted prices and often with bogus labels.

Smugglers tend to spend big on protecting their operations and have a high degree of organization from production to distribution. Although seizures aren’t likely to alter their business model, they do make it more difficult to hire replacement workers and seek out customers. “Seizures, combined with the difficulty to market the products in a strictly controlled environment, seem to be the most promising measure,” the authors write.

Because counterfeiters vary in many dimensions, companies should not treat their threats uniformly, the authors advise. “Targeted countermeasures that address the weakest spots of the illicit actors’ underlying business models may prove essential,” they conclude.

Bottom Line:
Counterfeit producers can be grouped into five categories, and responding to the strategies of each type can increase the cost-effectiveness of anti-counterfeiting measures.

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