January 5, 2011, 3:02 PM

Online counterfeit sales will cost businesses $135 billion this year

A new report offers tips on how retailers can fight back.

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Counterfeiters are out there and they favor the online world, according to a new report from MarkMonitor, a provider of online brand protection technology and services.

Online counterfeit sales will cost businesses $135 billion in revenue this year, says MarkMonitor. Moreover, sales of fake merchandise represent 5% to 7% of world merchandise trade today, according to the International Chamber of Commerce.

The problem is growing because the volume of fake goods produced is rapidly increasing—especially in countries like China, where manufacturing capacity continues to skyrocket. In fact, 89% of seized counterfeit products originate in China, according to a 2009 U.S. Customs & Border Protection report cited by MarkMonitor, which makes money by offering brand-protection services.

Brands also take hits beyond revenue, MarkMonitor says. For example, a brand’s value suffers when fakes are easy to find and offered for a lower price. Additionally, resellers and affiliates may cut off a brand if the demand for that brand’s products falls because of numerous fakes on the market. And, the availability of cheaper fake products may put pressure on brands to lower their own prices.  

Fake goods can also drive up a brand’s marketing costs because sellers of phony goods often bid up paid search terms.

There are, however, ways retailers can fight counterfeit sellers, MarkMonitor writes in its report. One of the first steps is to scour the web on a regular basis. While that may seem overwhelming, MarkMonitor says 10 online marketplaces—a favorite outlet for criminals toting fake goods—account for 80% of all marketplace traffic. That means retailers that monitor the big marketplaces such as such as eBay and Alibaba, a Chinese site similar to eBay, are watching a significant share of traffic. For example, Snap-on Tools discovered 4,900 illegal auction listings worth $1.2 million by observing marketplaces, MarkMonitor says.

Another tip is for brands to monitor advertisements and promotions that use their names. Brands can scan paid search ads that come up when they type in search terms relevant to their products and search social media sites for links related to their brands.

The report also advised brands to be proactive.

“Counterfeiters obviously encounter more success when left to operate unchallenged; they’re also known to shift their energies to more passive targets when brands visibly fight back. Once a brand understands where the greatest threats lie, aggressive action is the best strategy,” the report says.

When deciding which parties to go after, brands should target the biggest offenders first. Go after those marketing the most counterfeit goods in the most highly trafficked venues, the report says. It also advises manufacturers and retailers to determine the counterfeit goods generating the largest sales, and target them first as well.

Other tips include:

  • Monitor for unauthorized use of brand names and terms in domain names.
  • Become a difficult target. Brands that vigorously fight back typically have the fewest counterfeit goods in the market, MarkMonitor says.
  • Report counterfeit goods being sold on marketplaces such as eBay and contact search engines to request the removal of ads linked to counterfeit sites. Additionally search engines have procedures to remove search results pages if they are found to vio­late copyright laws, for example, by using unauthorized product images.
  • Send notices to Internet service providers to remove sites they host that sell counterfeit goods.
  • Get help from trade associations. Associations such as the International AntiCounterfeiting Coalition, the Anti-Counterfeiting Group and the American Apparel and Footwear Association also provide resources and advice on best practices for fighting counterfeiters.
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