Grossman, G. M., & Shapiro, C. (1988a). Counterfeit-product trade. American Economic Review, 78, 59‑75.
 Minsk and Rusk (2009). An ounce of prevention: Dealing with the threat of counterfeit pharmaceuticals
Let’s be clear; counterfeiting funds both organized crime and terrorists causes. It reduces legitimate jobs while creating slave labour and child labour environments that can be harmful and deadly. It reduces corporate returns on investment in innovation while reducing tax incomes for governments and increases law enforcement costs. Counterfeiting is a recognized global scourge that continues to worsen. The dilemma facing industry and governments is how to effectively engage and protect consumers who are unaware that their food, water, soda, alcohol, tobacco, household and electrical goods, medical prescriptions, auto parts and car tires may be counterfeit and deadly.
Counterfeit products can be segmented into deceptive and non-deceptive practices. The latter is where consumers can easily distinguish the fake product confirmed by its price, quality and sales location such as an expensive brand name product sold by a street trader at very low cost. Deceptive counterfeits on the other hand are often identical to the authentic product in price and packaging but not quality. They are indistinguishable to unaware consumers who are deceived into buying unsafe and often deadly products unknowingly. Furthermore, legitimate sales and distribution channels can be penetrated by unscrupulous criminals who deceive legitimate businesses and may have complicit insiders. As a result, brands may need to reshape their supply chains to improve transparency and trust. More importantly, brands must have adaptive and flexible anti-counterfeit measures and strategies in place. The ability to stay one step ahead of organized crime must include multiple methods for physical product security and packaging. Furthermore, educating business and channel partners and consumer engagement via mobile applications or online tools is essential.
Researchers have explored many aspects of counterfeiting including consumer motivations. Notably, Eisend and Schuchert-Güler (2006) who suggest four influential factors including; PERSON (e.g., demographic/psychographic attributes), PRODUCT (e.g., price/product attributes), SOCIAL/CULTURAL (e.g., social values/cultural norms), and SITUATION (e.g., home/travel/vacation variables). The motivation to purchase non-deceptive counterfeits is either personal or social and generally has a strong desire to ‘fit-in’. Researchers note the complexity caused by online sales of counterfeit products and the limited demand side (consumer) legislation and penalties for purchasing counterfeits with notable exceptions in Italy and France.
A 2009 study highlighted a global pharmaceutical company who was unaware that deceptive counterfeits of their widely-prescribed drug had infiltrated their legitimate US supply chain. After receiving consumer complaints and discovering the deceptive counterfeits, the cost of recall was allegedly in the 10’s of millions of dollars. The lessons learned were many and now includes regular audits and tighter controls on its legitimate supply chain.
Businesses and consumers do not purchase products knowing they may harm, injure or kill. The counterfeiters who deceive businesses and consumers are unscrupulous with little regard for human health and safety or the societal costs. Brand owners must continually strive to identify vulnerabilities and subsequently tighten their legitimate supply chains using standards based, interoperable platforms to facilitate transparency of products and information between trusted trading parties. Furthermore, to increase consumer trust, mechanisms such as mobile phone applications can help consumers to engage with brands directly and provide a valuable tool to verify product authenticity. The resulting consumer scans of unique serialized identifiers becomes critical business intelligence for brand owners to identify illicit trade, grey market and deceptive counterfeits.
INEXTO’s depth of experience enabling digital chain-of-custody solutions helps brands gain much-needed visibility, transparency and trust in their legitimate supply chains. Brands can verify the location and legal custody of in-transit shipments along the entire global supply chain, satisfying regulatory requirements and mitigating the risk of deceptive counterfeits and other forms of illicit trade.