Attitudes to buying fakes on online marketplaces: Part 1 – the scale of the issue

Ed Seaford

Changes to retail and the rise of the counterfeiter

Evolution is the key to success in this fast-paced retail world. The explosion of the Internet has meant that the customer controls the sales process; they may enter a store find a product they like, only to use their phone to find a cheaper seller online.

Some say that the Internet is the death of retail; however, major shifts in retail are nothing new. McKenzie & Company highlights that there’s historical precedent for this kind of upheaval, which recasts the industry’s winners and losers. Within the past century:

  • local corner stores gave way to department stores and supermarkets
  • … which then gave way to suburban shopping malls
  • … then to discount chains
  • … and then big-box retailers

Each of these shifts unfolded faster than the one before, and each elevated new companies over incumbents.

Today, it’s the Internet retailers and online marketplaces such as Amazon, eBay and Alibaba that are exacting their scale and operational cost efficiency to drive greater competition in the retail industry.

Retailers who have recognized this opportunity (and threat) and implemented omni-channel sales strategies have not only kept up, but also flourished.

American fashion retailer Nordstrom, for example, has invested heavily in innovation and data-driven, personalized customer experiences online. It has a strong Pinterest presence and fan base, and tracks its pins to identify trending products. It then uses this social data to promote those trending products in-store. In fact, Nordstrom invests almost 30% of its capital budget on technology.

The rise of the counterfeiter: price is more important than brand trust

A report by PwC into attitudes to counterfeiting shows that despite 90% of respondents believing it to be morally wrong, they were far more worried about losing their bank account details than getting caught. The problem may get worse: price is now the top factor in why young people buy counterfeit goods. For many Millennials, purchasing decisions are driven solely by price at the expense of brand trust, in stark contrast to older generations.

The below graph outlines attitudes to counterfeiting, with price and quality being the determining factors.

 Attitudes to fakes pt 1

(Source: PwC report Counterfeit goods in the UK. Who is buying what, and why?)

The rise of online marketplaces

Online marketplaces are thriving. Amazon has over 294 million active customer accounts all over the globe; eBay achieved $18 billion in sales worldwide in 2014; and Alibaba recently claimed the title for the largest IPO ever, selling $25 billion in shares.

For many, these marketplaces offer a cheap and easy way to buy the brand they’re looking for. More than 90% of products sold on these sites are from legitimate sales channels, but given the sheer number of transactions that occur every day, that still leaves millions of potentially unauthorized products and listings.

Both Amazon and eBay have programs to address fakes, and encourage brand owners to take advantage of them. At NetNames, we submit thousands of take-down notices a year on behalf of our customers, and in many cases the marketplaces are quick to take down infringing listings.

Wholesale marketplaces such as Alibaba and Taobao, whose sellers are predominantly Chinese, present a different challenge. Many of the listings are clearly counterfeit and advertise minimum order quantities of up to 100,000 at a fraction of the manufacturer’s suggested retail price (MSRP). Whole factory networks are set up to deal with demand.

Counterfeit products sold through these marketplaces are distributed around the world, and in many cases make their way to retail marketplaces such as eBay and Amazon, and are sold to unsuspecting consumers as being the real deal.

So that presents a quick insight into the extent of the problem. Next week, we’ll look at how brand holders can fight back.