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By Michael Kessler
You’re in an enormous warehouse, filled with thousands of garments bearing the names of all the top designers: Donna Karan, Ralph Lauren, Tommy Hilfiger, Calvin Klein, Guess?, Nike. Some of these items would cost hundreds of dollars in a retail store, but these will be sold for a few dollars apiece. Is this the deal of the century? An annual warehouse sale? Not exactly. This is the world of counterfeit goods, and the items being assembled here are part of the reason US companies alone lose $200 billion dollars a year.
Counterfeiting used to affect only a few businesses—high-end watch makers, for example, or handbag designers. These industries still suffer, but counterfeiters today have branched out considerably, making use of modern technology and the deep pockets of organized crime to develop a wide range of unauthorized goods, from baby food to birth control pills. Consequently, counterfeiting is no longer a victimless crime that merely saps some of the profit of large corporations. Unwary consumers have suffered, some have died, and business executives today are becoming increasingly aware of the threat this crime poses to their companies reputations and financial well-being.
Overcoming the “Ostrich Mentality”
Business leaders in the past often ignored product counterfeiting as a real threat, as if not seeing the problem eliminated it. But today, industry leaders are taking steps to address counterfeiting directly and publicly. Chanel, for example, spent over $1 million last year funding Operation Pipeline, the largest undercover sting in New York history, and recovered approximately $27 million in goods as a result.
There are many businesses that now recognize counterfeiting for the threat that it is. Suppose a well-established business sells a line of cosmetics—and another company, instead of producing its own line, begins selling the exact same cosmetics—same brand name, same packaging, same everything. The first company would be furious, right? The second company is using the name and products of the first company and then keeping the profits. So the first company sues, and the lawyers jump all over the bad guys for stealing business. While some people hold this will not happen because of trademarks, it happens everyday. It’s called counterfeiting and it is perpetrated against companies producing products with brand name recognition by companies that want to reap profits from trading on another’s good name and reputation for quality.
Lost market share is one reason why many companies are now addressing counterfeiting as a high priority; reputation is another. Counterfeit goods are simply bad business. Consider the cases of Similac baby food and Head & Shoulders shampoo. Consumers who unknowingly purchased counterfeit Similac were feeding their babies generic baby food with Similac labels, and many of the infants refused to eat the lower-quality food; some developed rashes or even experienced seizures. Users of fake Head & Shoulders shampoo were exposed to bacteria that made people with weakened immune systems ill. Both companies addressed the problem, but it is impossible to say how many consumers now hesitate to buy these products because they fear purchasing tainted goods. These companies’ reputations have suffered.
As counterfeiting continues to grow rapidly on a worldwide scale, companies are being forced to take their heads out of the sand. Customized proactive programs are becoming increasingly popular and customers are likening it to insurance. A proactive company sets aside money in the budget to protect itself from counterfeiting and diversion just as it protects itself from fire by purchasing an insurance policy. It makes sense in today’s world for a business to spend a little money today to save a lot of money tomorrow.
Michael Kessler is the President of Kessler & Associates. He can be reached at 212-286-9100 or email: pvteye@pipeline.com
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