Print ensures brand safety in black market

Nityanand Shenoy, the managing director, PRS Permacel looks at the methods employed to violate a company’s intellectual property. In the first of a four part series on anti-counterfeiting measures which will help safeguard against piracy risk.

26 Mar 2013 | By PrintWeek India

We all know that counterfeiting involves production of products and/or services that is protected by an owner’s intellectual property rights by unauthorised person or his company. In short it’s a violation of intellectual property rights, with intention of making profits.

Counterfeiting has now become a global business. In India it continues to be a bane to the Indian economy as well as to the world-wide image of the country. India’s globalisation approach and subsequent opening up for direct foreign investment has been good for the country’s economy, but its status as a low-cost manufacturing base had opened up space for counterfeiters as a hot location for fake goods for both domestic as well as exports. 
According to Havocscope, a global black-market information source, India’s counterfeit market for the present year is valued well above $ 5-billion, with auto parts comprising a major part of this. A FICCI survey estimated the loss of the Indian exchequer by way of taxes to be roughly around Rs 1,000-crore every year. 
The problem of counterfeiting undermines the prospects of brand, both international and local. It not only causes loss of roughly 4% to 10% of their annual revenue and profits but the brand credibility in the eyes of the consumer.
So what’s a brand? Brand is considered the most valuable asset of a company.  In many firms, the ‘Brand Value’ is higher than the market capitalisation of the company.
In today’s business environment, most well-known brands and brands with strong consumer pull are under attack.  To actually design an effective solution to fight ‘brand attack’, it is necessary to understand the various forms of brand attack.
How are brands attacked?
Brand attacks are tactics which are mostly immoral, and particularly imitate products, highlighting its more positives attributes in a different garb. There are four main types of brand attacks.
Tampering: To tinker with the product or packaging or both with an intention to steal, replace, modify or adulterate.
In the Indian environment, this is very prevalent. Opening of secondary packaging in transit is very common across various industries. Though authentic figures are not available, it is estimated that 1% to 3% loss is incurred by companies due to pilferage or damage during transit.

Replication: Here a product or a packaging is replicated or both with the intention of fooling the customer by creating an impression that he is buying the original. Replication has various stages. 
Stage I is a look alike. These are replicates, which rely mainly on shape/colour of the original.  Commonly found in FMCG products, these are mainly seen in the rural parts of the country.
State II is pass off. These are replicates in which the colour as well as the shape are same. The brand name is also very close alike. For example, Colgate would become Coalgate, Parle-G becomes Parla-G or a Yardley is spelt as Yarley. These are meant to fool the uneducated and in places where goods are purchased in a hurry.
Stage III is duplication. This is a replication, which may not fool the regular buyer of the product but would definitely fool the first time buyer.  In many cases, the packaging is of good quality and the product is also not so bad. The appearance of duplicates should serve as a definite warning sign to ‘brand owners’ to wake up from their deep slumber and act.
Stage IV is counterfeiting. This is the highest level of replication.  The product and packaging are so perfect that it can fool most buyers.  Only few brand owners personnel can actually make out the difference. If any brand owners product is getting counterfeited, it is a danger sign that sales of that brand is going to be badly affected soon.
All the above are also termed broadly as ‘spurious’, ‘jalli’ or ‘nakli’. Replication form about 75% - 80% of all forms of brand attack.
Diversion: It’s a form which diverts the product from the market and sold to other markets. In this case, the sale proceeds go to the brand owner, but is normally associated with a significant profit loss. 
This normally occurs when sub-contract manufacturer selling direct to market; differential prices between industrial and consumer markets; country specific licences selling into different markets; poor control over disposal of seconds; and done with knowledge of insider.
This kind of brand attack is on the rise as sub-contracting of manufacturing activities has become a norm. 
Recirculation: Recirculation the original packaging and filling with substandard products. This problem is mainly in developing countries, which have a tendency to sell the packaging without actually destroying it.  In many markets, there are organised rackets for the purpose of collecting the packaging.  In some cases, the dealer himself offers to give a small discount to take the packaging back.
Recirculation cases have been reported in the IMFL industry, auto spares industry and bottled water industry.
All the above forms brand attack are present not only in India, but across the globe.
Today ‘brand attack’ has become a very hot topic across the world.
Impact of brand attack
The impact of brand attack can be felt across the whole value chain. They include, brand owner, brand user (customer), brand distributor (wholesaler/retailer), government and society. 
For the brand owners, it’s a loss of sales, which actually should have been his; loss of profits as well as opportunity for higher profit margins accruing from higher sales; loss of market share; losses due to channel partner claims; repeat customer loss; loss of image, sales team frustration and above all management time loss.
The impact of brand attack on the customer largely depends on the nature of spurious goods, which he has procured unknowingly. In case of automotive spares, a defective spurious brake part can lead to accidents.  Additionally, a defective spurious filter can damage his engine; in case of pharma products, spurious drugs can cause harm to the patient as most spurious drugs lack the efficacy and desired ingredients to cure; and in case of spurious beauty items, the customer may be left with body rashes.
In all such cases, the customer is cheated, gets frustrated and may demand compensation.
The impact on the channel varies in nature. There could be a loss of goodwill in the area of operation, likely dispute with the brand owner or get wrongly implicated in case of raids.
The impact on the Government is serious and is mainly financial. The government loses excise duty, income tax and custom duties.
The impact on society is long term in nature. When there are large areas in any country, making ‘spurious’ goods, social values like honesty, respect for law etc. are impacted; country’s image is tarnished; pressure on law enforcement authorities keeps on increasing; and overall governance costs rise.
Brand attack – why?
There are three reasons. Brand owner related issues, channel related issues and consumer related issues.
From the brand owners’ point, it’s the very high differential cost in manufacturing the original and the spurious goods. The spurious goods barely needs marketing or brand enhancing expense nor pays any taxes, hence the counterfeiters have huge operating margins. Non-availability or short supply of genuine parts gives brand attackers opportunity of filling in this gap very easily. Also the physical flow of goods and communication flow is different. For example, in the pharma industry, communication flow is to the doctor, while the goods are delivered to wholesaler/retailer and purchased by the customer.
In some ways, the consumers are also responsible for the flourishment of counterfeiters. Many consumers just do not care. They buy such goods knowingly and willing – cost consideration here is a major driver. There are lifestyle products, which drives the rich and super rich to scout the internet and end up buying spurious goods. Cost of protection solution in many cases force the decision makers to shun its use.
In channel related issues, profitability has lead to many support brand attack. 
What next?
In many companies, the onus of brand protection is assigned to the packaging development department, but they focus on reducing packaging cost.
Zero brand attack is an utopia.  Brand owner can only take action in reducing the overall impact of brand attack.  
Better management and use of effective brand protection solutions can result in brand owners getting better sales and market share; consumer getting the right products at the right price, government getting better revenues and a satisfied and loyal channel.
But for that, brand owners will have to show a strong will to fight the menace.
(Nityanand Shenoy is the managing director of PRS Permacel, an important players in the automative graphic segment. A division of PRS Permacel, Kavach, is dedicated to help brand owners fight the menace of counterfeiting, duplication, re-circulation, diversion, refilling and various other forms of brand attack. It provides customised and technical security solutions to its customers for brand protection. The March issue of PrintWeek India will carry part II on this subject.)