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Black Friday is the New Gold Rush for Counterfeiters

How Can Retail Brands Protect Consumers from Buying Fake Products?

Oleksandr Rivkind

CEO & Co-Founder, SigmaLedger
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  • Retail & Distribution

2018: A Record-Breaking Year for Black Friday Online Shopping

It was a record-breaking year for Black Friday shopping, as more than 165 million Americans shopped either in stores or online from Thanksgiving Day through Cyber Monday, which is consistent with NRF’s forecast of up to a 4.8% increase in holiday spending. In fact, US online sales were predicted to increase by 14.8% for a total spend of $124.1 billion, while offline retail spending was expected to increase by only 2.7%. Additionally, purchases over the long weekend showed new trends coming from younger consumers, with millennials spending more than any other generation at an average of $149 on holiday purchases.

Three Key Consumer Behaviors that Could Lead to Retail Fraud

Last year alone, an estimated $482 million was lost on Black Friday from millennial shoppers who unwittingly bought counterfeit products online. This year, 73% of millennials planned to shop online for Black Friday, with a quarter of shoppers likely to make impulse purchases. Studies of consumer behavior on Black Friday consistently show deviations from standard buying patterns. As online shopping surges during the holidays, it’s no wonder that counterfeiters of all kinds become more active.

Here are some of the reasons that drive changes in buying behavior, which are actively taken advantage of by counterfeiters:

Planned vs. Impulse Purchase and FOMO. On a normal day, consumers exhibit one of the two major shopping behaviors – planned or impulse purchases. With planned purchases, consumers carefully weigh the necessity of an item before buying it. On the other hand, consumers who impulse shop act immediately and are often driven by emotion or a previously unrecognized desire. During the Black Friday shopping period, consumers exhibit a combination of two behaviors – purchases are planned in advanced and postponed until Black Friday with the hope of catching a good deal. When Black Friday arrives, consumers are much more likely to make an impulse purchase while searching for a good deal, jumping on a suspicious deal out of fear that it will sell out or expire. This often leads to purchasing a counterfeit product.

Different Pricing and Offering Patterns. Most consumers can recognize a suspicious deal outside of the Black Friday shopping period. Typically, consumers monitor varying price ranges and account for modest discounts that retailers and brands offer. When a deal looks too good to be true, consumers become suspicious and extra cautious. They keep their guard high, examine the deal and usually walk away. However, Black Friday does not follow regular pricing patterns. Consumers expect to see significant discounts, which in some cases can reach 40-60% off of a product. And while it is still unreasonable to expect a 60% discount for say high-end TV set, it is very easy for consumers to let their guard down and buy what they later discover to be a counterfeit product.

Chasing the deal. Many attractive deals are limited in the timeframe or inventory size. It’s not rare to see a deal selling out within minutes, and it’s also common for a product to sell out in multiple stores. While searching for a store where the product is still available, disappointed consumers will often find products in suspicious places where they would never consider shopping on a regular day. Counterfeiters make it even easier, especially online, by creating various respectably looking online stores, deal navigators, aggregators, etc.

How Can Retailers Prevent Counterfeiting?

Online fraud prevention methods can be organized into five categories. Let’s unpack the pros and cons specific to Black Friday for each of these approaches:

Physical alteration is one of the most reliable and expensive methods of protection. Unfortunately, this approach requires special equipment for testing, which is usually not available to consumers ad hoc during the Black Friday shopping period.

Copy-protected tags is an umbrella term for various methods that prevent counterfeiters from physically replicating tags. Some examples include holograms, high resolution printing and invisible dots. Some companies specialize in inventing new types of copy protected tags. However, this is probably one of the most widely used and least reliable protection methods. Reports show that it usually takes about 5-10 days for counterfeiters to find a workaround for copy protection. On Black Friday though, buyers have little time to examine the tag, which makes it hard for them to spot a fake. Also, the acceptance barrier is much lower on Black Friday and, when choosing between a suspicious hologram and good deal, the consumer usually decides to buy.

Consumer education requires consumers to learn specific details about the product that makes it hard for a counterfeiter to replicate or that is previously unknown to the public. This method is popular for clothes, bags, shoes, accessories and more. The problem with this approach is practically the same as with the previous one. Once specific details become public knowledge, counterfeiters take this into account when manufacturing fake products. Also, given limited time during shopping on Black Friday, it is difficult for consumers to, for example, verify the distance between stitches. Unfortunately, since this method does not require additional investment in protection, it is actively used by companies.

Traceable tags are the newest and most promising approach. Traditional approaches with serialization to central databases have evolved into solutions based on Distributed Ledger Technologies (DLT). Companies like SigmaLedger offer new types of protection, which makes physical tag copying useless for counterfeiters. With this approach, consumers don’t need special equipment, and can simply use a mobile app to scan the tag and verify authenticity of a product. These solutions typically support various physical tags, such as QR, NFC and more. Verification occurs on the server side, making it extremely hard for a counterfeiter to break in. Unfortunately, the adoption rate of this method is not high. Many brands and retailers are piloting such systems, but it will take some time until they go live.

Conclusion: Moving Forward to Protect Consumers from Fraud

Traditional retail fraud prevention methods are becoming obsolete because counterfeiters are finding ways to work around them. As counterfeiters continue pervading the market and taking advantage of changing consumer behaviors especially during Black Friday, brands will have to carefully consider new solutions for fraud prevention to stay ahead of counterfeiters and protect consumers from online shopping scams. Otherwise, retailers can expect to continue losing millions in potential sales and experience a decline in consumer trust.

 


About the Author

Oleksandr Rivkind has more than 18 years of experience in software development, management and design of mission-critical, distributed and high-performance systems, including creating solutions for capital markets, supply chain and counterfeit prevention.

Mr. Rivkind is currently the CEO of SigmaLedger, an innovative Blockchain-based online platform and service, focusing on supply chain transparency, traceability, counterfeit prevention and direct marketing.

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