24.06.21

The Counterfeits On Marketplaces

Why is this a problem for all e-commerce, and what to do with it?
This article by Andrii Pavlenko, CEO Scallium, was published on the Rusbase media.
Here is the repost of it in English.

Fake goods constitute a big part of any large marketplace. They threaten the e-commerce platform's reputation and online commerce in general. However, this problem can be solved with hugely available methods.

A marketplace goal is providing purchasers with a variety of ranges and choices. Therefore, the marketplace is interested in attracting more suppliers (merchants) to the site. After all, marketplaces earn on commissions from sales, and more suppliers mean more goods. Hence, more purchases - more income.

The appearance of fake goods on a marketplace is just a matter of time because many sellers have access to the platform. Frequently, it's impossible to distinguish offers with counterfeits from ones with originals.

The users who bought fake goods lose confidence in a particular vendor or a brand and the whole marketplace. He perceives such a platform as a source of counterfeit goods.
Situation in numbers
Unfortunately, the share of fake goods is pretty huge among all goods offered in marketplaces.

In 2018, the United States Government Accountability Office conducted an interesting experiment. It determined that 20 of 47 goods on popular consumer sites turned out to be faked. E-commerce increasing is one of the reasons for that, stated the report authors. The more often consumers make an online purchase, the more attractive the e-commerce market for counterfeit merchants.

The splash of counterfeit products can also be explained by the vast number of Chinese goods on marketplaces. According to the U.S. Department of Homeland Security, in 2020, 80% of smuggled items came from Hong Kong and Chinese. Currently, sellers from Chinese constitute 75% of new suppliers at Amazon.

How much is it worth?

By the U.S. Department of Homeland Security report for 2020, the volume of fake goods in the USA in the last year amounted to $509 billion.
The problem for the whole e-commerce
Fake goods destroy brand reputation, whose products are counterfeited, and also the e-commerce platform, and the industry in general:
at the expense of the low price, fake goods can be shown on the higher positions at sorting offers in ascending price that decrease sales of original goods;
such sellers can infringe copyright using official depictions for selling counterfeit production. It becomes more and more difficult for computer algorithms to search out the infringing copyright announcements because of the skilled abilities of fake sellers in depictions manipulation;
such sellers can infringe copyright using official depictions for selling counterfeit production. It becomes more and more difficult for computer algorithms to search out the infringing copyright announcements because of the skilled abilities of fake sellers in depictions manipulation.
Proactive approach
With an increase in the number of dishonest sellers and fake products, the protection of a site and buyers necessitate a proactive, preemptive approach.

Amazon realized one of the means of eradicating fakes. Its project was named Project Zero. It urged brands to register in a unique catalog and provide data on their production, logos, trademarks, photo products, and other important information, including special goods codes.

All these instruments help business to prove that it produces and sells original goods. Automated Amazon system scans adding to the site goods. It compares them with ones that are represented in the Project Zero catalog, identifying among them as suspicious and that one should be subjected to a greater level of scrutiny. If the commodity code doesn't match with the producer code, the company can examine the product of such a seller more attentively or just delete it without any additional warnings.

It is possible to use automated tools, machine learning, and a set of appropriate criteria that might indicate suspicion of the fake product. For instance, a low price that is much below the market average is considered suspicious. Among other factors, requiring more attention to the product can become non-unique photos, a significant number of poor reviews, etc.

Marketplaces can explicitly prohibit sales of counterfeits in the agreement with sellers (SLA — Service Level Agreement). Moreover, this document can include specific forbiddance on counterfeit selling and a subsequent blocking of a seller, complete abandonment in the future, and imposing penalty clauses.

SLA is implanted in the IT platform where the marketplace works. It helps partially or entirely control the merchants' work with the minimal interference of collaborators on the marketplace. The goods moderation and suppliers- control functions are provided by such systems as PIM (Product Information Management) and MAS (suppliers cabinet). Ideally, it must be a unified system with a seamless module integration.

One more institutional step is creating the guarantee program only for sellers of original products and a rough reaction on the activity of fake goods sellers.

Stimulating programs for buyers that inform them about counterfeit on the platform can become an additional method to cope with this negative phenomenon.

Also, the marketplaces can create special conditions to support diligent sellers that reveal the source of goods and confirm their legitimacy.

Producers also have to join in the struggle for the original products. At a minimum, they can spread information about the authorized sellers. At the maximum – to design their protection programs against counterfeit goods.
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