Countering Counterfeiting
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 U.S. 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
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this crime poses to their company's
reputation and financial well-being.
Overcoming the "Ostrich Mentality"
Business leaders in the past often ignored 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. According to Michael Kessler, Chanel is
only one of many businesses that now recognizes counterfeiting as the
threat that it is. "Suppose you sell cosmetics," says Kessler, "and another
company, instead of producing its own line, starts selling the exact same
cosmetics you do-same brand name, same packaging, same everything. You
would be
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furious, right? How can they use your name and your products, and
keep the profits? So you sue them. You wouldn't think twice about it. You
would have your lawyers jump all over them, spending whatever you had to
to make sure that this other company didn't steal your business. Some
people might say that this could never happen because of trademarks, but it
happens everyday. It's called counterfeiting, and if your business is
producing items with brand name recognition, there are other businesses out
there producing the same items to compete with yours.
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Avoiding a Tarnished Reputation
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
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Product Diversion
The Biggest Threat You Never Heard Of
Diversion, also called "parallel trading" and "gray goods", is the
exploitation of pricing differentials between different wholesale levels.
Suppose, for example, that your company manufactures widgets retailing for
$49.95 which you sell wholesale to domestic distributors at $19.95. Each
widget costs you $9.95 to make. Now let's say that your sales team gets a
call from an overseas retailer who wants to sell your widgets abroad. This
new retailer will order a huge number of widgets and will pay for the
shipping, provided that you agree to sell the widgets at $12.95 apiece.
Your sales team
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