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  • Part 1: Brand protection – a tricky field for Packaging

    von Prof. Dr.-Ing. Hans Demanowski 1. November 2020

    Forgery of Brand products is a well known problem, everybody is talking about, but with little evidence regarding hard facts. There are always some figures around, for example the “world-wide losses because of product piracy of about 250 Billion Euros per year”, or “losses of about 5% of the world-wide commerce”, but nobody really knows, what these figures are based on and where they really come from. There are some statistics, but they either show only a little – stochastic – section of the whole problem (e.g. Customs confiscations) or they are a rough guess with little confidence. And, in the end, what do global figures actually mean for my own company or Brand? The top down access seems to be difficult, even if we assume the global figures are correct (they are not, of course!). What do the “250 Billion Euros per year” really mean for my little fashion label? But also the bottom up idea is not as simple as it seems (more thoughts will follow below).

    But before starting any more consideration, the esteemed reader may ask, what has all this to do with packaging? And it must be confessed: indeed, nearly nothing. But life is different! As the problem is inconvenient, as it will be simply forgotten during the process of product design and development (where it actually belongs!) in many cases and as there is the feeling, that “something” must be done about it, anyway, many Brand owners will contact their packaging suppliers and ask them to solve the problem by securing “somehow” the boxes, bags or whatever. The devil takes the hindmost, and this is, in most cases, the packaging industry. For this reason, packaging experts have to handle also Brand protection problems, although the box is only seldom the ideal place for protection measures (because it will be thrown away, after taking the product, and won’t be available any longer, when it comes to prove the originality of the product contained).

    But back to the facts. The uncomfortable truth is that forgers do not publish turnover or income figures. Profits must be high, indeed (some police experts guess that counterfeiting is ten times as profitable as drug dealing – with much milder punishments!), but how much this means in Euros and Cents remains secret.

    This is quite nice for some responsible people in big Brand companies, because as long as they don’t know how much they really lose to product pirates, they do not feel any necessity to act. It is like sitting in an airplane and feeling save, until you discover the smog, which might be too late, then. In the field of Brand protection, the smog is quite hard to discover. Maybe, you feel your sales figures are not as high as you’ve expected, maybe the number of reclamations is bigger than it should be, maybe you are losing Customers, but all this could have, in the end of the day, many other reasons but just counterfeiting.

    Brand protectors have a hard life, as long as the real size of the problem remains unclear. If you ask some people, responsible Brand owners as well as average Customers, a majority will tell you that Brand protection is “very important”. So far the good news. As soon as you ask the same people how much they are ready to invest into Brand protection or how much they are ready to pay more for secured products, you will hear them, wonderingly, say “nothing”. This is, of course, a contradiction in itself. It is not logical, too, because every action in production and distribution of goods is a cost factor – why should Brand protection be none? The success of marketing spending cannot be measured directly, as well. But no one will doubt that it is necessary for best sales results. Why don’t we accept that investments in Brand protection are as necessary, as well? Every little market share, we are able to win back from the counterfeiters, improves our turnover and our profit, while the risks (e.g. of claims and reclamations – caused by counterfeit products, which can cost a lot and must be paid from our net income) are reduced. It is still a long way to convince people of this simple truth.

    By the way, sometimes it is not possible to get all markets back from counterfeiters, as there are special market shares, which are “created” by the forgers and can be served only with counterfeits. One example are high-priced luxury goods, such as expensive watches, which are bought as long as they are cheap (because counterfeit), but which cannot be afforded by such buyers as originals, due to the high prices. This is not a real market for originals. On the other hand, some of these markets could be the entrance for some – not all – of the Customers. Let me tell you one true story: The author of this article once bought in Shanghai, China, two counterfeit Mont Blanc Pens for altogether 5 Euros. They really looked good. But they did not work well. In the end, the frustrated author went to a shop and bought one real Mont Blanc Pen for more than 500 Euros, which perfectly works until today. As you see, there are not only black and white but also many shades of grey in this field.

    Hard figures can help to prove the sense of anti-counterfeit measures, but how to generate them? If the top down access is not realistic, how about the bottom up idea? It will be much closer to the concrete production of a Brand owner. But also this philosophy delivers, for the time being, more questions than answers, alas. Some basic figures are needed to calculate, and they are difficult to find. Theoretically, a broad field survey, where all originals of a certain product are traced, could be carried out, in order to discover, how many counterfeits are in a certain market. In reality, nobody would pay for this, and for certain reasons, such access would not be useful to solve the problem, anyway. Other methods must be developed, to create the basic input figures!

    First of all, you need a realistic guess how big the damage by counterfeiters is. The protection measures must not be higher than the losses, otherwise your disadvantage will increase, and not drop. In theory, you may invest 99 Euros to avoid a damage of 100 Euros, and will win 1 Euro net. But this is not the whole truth! It does not take into account, for instance, that the protection measures may (will!) be less effective than 100%. All security measures, including the most sophisticated, do have an effectiveness of less than 100%! If the effectiveness, in our example, of your measures is only 90%, you will already lose about 10 Euros (a bit less, indeed), instead of winning one, because 10% of the counterfeits will overcome! Therefore, you need a realistic guess of the effectiveness of your protection. But this is not all, by far.

    You must not expect that any protecting measures will perform constantly during a longer period of time! Counterfeiters will engage in analysing your features, as soon as you put them on the market, and find ways to simulate them. The longer they try, the better they will bypass your measures. This is not a linear process, but an exponential one. And it means, the effectiveness of anti counterfeiting measures is (exponentially) reducing, the longer they are in place, the faster, with a heavy unexpected dam failure somewhere down the line. This could be driven, as described, by the counterfeiters efforts, but can be caused by external technical developments, too. One example is the broad availability of colour copying machines in the beginning of the 1990. Such technology was unknown until then, and the Central Banks had huge trouble to secure their currencies against colour copying. They did this by introduction of optically variable devices, such as holograms or colour shifting inks, because these features cannot be sufficiently reproduced by a copying machine. This was a typical external effect beyond the scope of the counterfeiters, but rapidly used by them as soon as they found out its high advantage for their “business”.

    At the time being, there are no sufficient answers to the above questions, as well as reliable estimation procedures still need to be developed. But research is in progress.

    Another cost factor which must not be forgotten is the maintenance cost for many protective features. If you need some machines to check them, you must put these machines to the checkpoints, you must equip them with fuel and consumables, you must repair them, if necessary, you have to teach the personnel to use them. If you prefer features for public use (by end Customers = “public features”), you need to market them intensively, otherwise they will not work. Customers need information that such features exist, they need motivation (and sometimes instructions how) to check them and you need a feedback from them, if counterfeits are detected. Otherwise the features are in fact there, but nothing positive happens. The responsible implementation of a security measure is much more than just the application of a security feature!

    The use of public security features by end Customers depends on many factors, including psychological ones. The readiness to check (and to report counterfeits) sharply depends on the product category. While most Customers are quite sensitive and ready to check (and report fakes) in the fields of pharmaceuticals and food, they are much laxer when it is about expensive fashion or so called status symbols (which they could not effort as originals, in many cases). The risk of a counterfeit product is considered much lower than in the field of pharmaceuticals, as long it looks nice and performs sufficiently. Such behaviour is not constant through all groups of Customers. Broad surveys amongst around 300 participants have shown interesting differences, which could not be expected.

    Young women (20 to 30 years) are much stricter than elder ones (over 50), when it comes to buy fashion accessories. The first ones wish to buy only originals, and pay the price, the latter do not matter, as long as the look and the performance of the product is ok and they can save. Young men (20 to 30 years) wish to buy only original technical gadgets, such as smart phones etc., while elder men are pleased with a sufficient function, even if the product is counterfeit, but cheap. It is up to the psychologists to explain these differences!

    There are even more complicated cases. Unless it is well known that counterfeit brake discs bear a life risk when used, many people are ready to use them for the cost saving. The same people would never buy a counterfeit remedy, because of the high risk. Such cases illustrate that there is no “standard solution” for all kinds of products, and no “standard security feature” for all uses. A tight analysis of each single case is absolutely necessary, including a check of (hidden?) targets of distributors, traders and, last but not least, final Customers. If the latter buy counterfeits intentionally because they are cheaper and thus affordable, it is a huge mistake, of course, to delegate the security check just to them. In other cases, where the Customer is worried about his health, it might be possible.

    Last but not least, we have cases like the “Viagra paradox”. Viagra is a high priced life style drug, which shall improve or return masculinity. It is used by men with virility problems. Due to the much lower price, they tend to buy fake Viagra on the internet. The fake contains no or much less active agent than the original drug. Some consumers may then think, it is too late for them, to get help even from Viagra, not realising that they bought a fake. Others will find out that they have been cheated. But as the most intimate sphere of life is affected, the duped buyers will refrain from informing the police, as they would have to disclose their most hidden health limitation, which is a question of personal honour. This makes Viagra (and some other drugs) the “ideal” target for counterfeiters, because the risk to be caught is near zero, while the profit is really high.

    The examples illustrate that psychological aspects must be necessarily considered when anti-counterfeit measures are prepared.

    After general considerations like the above mentioned, it will be possible to evaluate technical and / or logistical options for the implementation of a security system. This will also deliver important input for the calculation of effectiveness of measures and the general cost, which must not be higher than the actual losses.

    (to be continued: 3rd Dec. part two – 4th Jan. part three)

    Dr.-Ing. Hans Demanowski is professor for Packaging Technology in Beuth Hochschule für Technik, Berlin. Before that, he has spent many years in Security Printing and worked for Companies like the world marked leader in banknote printing, Giesecke & Devrient, Munich, and the German federal state printing works, Bundesdruckerei Berlin. In Bundesdruckerei he had the position of an Vice President Banknotes and Banks, which included the responsibility for stamp and tax label production. In tight cooperation with Deutsche Bundesbank and the European Central Bank, he developed the standard Technical Specification for Euro Banknotes, being used in all printing works, producing the Euro Banknotes all over Europe. He was member of international organisations, such as Banknote Printers Conference and International Postage Stamp Printers Association. In Beuth Hochschule Berlin he offers, among others, the Module Counterfeit protection for the Master Course in Packaging.