Report: Two-thirds of D2C Businesses Face Counterfeiting

Direct-to-Consumer (D2C) businesses are facing unprecedented levels of counterfeiting within their industry. As brand protection efforts improve, and as public awareness of this criminal market industry develops, the counterfeiters have responded by becoming more resilient. While there is profit to be made off legitimate businesses, they will continue to find ways to peddle their illicit goods. 

‍

MarqVision has published the 2023 State of Brand Protection Report - D2C edition to investigate the state and effects of counterfeit goods targeting D2C companies. The Report surveyed 295 legitimate D2C brands to find current trends of online IP infringements affecting D2C businesses.

‍

In this article, we’ll summarize the most important findings and delve into what they could mean for brands in the D2C industry.

‍

‍

‍

Counterfeits Across Every Platform

The explosive growth of the internet over the past decades has created countless popular platforms and provided new opportunities for individuals and businesses to find success. Unfortunately, this applies doubly for counterfeiters. The 2023 State of Brand Protection Report found that 68.1% of D2C businesses have encountered counterfeit copies of their products. 

‍

Question: Where were the counterfeit versions of products being sold?

‍

‍

The results of this question provide a clear view of counterfeiters’ adaptability and customer reach. Fake websites, often designed to imitate the site of the legitimate brand in order to trick customers, were the most commonly seen platform used by counterfeiters to sell their products, with 59% of survey respondents having seen this before. 

‍

However, the existence of fake websites isn’t the key point here. The diversity of sales channels available to counterfeiters is the real issue brands should focus on. With online marketplaces (US: 56%, non-US 41% ) and social media platforms (25%) all contributing in a major way to the sale of counterfeit products, the problem now becomes apparent. 

‍

For many D2C brands, the diversity and complexity of the counterfeiting issue have become a major sticking point in their brand protection efforts. With marketplaces, rogue websites, and social media platforms all having their own distinct process for reporting and removing fake products, sustainably protecting a D2C brand online can quickly become an overwhelming task.

‍

‍

‍

Protecting IP in Asia

The globalization of world trade has also created new opportunities for counterfeiters - and a new layer of complexity for D2C companies to keep their brands protected. Keeping track of how your business’s IP is being used in your country of origin is a significant task by itself. Extrapolate this to the setting of an interconnected global economy, and the true scale of the problem should become apparent. 

‍

The graph in the previous section shows a relative parity between US and non-US marketplaces. However, when put into context, the skew toward Asian marketplaces becomes more clear.  While 41% of counterfeit products were reported as coming from non-US marketplaces, 69.1% of our respondents were American, and 91.7% were from either the US, the UK, or Canada, showing a major overrepresentation of counterfeits sold from Asian marketplaces.

‍

There are many reasons why Asian-based marketplaces could cause such a headache for brands. The simplest is scale; since around 6 in 10 people live in Asia, it is content with the highest potential for demand. Factor in Asian economies having around 61% of the purchasing power of Europeans, it’s clear to see why this demand might slant towards cheaper, or even counterfeit, products.

‍

Question: What would you say is the most difficult platform to have counterfeits removed from?

‍

‍

Our results show a clear pattern: D2C companies find removing counterfeit products from online marketplaces based in Asia to be extremely difficult. 49% of respondents reported Asian marketplaces to be the most troublesome platforms for their brand, with American sites (26%) as the next biggest problem. 

‍

Platforms such as Alibaba, Taobao, JD, TMALL, 1688, and others are not only tremendously popular sales channels in Asia, but they also prove to be particularly troublesome for legitimate businesses to protect their IP on. 

‍

Another explanation comes back to China’s famed disregard for the intellectual property of foreign businesses. A study found that 30.3% of American CFOs claim their business had been the target of IP theft from Chinese companies in recent years. So, a claim that there is a greater disregard for foreign IP within China than in other countries wouldn’t be totally unfounded, despite Chinese online marketplaces such as Alibaba doing their part in the fight against online counterfeiting. 

‍

Question: Why haven’t you taken legal action against those violating your IP?

‍

‍

‍

‍

Crushing blow to reputation

That counterfeits have the ability to ruin a legitimate business’s reputation is not new information. This has been long known by brands who have faced their own inundation of cheap, low-quality replicas of their products. It should come as no surprise that D2C brands have a real fear of counterfeits ruining their brand’s public perception. 

‍

Question: What is the #1 way you feel counterfeit products have impacted your brand?

‍

‍

Without the ability to perform quality control over illegitimate products that bear a business’s trademarked name, a growing association between their products and a low standard quality can develop very quickly. 

‍

Many consumers do intentionally search online for replica products, hoping to save money without sacrificing quality. However, the damage to a brand’s reputation comes from unwitting shoppers - people who are duped into buying a fake product, having fallen for clever marketing and theft of official product images by counterfeiters. Many of these customers will never find out that what they bought was a knock-off, and their opinion of the legitimate brand could be forever tarnished. 

‍

‍

‍

Strategies to Protect D2C Commerce Against Counterfeiting

The findings of this report should not spell doom and gloom for direct-to-consumer brands. While counterfeiting is unquestionably a major problem for IP-driven brands, working with a robust brand protection strategy can ameliorate the problem significantly. 

‍

Let’s take a look at the three best ways brands can protect their IP and the future success of their business. 

Register IP in Asian Countries

Simply registering intellectual property in your home country may not provide enough coverage for a watertight brand protection strategy. International agreements like the Madrid System have made it easier to internationalize your registered trademarks, and D2C brands are highly recommended to take advantage of these opportunities. 

‍

So, before you can protect your IP online, you need to make sure it’s properly registered in all key regions. Particularly in countries like China which use a first-to-file trademark system, these registrations are a critical first step to get right.

‍

Interested in a simple and powerful tool for creating and managing your global IP portfolio? Take a look at Marq Folio, the revolutionary way of scaling up your brand’s robust IP presence everywhere you need it. 

Expand the Search for Fakes

Many D2C businesses who are inexperienced in brand protection have made the assumption that monitoring domestic online marketplaces is enough to stop the problem. To fully protect D2C commerce online, this search has to reach everywhere that counterfeits of a brand’s products are being sold. 

‍

Conducting research into your own brand’s fakes is a recommended next step. Find out where the fakes are being sold, be it on rogue websites hijacking your trademarks and copyrighted materials, on foreign online marketplaces, or on popular social media channels. Find the most popular channels, then focus future searches for fakes there. 

Work With Brand Protection Partners Experienced in Asia

Even with a solid understanding of the counterfeiting targeting your D2C brand and internationally registered IP, brand protection efforts can fall short. The growth of counterfeits being sold online isn’t slowing down, and if there’s profit to be found by infringing on your IP, counterfeiters will not be deterred easily. 

‍

With the volume of fakes coming from Asian countries and the proven difficulty of companies struggling to enforce their IP rights in Asia, the best solution to counterfeiting woes is to find a brand protection partner with true expertise in dealing with Asian marketplaces. 

‍

With branches in Asia, Europe, and America and a team of brand protection experts from around the world, MarqVision is the all-in-one solution for D2C businesses to reliably protect their IP everywhere.