1. Counterfeits:
Measuring it Fighting it
Prepared for: The American Chamber of Commerce
Prepared by: Spire Research & Consulting
Date: 16 February 2011
Counterfeits: Measuring It Fighting It Date:16 February 2011 Page 1

2. Impact of Counterfeits
World wide estimates seem to have coalesced around $500–600 billion annually
(International AntiCounterfeiting Coalition [IACC], 2007; Punch, 2005)
Counterfeits: Measuring It Fighting It Date:16 February 2011 Page 2

3. Impact of Counterfeits
World wide estimates seem to have coalesced
USD Billion around $500–600 billion annually.
600
500
400
Worldwide estimates
300 GDP of Thailand
GDP of Singapore
GDP of Malaysia
200
GDP of Philippines
100
0
Worldwide GDP of GDP of GDP of GDP of
estimates Thailand Singapore Malaysia Philippines
Counterfeits: Measuring It Fighting It Date:16 February 2011 Page 3

4. Impact of Counterfeits
World wide estimates seem to have coalesced
around $500–600 billion annually.
USD Billion
600
500
400
300
Billion
200
100
0
Worldwide GDP of Thailand GDP of GDP of Malaysia GDP of
estimates Singapore Philippines
Counterfeits: Measuring It Fighting It Date:16 February 2011 Page 4

5. Types of Counterfeit
Clones / Duplicates Stolen Ramped
Counterfeits
Deceptive Non-Deceptive
When customers are unaware When customers are purchasing
that they are purchasing counterfeits knowingly
counterfeits Typically sold at a discounts (as
Typically sold at a similar price gray, “replicas”, “china-made”
or using other euphemisms
Can be addressed by customer
Need enforcements and legal
education, authentication and
action
marketing
More difficult to measure
Easier to measure using
consumer research
Counterfeits: Measuring It Fighting It Date:16 February 2011 Page 5

6. Consumer Behavior Towards Counterfeits
Customers willingness to buy Non-deceptive Counterfeits
USD Billion
600
500
400
300
Billion
200
100
0
Worldwide GDP of Thailand GDP of Singapore GDP of Malaysia GDP of
estimates Philippines
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7. Consumer Behavior Towards Counterfeits
Types of consumers who buy non-deceptive counterfeits
Happy Purchasers Feel that Counterfeits are a smart purchase. The have a playful
relationship to Counterfeits and claim to be experts.
Usually purchase sophisticated products (fashion, electronics etc. in
small quantities.
Struggling Consumers Belong to the low income level groups. Don‟t see the problems posed
by counterfeiting, and typically cant tell the difference. They don‟t
have the mental space or education to question product origin.
Commonly found in emerging markets
Robin Hoods Refuse to accept the current system. They consider branded products
over priced and contest the margins, distribution system and taxes.
They criticize big corporations and see no point in protecting their
interests
Feel that they have the moral right to purchase counterfeits since they
Innocent Purchasers
are what they regard them selves in a difficult position Very price
conscious and found in emerging markets
Buy counterfeits, but are not happy about it. They do not like
Genuinely Frustrated
counterfeits but can‟t afford genuine products
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8. Consumer Behavior Towards Counterfeits
Customers attitude towards counterfeits can be summarized into 3 points:
A lack of resources
“There‟s no way on earth I‟d be able to afford the real thing, so I‟m not harming anyone.
Why should I be denied a look alike because of my socio-economic standing?”
A lack of recourse
“There is no risk I‟m going to go to jail for this, and if it was a big deal, the government would
be doing something about it?”
A lack of remorse
“What‟s unethical is that I cannot afford the item I want?”
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9. Consumer Behavior Towards Counterfeits
The drivers and deterrents for customers are:
Predominant drivers behind counterfeit purchases
Low price and increasingly better quality create
temptation.
Low risk of penalty equates to a license to buy.
Availability, quality, price and low risk generate an
overall sense of social acceptability.
Top deterrents to acquiring counterfeit and pirate products
Health & safety consequences top the list.
Threat of legal action or prosecution delivers a wake-up
call.
Links to organized crime have more traction than might
be thought.
People don‟t want to harm „someone like me.‟
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10. Consumer Behavior Towards Counterfeits
Key message:
Purchasers listen to victims and experts, not authority figures:
Effective messengers include: a person harmed by C/P product; mothers whose
children have been harmed, a medical expert.
Less significant messengers include: police, corporate executives, judges.
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11. Consumer Behavior Towards Counterfeits
Three primary issues will impact purchasing habits of counterfeit/pirated products
that are influenced by a combination of awareness and enforcement:
Potential physical harm to buyer or their family (awareness).
Reduced supply of counterfeit/pirated products (enforcement).
Threat of prosecution or incarceration (awareness/enforcement).
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12. Who is Under Threat?
Countries with high counterfeits show the following characteristics:
High income disparity
Large unmanaged / unorganized supply chain
Strong Middle class
Low law enforcement
Well connected distribution of network (locally or regionally)
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13. Who is Under Threat?
Top 10 countries based on counterfeit markets as a % of GDP
Country Counterfeit as a % of GDP
Mexico 7.470%
Kenya 1.980%
Russia 1.964%
Canada 1.919%
United States 1.539%
South Korea 1.440%
Japan 1.391%
Peru 1.303%
China 1.044%
Germany 0.976%
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14. Who is Under Threat?
Some markets / products have more counterfeits than others:
Status Symbols Not mission critical Low involvement Low CF
Products / brands with Where product quality is Customers are not consciousness
high aspiration Value not perceived immediately sophisticated or rely Customers are not
heavily on channels sophisticated or rely
heavily on channels
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15. What can companies do?
Creating awareness and Conducting raids
Investigation and
Increasing consciousness enforcement Working with law
Encouraging enforcement agencies
Authentication to arrest and prosecute
counterfeiters
Working with
Education and
Customs and
Communication
Government
Fighting
Counterfeits
Tamper Proofing
Channel Ensuring ease of
Education Channel Packaging identification
Channel Programs /Authentication Proper disposal
Accountability of used parts
Audits
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16. How can Research analytics help?
Warning Signs for Counterfeits
Regular scanning of
Monitoring of products
retail channels (during Monitoring of customer
going into the Service
merchandizing complaints
Centers
checks)
Encouraging customer
Market Research
registration (online)
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17. What can companies do?
Warning Signs for Counterfeits
Monitoring results of ACF activities
Valuation of Seized goods
Evaluating customer
communication
Lead Generation
Obtaining leads
Research analytics for further
investigation or
Diagnostic Metrics legal action
Research CF % of volume
& value sold
Research CF Share by
Channel Presence
Customer Perception Identification of Sensitive Areas
Brand Health Identifying
countries, markets, channels to
focus on
Diagnosing types of counterfeits
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18. Challenges in Measuring Counterfeits?
Difficulty in
interviewing Producers Wariness of customers Ambiguity in valuing
and retailers dealing in to report accurate seized goods
Counterfeits information (Cost vs. Value)
Counterfeiters don‟t Conflict of interest:
follow general business Investigators are
Parts and packaging
principles of typically in charge of
are easily concealed
pricing, inventory, man evaluation and
ufacturing cycles etc. measurement.
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19. Methodologies adopted for Counterfeit Research?
Advantages Drawbacks
Transparent and Unable to measure
Objective collusive, non-
deceptive CF
Minimizes human error
Suitable for products with
fragmented distribution
Sampling Approach of CF and deceptive CF
Transparent and Risks brand reputation
Objective Less accurate for
Minimizes human error categories where
deceptive CF is
Suitable for products with
Customer Interviews predominant
fragmented distribution
Robustness
of CF and non-deceptive
CF
Capitalizes existing data Valuing seizures is
problematic
Requires a standardized
Seizure Approach process for
investigations,
consistent over time
Can be conducted more Highly subjective
quickly/in a less costly High risk of human bias
Expert/Supplier Interviews way
Lacks transparency of
Cost process
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20. Selecting a research Methodology that suits your market?
Are there credible, unbiased Is Seizure data available?
experts?
NO NO NO
Is the final tier channel
Can customers identify CF? fragmented?
YES NO
YES YES
Can seizures be valued with YES
certainty?
NO NO
Would Customers be comfortable
YES sharing information?
Do deceptive counterfeits
EXPERT INTERVIEWS dominate?
CAN BE USED NO
NO YES
Are detection rates
certain? YES
NO
What is the risk of damaging brand
YES when talking to customer about CF
issues? SAMPLE APPROACH
CAN BE USED
YES NO
YES
Is detection rate above
75%? CUSTOMER INTERVIEWS CAN BE RETURN TO EXPERT
USED INTERVIEWS
SEIZURE APPROACH CAN BE USED
Source: Spire analysis, drawing inputs from CBER 2002 study
for EU
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21. In Conclusion… Tips for fighting counterfeits
Spend up front
Have an anti-counterfeiting research program in place
Monitor your product
Monitor the product of the counterfeiters
Learn about counterfeiters and counterfeiting
Educate the public better
Cooperate with law enforcement
Counterfeits: Measuring It Fighting It Date:16 February 2011 Page 21

22. Tel: (65) 6838 5355
Fax: (65) 6838 5855
78 Shenton Way #20-01
Singapore 079120
sg.info@spireresearch.com
www.spireresearch.com
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