The True Cost of Counterfeit Goods

The cost of counterfeit goods isn’t just monetary, it could also affect consumer health. But how deep-rooted is the problem?

Despite the help of new and sophisticated technology, the issue of counterfeit goods is still rife. Research shows that over two-thirds (69%) of UK consumers that have been ripped off from buying counterfeits online have bought 1-3 products thought they were genuine over the past 12 months, while one in five (21%) have bought between 4-6 counterfeit items.

As more people become fooled by the increase in ‘super fakes’ that are multiplying online, the problem of counterfeit goods will continue to grow as online marketplaces become saturated with fraudulent sellers looking to make a quick profit off the back of legitimate brands.

The true cost of counterfeit goods, therefore, is hard to place. Not only do these goods have a financial impact on the marketplace, they can also damage a brand’s reputation, or worse, a consumer’s health.

The global financial and health cost of counterfeit goods

The cost to individuals was particularly significant in the survey: UK consumers spend on average £1250 online each year, but less than half (45%) of those that had been ripped off received any kind of refund from the online marketplaces that had listed the fake product.

By 2022, it’s estimated that the global economic value of counterfeiting and piracy could reach $2.3 trillion, according to a report from the International Chamber of Commerce.

But the cost of counterfeit goods isn’t just financial either; consumers are more likely to be hurt as a result of buying them. Corsearch research highlights that 32% of those who have bought one or more counterfeit goods have suffered a health issue as a result.

The health and safety issues related to fake goods is well-documented, notable examples include fake e-cigarettes melting, catching fire or blowing up, and amateur cyclists buying fake helmets which couldn’t withstand a fraction of the impact of a genuine product.

Low-quality, fake goods diluting the market

Counterfeit goods aren’t just restricted to sportswear and handbags. Sellers of counterfeit goods have also infiltrated high-profile industries such as pharmaceuticals, automotive and even aviation. These industries are incredibly profitable, particularly pharmaceuticals. According to Strategy& – the global strategy consulting team for PwC – counterfeit pharmaceuticals are the most lucrative sector of global trade in illegal goods and the world’s largest fraud market. Sales are estimated to range from €150 billion to €200 billion, and even in the world’s most secure markets, it’s estimated that “at least 1 percent of all drugs in circulation are counterfeit”, with that figure rising significantly in developing regions.

The majority of counterfeit goods are also sold online, making it significantly harder for brands to tackle and prevent fraud. Amazon, the world’s leading online marketplace, is rife with “potentially dangerous counterfeits and other knockoff goods”, according to a report in The Guardian.

Crime groups financed by selling of counterfeit goods

Counterfeiting generates billions of pounds a year, so it’s hardly surprising that organized crime groups and syndicates have diversified into the production of counterfeit goods to increase finances to support criminal activities.

A report by the United Nations Office on Drugs and Crime has uncovered strong, “intricate links” between counterfeit goods and other serious offices, including illicit drugs, money laundering and corruption.

The production of counterfeit goods also allows these organized crime groups to further distribute their other products – drugs and money, for example – and avoid the eyes of the authorities by attempting to pass that activity off as legitimate. Michael Schidlow, head of Financial Crime Compliance and Emerging Risk Audit Development at HSBC Bank, says there’s a “more layered story at play” with regards to the cost of counterfeit goods and organized crime, highlighting that cheap luxury items may have been made by a victim of human trafficking, especially as counterfeit labor sites are unregulated.

Damage done to brand reputation

Finally, counterfeit goods can deal a tremendous amount of damage to a brand’s reputation and drastically change buying behavior. According to market research, both those who have knowingly and unknowingly bought counterfeit goods would think less of a brand associated with counterfeit goods. Of those reviewed, 35% are less likely to buy that brand’s products from an online marketplace, and 34% less likely to buy directly from the brand’s website as a result.

Similarly, in instances where consumer health has been affected by counterfeit goods, 83% of consumers reviewed by Corsearch would be put off from buying from that brand in the future.

This kind of damage is often irreparable for brands – once consumer confidence is lost it can be incredibly hard to restore. Brands operate in a world where consumers have all the power in the purchase decision process; an unhappy consumer can easily contribute to tarnishing a brand’s reputation by posting reviews on online review platforms or forums.

The global growth of counterfeit goods is a serious problem – and one that cannot be solved without the help of technology, especially as online marketplaces provide sellers with the means to sell whatever, whenever and wherever. But just how great is the scale of the counterfeit goods problem? How are counterfeit goods destroying brand value? And just how great is the cost of counterfeit goods?

Download our free market research report to find out the full scale of the counterfeit problem in the UK.