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Crusade against counterfeit

Preeti Mehra

The last year or so has seen accelerated activity among Indian corporates to bust the manufacturing of fake products. With flat sales figures despite increased consumer spending, and an urban pilot research study by AC Nielsen indicating that the FMCG segment in the country alone incurs a loss of about Rs 1,800 crore due to counterfeit products, corporate India seems to be waking from its deep slumber. The enforcement agencies also appear to be getting proactive, considering that the Nielsen study estimates the Government's loss on account of tax evasions by unauthorised manufacturers to be around Rs 600 crore.

However, the Nielsen study largely took into account urban centres and is to be followed up by a more robust study on the issue by the year end. Meanwhile, this summer, Marketing And Research Team (MART) has undertaken an impressionistic s urvey to access the impact of fakes on the rural market. Their research, that covers villages in eastern and western Uttar Pradesh, kasbas around Bhopal and the fake products market in Delhi that services many of the rural areas, shows that the phenom enon is rampant and much more virulent than in the cities. For instance, according to the MART report, in the traditional village haats, the main selling locales of rural India, the researchers found that the absence of original branded FMCG pro ducts was 100 per cent.

The fact that duplicate products, look-alikes and spell-alikes exist cheek by jowl with genuine products on the same shelf, are less costly and earn the retailer higher profits was always known. What was not known and is still not corroborated is the extent of revenue loss it heralds, both for the companies and for the Government. In many cases, companies have been forced to employ investigative agencies to spot the offenders

A consequence of the wake up call has been 50 manufacturers, legal experts and research company AC Nielsen coming together to set up a Brand Protection Committee under the aegis of the Federation of Indian Chambers of Commerce and Industry (FICCI). Its members consist of prominent players such as Proctor & Gamble, Hindustan Lever Ltd., Colgate, Marico, GlaxosmithKline, Coca-Cola, Pepsico, Gillette, Britannia, etc. The idea is to curtail fake products in the country and to t his end work with the industry, consumer associations, government vigilance wings and trade associations.

The Brand Protection Committee has put in place a four-fold strategy including a focus on enforcement and application of laws; publicising the negative economic impact of fake products; taking direct action against illegal manufacturers, traders, wholesalers and retailers; and enhancing communication among the stakeholders.

To increase information on the subject a Web site, fake-busters.com was also launched. The Web site provides information on companies and their crusade against counterfeits, including details of raids conducted and fake products seized. Besi des, it carries a legal section which details existing laws on the subject and the legal remedies available to companies and consumers.

While several companies have taken recourse to the legal method, many have found that this strategy brings them negative publicity as well, with consumers avoiding the product because it could be a duplicate. And to actually find the manufact urer of counterfeits is very difficult as these fly-by-night operators easily change their locale of operations. Besides, even if a manufacturer is nabbed, getting bail is not difficult as the offence is non-cognisable. It merely halts th e illegal activity for a temporary period. It's soon back at a different address, in a different garb.

Proctor and Gamble (P&G) has been most proactive for the past 18 months in its crusade to stem the fakes market and bring to book illegal manufacturers. According to the company spokesperson, a year ago, P&G's Health care division sales were impacted upto 15 per cent. An ORG retail audit revealed that for every 100 strips of genuine Action 500, there were 54 look-alikes. Vicks Vapourub and inhaler had about 20 clones. In the last year, P&G had got 55 injunctions against as many manufacturers. In fact, after one of the massive raids in Madhya Pradesh for Vicks, the company used the services of an elephant to destroy the counterfeit catch.

Spurious manufacturers are of two kinds in the case of Coca Cola, informs the company spokesperson. One who manufactures a pass-off product of a similar name and the other who fills spurious stuff into their bottles. Though raids have been conducted aga inst such manufacturers, to counter the problem, Coke has put into place another elaborate system. Across the country they have around 48 Consumer Response Co-ordinators who work with their teams and redress consumer complaints directly, includin g overcharging and spurious bottling. Besides, they have a large network of Route Salesmen who have a one-to-one relationship with the retailers on their beat and keep their ear to the ground. ``When they spot suspicious activity going on, they let us know. So though it's impossible to plug the hole totally, you can minimise it,'' says the spokesperson.

Companies are also trying to tackle the problem another way. They are going in for upgraded packaging so that manufacturers of counterfeits find it difficult to replicate their products. Dabur is one of them that is making its packaging more soph isticated and capital-intensive. Its Lal Dant Manjan, at the peak of the problem in 1999, had about six-seven per cent of its sales eaten into. When Dabur replaced its Lal Dant Manjan plastic blow moulded container with a premium four-col our shrink sleeve packaging which had a grainy texture and water bubbles, the packaging was difficult to replicate. This resulted in a sales growth of 12 per cent in the original product.

Dabur's popular Amla Hair Oil has been facing an increase in counterfeits for the past year-and-a-half and the company is trying to work a way out of it. Though four raids have been conducted in the past six months and the company has rep laced its glass bottle with a pet bottle, illegal manufacturing continues. Dabur finds that a subtle difference in packaging such as a gold foil stamping on the label or introducing holograms is not enough for home product consumers, specially the less educated who find it difficult to make out the difference between a genuine and a fake.

Coca Cola too is in the process of exploring changes in its packaging. They are trying to create technology to incorporate certain features that will make their bottles tamper-proof. Apparently, this has been tested successfully in Vietnam .

Meanwhile, MART's study has thrown up some interesting facts that could help in understanding the operations undertaken by illegal manufacturers. Researchers Anirban Ghosh and Vikram Bhalla of the Management Development Institute (MDI), Gurgaon un der the guidance of MART President, Pradeep Kashyap, found that there are three kinds of fakes in the rural market. The look-alikes sport a colour scheme that resembles a popular brand, but the brand name is totally different, for example, Shagun for Lifebuoy and Lalita Amla for Dabur Amla. The second category are the spell-alikes where you will have a `Viggo' for a `Vicco' or a `Pomes' for a `Ponds' and the packaging looks similar. The third variety are the exact duplicates which carry t he name and address of the genuine company, but the product inside is spurious.

The researchers found that most look-alikes (also known as pass-offs) are manufactured by local players who have put in adequate investment. Many of them have their own manufacturing units and operate on a smaller scale exactly like the est ablished manufacturer. They even have appointed stockists and distributors to make the product available in the rural market.

The look-alike manufacturers' strategy is to piggy back on the advertising campaign of the larger player and establish their own brand in the region. The researchers found that the look-alikes business is not a clandestine operation. Promotional campaigns such as wall paintings and display stalls are used and the manufacturers have no qualms about displaying their manufacturing units' name and address on the product wrapper. The product too is always of acceptable quality. However, the look-alike product is priced 10-15 per cent lower than the established brand, with margins offered to wholesalers and retailers higher than what established companies offer.

However, it's not the same case with spell-alikes and duplicates. The manufacturers involved in both these obviously intend to cheat. Such spell-alikes generally have the genuine product's MRP rate printed on them, but the r etailer willingly brings down the price after a bit of bargaining. Most spell-alikes have an extremely vague manufacturers' address on the packaging that is impossible to trace. But duplicates have the established manufacturer's address, a s the packaging is usually bought from the raddiwalla route and filled with a spurious product.

In terms of quality, MART found that spell-alikes and duplicates have very poor quality and the consumer realises that he or she is duped after using the product. In fact, the Nielsen report revealed that eight out of 10 customers who purcha sed such products were cheated unwittingly. What makes things worse is the marginal penetration of the genuine product into these areas.

``What would help even more than legal action in the crusade against counterfeits is companies increasing their presence in the rural markets. If they build a better rural distribution network, manufacturers of fake products will have to

flee the scene,'' says Pradeep, as he gives the example of Colgate which has such a high rural penetration that its fakes are hardly to be found.

In fact, the MART study suggests that it is the demand-supply gap that is fueling the problem in this sector. Distributors appointed by companies stick to the villages closest to their town, while tiny shops and paanwallas are serviced b y mobile distributors on cycles who stock counterfeit products. Besides, in particular seasons the manufacturing of fake products rises and reaches the retailers much before the genuine brand can. For instance, during summer, fakes abound in cold drinks and talcum powder, while in winter it's cold cream and Vaseline.

But in the case of Coca Cola, the company disagrees that there is any demand-supply mismatch. Though fakes increase during summer, the company finds that the real motive of fake manufacturers is profits. In smaller towns, rural areas, at bus stands an d railway stations where consumers are in a hurry, spurious cold drinks are rampant. ``They manufacture for less than a rupee and sell for Rs 10,'' explains the company spokesperson.

Duplicate products that are filled into genuine packaging are also available in a sporadic manner depending on when the raddiwallah makes available a large number of used packets of the same product.

Another interesting observation is that FMCG counterfeit products only come in the smallest size of packaging. In the rural segment and slums where fake products thrive, the consumers low purchasing power makes sachets and 25g and 30g packs pop ular. And it is in the case of these small packs that consumers are duped more easily as the quantity is not large enough for the buyer to discern its quality. This is specially so in sachets of shampoo, hair oils, detergents and so on.

But if small is spurious in the FMCG sector, it is not so in the other segments where counterfeit is rampant. Crying for similar attention is the branded garment industry, book publishing, music industry, movies and information technology. And m any more challenges lie ahead for the fake-busters.