Managing Fakes is Good Business in China

    Most luxury retailers have not yet deployed technologies that allow customers to verify that a product is fake or not before purchasing.
    Most luxury retailers have not yet deployed technologies that allow customers to verify that a product is fake or not before purchasing. Photo: Shutterstock
      Published   in Hard Luxury

    When Chinese consumers buy luxury goods online, a primary concern is receiving a fake product. This is driven, in part, by the long history of counterfeits available on the Chinese market. Because of this, some Chinese consumers prefer to buy luxury products in brand stores when they travel to Paris or Milan. However, with the recent increase in online sales of luxury products in China, brands and online retailers must take action to guarantee the authenticity of their products.

    For the customer, it’s difficult to know if a product is authentic. Even if they buy from authorized retailers, there’s always a risk. For example, a fake product could enter into an otherwise legitimate supply chain. Perhaps it got there as part of a return process where the fake went unnoticed. Or maybe there was no end-to-end authentication process in the supply chain, and the imitation entered somewhere en route to its owner. As a result, customers who want real products don’t know for sure if what they’re buying is authentic.

    The problem compounds in the pre-owned luxury marketplace, which is growing exponentially and has become very popular with millennials. As an example, someone may want to use a specific sneaker for a social media post and then sell it again. It is paramount to make sure that the products sold are authentic. However, most retailers have not yet deployed technologies that allow customers to verify that a product is real before purchasing.

    Irene Woerner, CEO of the authentication company emTRUTH, explained to me during a recent discussion why luxury brands and luxury retailers are increasingly using some form of technology that lets them ensure that their products are 100 percent real. “We ensure traceability during the entire life of a product, down to what it’s made of,” Woerner said. “Everything is encrypted in transit and at rest.” To do this, emTRUTH creates a digital twin of the product with blockchain technology. The twin contains all relevant information about the product and allows the seller to trace its history and confirm its authenticity. The deployment of such an end-to-end traceability solution helps manage the risk of buying online.

    With best practices, such technologies allow customers to look up a specific product in a database even before they buy it. Ideally, the database will include a breakdown of the materials used, their origins, and a detailed sustainability footprint, the latter of which more and more Gen Zers have become interested in. Until recently, it was difficult for companies to offer full transparency when it came to authenticity and sustainability for a product along all touchpoints and for all materials, and often the breakdown happened when suppliers would use sub-suppliers. But with a blockchain twin, the whole history of a supply chain can be accurately mapped and made transparent. Additionally, customers can trace the history of a finished luxury product and validate that the product is authentic before they even own it.

    By offering a product’s sustainability and authenticity, luxury sellers help enable both their e-commerce and brick-and-mortar sales. They put customers at ease who might otherwise have doubts that could lead to them not purchasing a luxury item. And as more and more Gen Zers enter into the luxury marketplace, these technologies can lead to a significant competitive advantage for luxury brands or suppliers.

    Apart from offering more customer-centricity, luxury brands receive an additional benefit from authentication technology: Now, their products can all come with a black box upon being sold. While brands used to know little or nothing about how an individual customer used the product, how long they used it, and if or when they resold it, now companies can generate powerful insights by creating a blockchain twin that also maps the purchase and repurchase histories of a product. This allows brands to better target consumers and offer them more relevant product recommendations. It also provides vital knowledge of when a customer may be ready to buy a new product.

    In the best case, companies can extend the management of a customer’s journey far beyond the initial purchase and through the entire life of the product. When combined with all other data sources and AI-based data querying technologies, authentication can lead to better customer service and management. Plus, it offers customers added transparency as well as the guarantee of authenticity that they’re increasingly demanding. This offers the customer significantly more value, which will undoubtedly give brands an essential advantage in the future.

    Daniel Langer is CEO of the luxury, lifestyle, and consumer brand strategy firm Équité. He consults some of the leading luxury brands in the world, is the author of several luxury management books, serves as a regular keynote speaker, and holds management seminars in Europe, the USA, and Asia. Follow @drlanger

    Discover more
    Daily BriefAnalysis, news, and insights delivered to your inbox.