Counterfeits are a scourge for many companies and whole industries. Due to counterfeiting the business loses hundreds of billions of dollars a year, and individual brands even a dozen or so percent of their turnover. Fighting with counterfeiting of products is becoming a priority for many companies. It is greatly helped by 2D codes, such as Data Matrix or QR codes, combined with appropriate, dedicated applications.

Counterfeits are a scourge for 47 percent of U.S. and European brands. This results from the report prepared by the MarkMonitor agency. For one third of companies counterfeit products mean a loss of at least 10 percent of turnover. At the same time, nearly two-thirds of respondents believe it will become increasingly difficult to protect product authenticity in the years ahead. The distribution of counterfeits is facilitated by technologies from the area of artificial intelligence, augmented reality and the rapid development of the dark web.

Product counterfeiting: which industries lose the most due to counterfeits?

According to the OECD, counterfeit sales account for 3.3 percent of global trade. The most commonly counterfeited products include:

• alcohol (30 percent),
• footwear (22 percent),
• clothing (16 percent),
• leather products (13 percent),
• electrical appliances (12 percent),
• watches (7 percent). Medical equipment, perfumes and cosmetics, toys, jewelry, pharmaceuticals and a number of other product categories are also affected.

In many cases the scale of the problem is underestimated or difficult to determine. The global value of counterfeit goods is as high as 423 billion euro. The fashion industry alone loses EUR 26 billion every year due to counterfeiting. The damage caused by counterfeit products is not limited to lower sales. They also include:

• damage to brand image,
• reduced brand credibility in the eyes of business partners,
• incurring costs of fighting counterfeits, protecting product authenticity and rebuilding brand image.

Counterfeits are a cost to brands and a threat to consumers

It's not just companies that suffer from counterfeiting. This phenomenon is also damaging the labor market. According to estimates for 2014, the global economy lost 2.5 million jobs due to counterfeiting. In some industries, the phenomenon is critical. Falsified medicines or medical products pose a threat to patients' health and life. There are a lot of examples. However, more important is the answer to the question how to solve this problem.

In some cases, lawmakers provide it. Since February 2019, the so-called (anti) counterfeit directive, which aims to eliminate counterfeits from the pharmaceutical market, has been in force in the European Union countries. Some industries or companies apply their own solutions. Most of them are based on new technologies. A particularly helpful tool in the fight against product counterfeiting are 2D codes such as Data Matrix or QR codes.

D2 codes – a way to protect product authenticity

In the fall of 2019, Ralph Lauren Corporation launched a digital identity system for tens of millions of its products. The solution, called Digital Product Identity (DPI), developed in partnership with EVRYTHNG software company and label manufacturer, Avery Dennison, is based on QR codes and supporting software. The system allows users to verify the authenticity of a product and see information about it after scanning the code with a smartphone. The method is simple and unobtrusive for consumers, and at the same time it is a win-win solution for both the buyer of the product, who can be sure of its authenticity, and the brand itself, which thus protects the products against counterfeiting.

A more advanced solution was implemented by Nestlé and Carrefour, which combined the capabilities of 2D codes with blockchain technology. In spring 2019, the companies announced that they will provide consumers with access to information about the "Mousline” brand purée via a blockchain platform. As with the solution used by Ralph Laurene, you simply scan the QR code on the packaging to ensure that the product is authentic. It is also possible to trace the purée from the Nestlé factory to the Carrefour store, check the production date, when and where the product was stored in the warehouse, and the quality control parameters. What is more, the blockchain also stores data on the farms that supply the potatoes used to produce the "Mousline" purée. All this information can be viewed by customers in the most convenient way possible, on the screen of their smartphone.

Data Matrix vs QR. How do these technologies differ?

Similar capabilities to QR codes are provided by Data Matrix codes - another solution in the category of two-dimensional matrix codes. Although the latter have a lower capacity (still incomparably higher than EAN codes), they have two significant advantages over Quick Response technology. Firstly, the Data Matrix standard can store more information in a smaller area. As a result, DM codes take up less space and are perfect for marking small products. Secondly, Data Matrix technology has a higher level of error correction. Simply put – there is a higher probability that the markings will remain readable for the scanner in the event of damage, such as scratching or discoloration (reduced contrast), than QR codes.

More and more industries are using Data Matrix codes. They are popular e.g. in... Russia

Many companies use Data Matrix codes to combat counterfeiting on their own. However, they are also a recommended or required solution across entire industries. "DM matrices" are used to label, among other things, pharmaceutical products in accordance with the provisions of the aforementioned Falsified Medicines Directive. The codes ensure the traceability of medicines throughout the supply chain and their authenticity. On the other hand, the American Electronic Industries Alliance recommends marking small electronic parts with Data Matrix codes.

Data Matrix technology is becoming a standard also beyond our eastern border. In 2020, the Russian authorities made it mandatory to mark certain consumer products with DM codes. The system is called "Chestny ZNAK" (honesty mark) and currently covers such product categories as pharmaceuticals, tobacco products, fur, footwear, clothing, haberdashery, tires, cameras, light bulbs, perfumes. Other industries are also joining the system, for now on a non-mandatory basis. The idea of the "Chestny ZNAK" project is to provide an opportunity to verify the authenticity of the product and its place of origin.

Data Matrix codes can help brands fight counterfeiting and increase customer retention

Many companies implement Data Matrix technology not because of the statutory requirements, but because of the business benefits this standard brings. For example, the OCB brand which applies DM markings on the packagings of rolling papers, as well as the Olimp Labs company that uses Data Matrix codes to mark dietary supplements. In this way, brands protect themselves from counterfeits and avoid both financial and image losses.

It is worth noting that Data Matrix codes have a potentially very wide range of applications, and their capabilities can be easily extended with the right software. In addition to monitoring the circulation of products and protecting its authenticity, they allow you to provide customers with detailed information about individual products as well as increase consumer loyalty offering them better-tailored offers or discounts.

How to use the full potential of Data Matrix codes?

As a result, Data Matrix codes in combination with a dedicated application allow to create an extensive loyalty program without using external providers. Companies that have already implemented a Data Matrix system, but are not using its full capabilities, are in the best position to implement such solutions. By cooperating with an experienced software company, they can develop the full potential of this technology with a view to both protecting product authenticity and increasing their customer base and turnover.

If you have a Data Matrix system in your company and would like to expand its capabilities beyond purely industrial use, and use 2D codes to protect your products against counterfeiting or support sales, please contact us!

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