E-Commerce is an ever-expanding segment of today’s marketplace. The U.S. Department of Commerce estimates that Americans spent $400 billion in online sales in 2016 alone. Annual sales are expected to reach $600 billion by 2020. Predictably, as online commerce increases, so does the opportunity for competition by “unauthorized sellers,” traffic diverters and counterfeiters. This modern-day phenomenon is having a particularly strong impact on large, highly-recognizable brands whose products are clear targets for E-Commerce abuse. Fortunately, the E-Triad strategy,which combines the special features of technology, investigations, and law is proving highly successful for eradicating these E-Commerce opportunists. This article explores some of the more prominent forms of E-Commerce abuse and brand dilution and then explains how the E-Triad strategy is successfully tackling the problem.

Brand Dilution & Pricing Control

Increasing its online presence provides many benefits to a brand. What many people don’t realize, however, is that even the largest corporate brands are in a constant struggle to maximize online profits without losing control of their pricing strategies, distribution channels and overall brand reputation.

In this thriving E-Commerce world, manufacturers of durable consumer goods are growing ever more frustrated with rogue retailers who are responsible for a host of problems for even the largest of brands.  For example, many unauthorized sellers do not adhere to manufacturers’ Minimum Advertised Pricing (“MAP”) policies.  In most cases, they also fail to adhere to manufacturers’ warranties, money-back guarantees and standards for customer service.  These tactics have the downstream effect of minimizing brand value in the eyes of consumers and hindering sales made by authorized retailers.

The problem is so great that it has forced brands to seek out solutions from MAP monitoring providers, attorneys, investigators and even law enforcement. Because these challenges are in their infancy, comprehensive solutions to stop “unauthorized sellers,”traffic diverters and counterfeiters have been elusive for most companies. Let’s take a look at the tactics used by these illegitimate sellers.

(1) Unauthorized Sales

One of the major areas of retail fraud proliferating on the Internet is unauthorized sales of nondurable consumer goods. Sales made by retailers other than those authorized by manufacturers cause a variety of complications for brands. For example, illicit retailers often sell products below MAP. This tactic causes unfair competition with a brand’s authorized sellers who are bound by contract to sell products at or above MAP. Moreover, sub-MAP sales may harm a brand’s reputation in the eyes of consumers, who often equate price with quality.

Unauthorized sellers are historically problematic because they have plenty of ways to hide on the internet. For example, many create virtual storefronts in massive online marketplaces such as Amazon or eBay. Given that those platforms take a percentage of every sale made on their sites – authorized or not – they have little incentive to assist brands with rooting out rogue sellers. Additionally, as website creation and domain registration have become increasingly automated, many sellers are creating their own websites with the sole purpose of making unauthorized sales. In either situation, sellers frequently operate under fictitious business names and go to great lengths to sequester the individual criminals behind the online sales.

(2) Counterfeiting

Counterfeited goods are cheaply-produced knockoffs of popular, brand-name products. Consumers are attracted to these products because, at first glance, they appear to be authentic and are generally offered at prices well below retail. Anyone who has ever crossed a street corner in a large city has surely been offered a counterfeit watch or “diamond” ring at such unbelievable prices. These days, however, counterfeiting has moved online and has become a huge global problem. In fact, the International Anti-Counterfeiting Coalition (“IACC”) projects that the total annual value of global trade in counterfeited and pirated goods is nearly $2 trillion. In 2014 alone, the IACC seized over $250 billion in counterfeit goods from the marketplace. Every dollar spent on counterfeited goods is a dollar stolen from the pockets of legitimate brands.

(3) Traffic Diversion

Yet another result of the growth in E-Commerce is the sheer volume of consumers doing research online regarding their favorite brands. While this can be good news for a brand, there is also a built-in risk that this search traffic will be diverted. Indeed, illegal internet traffic diverters have become experts in developing content, ads, and mobile apps aimed at driving shoppers away from normal, authorized online sales channels. A few common scenarios are as follows:

Fake Comparison/Review Sites:   Many shoppers extensively research products and brands before they buy and are hungry for authoritative sites that appear to offer legitimate comparisons or reviews. Frequently, the site will compare several competing brands but conclude that one is far superior and will offer to link the visitor to specific websites where they can make a purchase. Often these sites are setup by rogue competitors and their affiliates. The sites are simply an effective way to divert a brand’s sales away from authorized sales channels.

Pay Per Click (PPC) Ads – In this scheme, traffic diverters run ads that appear any time a consumer searches for a specific brand or major product name. Often, the ads will cite purported discounts of 70% off or more to entice the searcher to click.   Once the traffic is diverted, the odds are low that the shopper will ever return to legitimate sales channels to make a purchase. Many companies mistakenly believe PPC ads are not a problem because they never see them. However, it is very simple to control both the timing of the ad and the geographic regions where it will show. Thus, only an inexperienced traffic diverter would run ads in places where the company could ever come across them.

Rogue Mobile Apps – Rogue mobile apps are a relatively new entrant to the world of E-Commerce fraud. Nonetheless, these apps exploding because of many brands do not yet know how to police this conduct. To make matters worse, apps are often offered for free in popular mobile app stores.   Developers of these rogue apps are bold enough to utilize a company’s name and logo without permission – leaving the consumer with the mistaken impression that their apps are brand-sponsored. Oftentimes, the apps offer substantial discounts not intended by the brand – or in the worst cases – maliciously steal user financial information for later exploitation. Either way, the legitimate brand’s reputation is tarnished in the eyes of the consumer.

E-Triad: The E-Commerce Solution to E-Commerce FraudOnline fraud is a relatively new phenomenon. As with any new problem, many different groups have scrambled to solve it – ranging from technology companies to in-house marketing professionals to law firms and law enforcement. Not until a company called E-Enforce™ came on the scene, however, did the problem truly start to erode. The reason is simple: E-Enforce™ was the first company to combine expertise in multiple disciplines to attack online criminals successfully. Their method is known as E-Triad – a forceful combination of technology, investigation and legal resources.

Operating in vacuums, none of these forces can combat the types of online scams outlined in this article. Technology, while undoubtedly useful, cannot employ the legal processes often necessary to stop illicit sellers. Likewise, investigators, while skilled in tracking and identifying criminals, may lack the technology to trace every illicit sale. Finally, legal authorities, without the help of technology and investigators, lack the expertise and evidence-gathering savvy to build winning cases in the civil or criminal courts. E-Enforce™, using its proprietary E-Triad strategy, can accomplish all of these goals in a manner that is cost and resource efficient for clients.

Using the E-Triad strategy, E-Enforce regularly blends technology, investigation and focused legal efforts to shut down online criminals from exploiting the E-Commerce marketplace.

Using state-of-the-art technology, E-Enforce developed the tools necessary to regularly monitor all sales activity across a brand’s important SKU’s. Additionally, the technical team utilizes time tested methods of communication to convince rogue sellers that halting illicit sales is the best – and only – realistic option available to them. Finally, E-Enforce has integrated its methods with several of the leading MAP monitoring services to ensure full online price control and achieve maximum efficiency for clients.

For the investigation component of the E-Triad, E-Enforce employs skills honed by its parent company, Cyber Investigations Services (“CIS”). CIS is a licensed investigation group that has spent the better part of the last decade developing investigatory capabilities far beyond that of most in-house teams or law firms. With hundreds of E-Commerce investigations performed each month, the E-Enforce investigation team not only has access to law enforcement databases that are available exclusively to licensed investigators, but has built a rapidly expanding proprietary database of known illicit sellers.   Once a seller identity is known, putting a permanent halt to that seller’s illegal activities is not far behind.

E-Enforce also leads the legal component of the E-Triad. This often requires involvement of one its key law firm partners who remains on call to provide advice and draft any required legal filings. For clients with smaller brands, E-Enforceperforms the vast majority of the enforcement efforts, with the occasional support of the attorney on an as-needed basis. For medium to larger brands, E-Enforceworks hand-in-hand with the company’s internal or outside legal counsel. In either case, when targeted, expert legal involvement becomes necessary, E-Enforce calls upon its strategic legal partners from across the country that specialize in E-Commerce enforcement and find the perfect law firm to match the client’s needs.

Using this triangulated approach, E-Enforce™ has helped some of the world’s top brands shut down online criminals that are harming the company’s sales and reputation. Only through the E-Triad strategy of combining technology, investigation and legal resources can a brand truly rest assured that the cyber-fraud wave will not permanently harm its ability to do business in the E-Commerce marketplace.

 

SOURCES

http://www.iacc.org/resources/about/statistics

http://www2.census.gov/retail/releases/historical/ecomm/16q3.pdf