Counterfeit goods continue to plague markets around the world, making up roughly 2.5% of global trade and around 6% of imports into the EU alone. For high-stakes consumer industries such as pharmaceuticals, the need for reliable product authenticity is paramount.
The same goes for the fashion and apparel industries. According to recent studies, as many as 83% of millennials care about the authenticity of their luxury purchases. Because of this, top luxury retailers spend millions in the fight against counterfeiting.
Roughly 40% of counterfeit sales happen in the online marketplace, with unaffiliated retailers utilising the web’s anonymity and lack of recourse to sell fakes. Replicas are becoming more sophisticated than ever, and people properly trained to authenticate these products are a scant and expensive resource.
The cumulation of these factors can lead to a drop in brand perception, which in turn affects perceived product authenticity. So even if your organisation clamps down on fakes in the market, it’s still possible that people will perceive your products as fake.
Utilising Digital Product Passports (DPPs) can help in the fight against counterfeiting by providing verifiable manufacturing data and even a tamper-proof digital certificate in the form of a digital twin for each individual item.
What are Digital Product Passports?
So what are Digital Product Passports? DPPs are a mechanism for sharing product data throughout the product’s lifecycle. Accessible via QR code, RFID tag or NFC technology, DPPs can be attached to physical products to give a holistic view of their lifecycle from manufacture to sale, through their eventual recycling, resale and beyond.
DPPs can carry various types of data, including:
- Product ID
- Raw Material Composition
- Manufacturing
- Supply Chain Journey
- Sustainability/Carbon Footprint
- Recyclability
- Ownership
- Warranties
Giving stakeholders reliable access to this data can drive sustainable consumer decision-making, maximise product authenticity and integrity, and encourage supply chain circularity.
The EU is looking to make DPPs mandatory across specified industries, such as textiles, by 2030 via the Ecodesign for Sustainable Products Regulation (ESPR) – with other industries to follow afterwards. This is the first full-scale regulatory initiative of its kind.
Verifying Product Authenticity with Digital Product Passports
The opacity and complexity of supply chains with multiple actors leaves plenty of room for counterfeit goods to enter the market undetected. To combat this, DPPs can be applied to each individual product, and include a certificate of authenticity as well as ownership and/or warranty information which can be updated each time the item changes hands.
For DPPs that include a blockchain foundation, this could be done through a unique identifier such as a Dynamic NFT (non-fungible token) for example, with updatable metadata capable of being transferred securely between owners.
This effectively creates a uniquely identifiable digital twin secured on the blockchain and an immutable trail of authenticity and/or ownership, which can be used by the retailer and customer to transparently verify the product’s authenticity prior to sale or purchase.
Blockchain-based DPPs can help to generate increased revenue and market share by streamlining the authentication process without compromising brand integrity and reducing the reliance on expensive human resources, such as expert manual authenticators, who are in increasingly short supply.
Additionally, the access to general product data such as raw material composition, product ID, batch numbers, and manufacturing information afforded by DPPs, enhances traceability and makes it far easier to efficiently determine product authenticity – in some cases, this could even be down to the product’s original components and place of origin.
These are important considerations for brands that market high-value products with a large resale demand, and for brands where counterfeiting is a major concern, such as brands in the luxury goods industry.
Authenticating Products in the Luxury Resale Market with DPPs
The global market cap for luxury resale – including, apparel, watches, footwear and more – stood at roughly $33Bn in 2021. By 2026, the market is expected to have increased to $52Bn, with a CAGR of 9.6%.
This growth has been driven by digital services bringing many second-hand stores online and making them efficient to buy and sell to, increasing interest in pre-owned luxury items amongst younger people, and a renewed demand for luxury goods in general which then filters down into the resale market.
However, despite tremendous growth, luxury resale markets are still wrought with challenges. These include a lack of trust from customers buying second-hand luxury items, concerns about product authenticity, quality and longevity, and e-commerce fraud.
Large second-hand retail platforms are currently verifying second-hand luxury goods by employing experts to do the authentication by hand. This requires buyers to purchase this service as an added extra, often costing upwards of £100 per item.
The process takes place behind closed doors at a central location, meaning the customer simply must trust the word of the expert on their product’s authenticity. Relying solely on this method creates its own set of challenges. It can be difficult to scale these manual operations as the platform grows, and with expert verifiers being a scarce resource, it can become a costly and time-consuming endeavour.
Manual authentication can also exclude certain brands, especially those with products at the lower end of the pricing scale. It may not be seen as worth the price by customers to get them authenticated, which could leave more counterfeits circulating second-hand markets unnecessarily.
Additionally, as with all human-centric activities, there’s room for error which can result in liability for the brand and platform if incorrectly identified.
The advanced product authentication capabilities provided by DPPs have huge implications for the burgeoning second-hand marketplaces that have sprung up in recent years, potentially helping to offset many industry challenges and opening new lucrative revenue streams for brands.
For instance, consumers being able to authenticate their own purchases via a DPP and gain a certificate of ownership unique to them greatly increases the value of the item in a second-hand marketplace. If the customer wishes to sell the item on after a while, they can transfer the certificate of ownership securely within the DPP efficiently.
Alongside that certificate of ownership are the product data. Raw materials, manufacturing information, and sustainability data all go towards displaying that the product was made with quality components, in a sustainable manner, and built with longevity in mind.
DPPs that utilise a blockchain foundation can be tamper-proof, so customers can rest assured that the data has integrity and is accurate. Whether it’s a new or second-hand item, a person can trace the origins of their purchase right through the supply chain, ensuring that their item is 100% authentic.
Examples of DPPs in Action
Industries that have been deemed prime for a circularity overhaul by the EU’s Circular Economy Action Plan (CEAP) have been steadily increasing their research and investment in DPPs since the legislation was brought forward.
Parts of the luxury goods industry have already seen the rapid adoption of DPP or DPP adjacent technologies in recent years. For example, luxury watch makers such as Breitling and Panerai adopted a from of a Digital Product Passport as far back as 2020, giving customers efficient access to product authenticity information and a verifiable, tamper-proof certificate of ownership.
For suppliers to the jewellery market such as De Beers Group, DPPs could be used to track the origin of diamonds and other precious gems, helping the brand to avoid unethical suppliers from conflict zones as well as allowing customers to verify that the diamond in their product is authentic, and not a moissanite substitute for example.
With brand perception being a metric that genuinely affects the bottom lines of many organisations, it’s no wonder that fighting counterfeiting and proving product authenticity weighs heavily on business leaders.
Digital Product Passports, a revolutionary new mechanism for sharing product data, can help businesses to prove the integrity of their products. When combined with blockchain technology, they deliver enhanced product authenticity, increase circularity, and generate new revenue streams and engagement channels.
Beyond the fact that regulations such as the ESPR are mandating the implementation of DPPs across many physical product categories by 2030, forward-thinking organisations that value product authenticity, anti-counterfeiting, and customer trust and satisfaction should be considering a DPP strategy as soon as possible.