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The grey market and counterfeiting: Elision (Tesisquare) offers a solution to curb the problem

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In some developing countries, the parallel market can account for over 50% of sales, especially in sectors such as clothing, electronics and food products. In Europe, by contrast, the parallel market is estimated at around 7% of total sales, primarily in the clothing, cosmetics and household products sectors. These significant figures illustrate the importance of the subject of the grey market (or parallel market) and the importance of the fight against counterfeiting.

What is meant by the grey market and counterfeiting?

The term ‘grey market’, also often referred to as ‘parallel market’, refers to the sale of goods or services outside a manufacturer’s official distribution channels. This may include the sale of counterfeit goods, illegally imported products or second-hand products that are sold as new. This type of activity is often motivated by a desire to make higher profits than official distribution channels, but it can also cause quality control and product warranty issues.

Counterfeiting (or black market) is the production and sale of counterfeit products that infringe a company’s intellectual property rights. These products can be harmful to consumers and can result insignificant financial losses for the original companies. In addition to these two forms of trade and sale of unauthorised products, there is a third kind of market that is also a grey area, concerning the overproduction of goods that has not been authorised by brands. This happens incases in which a brand’s supply chain, which is very often made up of companies that are not owned by the brand itself (so-called sub-suppliers), manages for avariety of reasons to produce more products than those actually ordered by the customer and therefore places this excess production directly on the market.

Several elements account for the spread of the parallel market. This trend is due to the search for lower prices, a lack of availability of certain products or a lack of trust in the official distribution channel. The parallel market can have negative effects on consumer health, product safety and the economy in general because the sale of counterfeit or low-quality products can pose a health risk to consumers, while the lack of taxes and sales tax can damage the economy and competition.

The parallel market (grey market) solution

Manufacturers can adopt various strategies to counter the spread of the parallel market. These include reducing the prices of their products, directly distributing them to consumers or cooperating with the authorities to prevent counterfeiting.

There are many tools available to brands to try to counter the grey market phenomenon by limiting losses and image damage. The first measure that needs to be introduced is to strengthen the governance of the supply chain, preventing products from being sold outside official channels. The use of technological tools for product marking and product traceability from the factory to the end user is also crucial. In this regard, equipping each individual product with a certificate of authenticity is a perfect tool and a fundamental prerequisite to guarantee its traceability and authenticity throughout the entire supply chain, not only in production but also and above all in distribution.


Product authenticity certificate with RFID tags and Blockchain

It is therefore essential that the authentication tool, the Electronic Authenticity Certificate, is an integral part of the product, placed so that it is discreet but can be accessed in the event of the need for validation. But it is not enough to apply an RFID tag to the product to guarantee this fundamental principle. A certificate of authenticity should be unique and should not be duplicable. The presence of an RFID microchip inside a product does not in itself guarantee the certificate’s uniqueness. Of course it may be difficult or impossible to change the UID or TID of an RFID tag, but it is not impossible to clone it.

The certificate of authenticity provides access to a set of information that allows a product to be identified and authenticated using digital technologies. The certificate can therefore be used to monitor a product’s origin and supply chain, increase transparency and security in e-commerce and combat counterfeiting. With regard to the parallel market, equipping the product with an electronic certificate of authenticity can be a solution to combat trade in illegal goods or counterfeit products by providing a way to efficiently and reliably verify products’ authenticity and origin.

The use of technologies such as blockchain and cryptography can ensure traceability and immunity to falsification of digital product identity data, creating a secure and reliable control system that also helps to regulate informal and parallel markets in order to monitor unofficial transactions and economic activities. However, it is important to bear in mind that the implementation of digital product identity systems requires international collaboration and the definition of common standards in order to ensure interoperability between different systems and to prevent abuse and monopolisation.


The Elision and Tesisquare solution

Product serialisation, i.e. the attribution of an electronic certificate of authenticity in turn guaranteed as authentic, is the path that ELISION, a subsidiary of Tesisquare, proposes to companies in the luxury, agri-food and general manufacturing sectors to effectively protect their brands from counterfeiting and to improve their supply chain efficiency and customer awareness.

Specifically, a module on the Tesisquare platform, named Brand Protection, in the cloud or on the premises, integrates with the systems already in place in the company. The module makes it possible to track the certificates themselves, from their production (encoding) and throughout the life cycle of the product containing them, by means of tracking systems at subcontractors, logistics warehouses and points of sale. Comprehensive control of counterfeiting requires monitoring to be extended across the region. The Protect Your Brand (PYB)solution extends control to the end user who can use the NFC smartphone to check the product’s authenticity and also to certify its ownership using the Non-Fungible Token (NFT) system.

Through a patented dual-key system, PYB makes it possible to certify a product’s ownership, represented by the digital certificate it contains, not only when purchased at the point of sale, but also online. In each transaction, Brand Protection monitors the certificate’s life, highlighting anomalies (e.g. certificates that have ‘disappeared’ during production or verification of unknown or suspicious certificates by the point of sale or end customer) in order to keep control over the brand’s entire product universe. The Brand Protection module has already proven to effectively combat crime on several occasions, not only by guaranteeing authenticity, but also by tracing the product’s origin.


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