SELECTION
Assumptions
The theoretical goal for any authentication program would be to stop 100% of the counterfeiting. More realistically, an effective authentication program should stop approximately 80% of the counterfeiting activity.
In our examples we are even more conservative; our savings scenarios are calculated based on stopping only 75% and 50% of the counterfeiting activity. Furthermore, our calculations do not include any value for warranty claims, product liability claims, or the good will realized by protecting your brand’s integrity.
Commercially available data suggests that only 10% of any counterfeiting problem is actually visible to the company. So, our analyses assume that the counterfeiting problem begins a 2.5% of sales.
The cost of the authentication program used in our analyses is generated based on the average cost per unit for an applied marking solution. With this information the rates of return can then be calculated based on the relative gross margins of each product and the estimated sales impact of the counterfeiting activity.
In our analyses, we varied both the extent of the counterfeiting problem and the effectiveness of the authentication program, then calculated Net Savings, Rate of Return, and Pretax Return on Sales for each scenario. The results are depicted by the charts in following sections: Rate of Return and Pretax Return on Sales.
As these analyses illustrate, a properly implemented authentication program will return a significant yield, producing savings that could easily equal or exceed the amount of gross margin recaptured.