Can Social Commerce Startups Overcome the Challenge of Counterfeit Products? Social commerce sector has attracted huge rounds of funding in the last few years
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Social commerce has grown leaps and bounds in India in the last two to three years. The reasons are well-known. From increased internet penetration and rise of social media usage to the increasing demand for vernacular short video apps and ease of payments, many aspects have come together to give the space a boost.
The sector has attracted huge rounds of funding. In 2019, many VCs such as Accel Partners, SAIF Partners, Omidyar Network, Sequoia Capital, Kalaari Capital invested in the space. The prominent players who have made the best use of the opportunity so far are Meesho, Bulbul, DealShare, GlowRoad, Simsim and a few others.
However, one big challenge for the space is the sale of counterfeit products. This is one of the biggest problems with the model, where resellers have often been blamed to sell counterfeit goods. According to Entrackr, big brand name products from companies like Rolex, Titan, Gucci, Adidas, Nike and Ray-Ban were found to have prices several times lower than the products' maximum retail price.
Why Counterfeit Products
"It is because most social commerce players rely on self-serve models. I believe In India this is still a new sector unlike traditional ecommerce. So, the entire moderation and on-boarding needs to be more streamlined," said Bhaskar Majumdar, managing partner, Unicorn India Ventures, a Mumbai-based early-stage focused tech fund
Experts also feel that a key reason behind this is also the lack of necessary infrastructure to effectively monitor and track the genuineness of the products being sold through social commerce platforms. "Further, though the existing legal framework has provisions to implicate the concerned sellers in case of the sale of fake or defective products, there remains a lack of an adequate framework to implicate the social commerce platform in such instances. In view of the above, since social commerce players do not have any obligation to conduct due diligence on sellers or ensure the genuineness of sellers and sellers being in anonymous mode, unfortunately, it becomes conducive to the sale of counterfeit products on social commerce platforms," said Souvik Roy. partner, IC Universal Legal.
Further, social commerce players majorly cater to smaller towns, where they have thrived on unbranded inventory. "Because of this, there is the risk of counterfeit products. Counterfeit products are a relevant proposition for smaller towns where people are aspirational but dont have the purchasing power," said Prabhkiran Singh, founder CEO, Bewakoof.
However, counterfeit is not just a small town phenomenon. Many countries have been dealing with it. In fact, this has been an issue that has been prevalent even befor e-commerce came into existence. It is not uncommon to see many local vendors selling such products especially in the apparel and electronics space. According to FBI, Interpol, World Customs Organization and International Chamber of Commerce estimates, around 7-8 per cent of world trade every year is in counterfeit goods. That is the equivalent of as much as $512 billion in global lost sales.
"The cost of production of such products will be substantially lower and there is no brand value in such products. Further, offering cheap reasonable prices is an easy tactic to lure the retail individual buyers on social commerce platforms," said Roy.
Addressing the issue
A section of resellers selling fake products is one of the biggest challenge faced by social commerce players. To resolve that, experts feel there should be a better on-boarding process without still compromising on the ease of self-serve. "Focussing on branded products that are in the economy segment and intersection of quality, price point and aspiration can go a long way," said Singh.
Social commerce platforms primarily act as advertisement platforms for the sale of different products by sellers. "In this regard, social commerce players do not have any obligation to conduct any diligence on the sellers to ensure the genuineness of the products. Till such time legal regulatory framework provides for adequate safeguards, social commerce players would need to incorporate checks and balances on their own accord to ensure genuine sellers transact through such platforms," said Roy.
He also added that they should seek necessary KYC documents, declarations, representations, warranties, indemnities etc from concerned sellers to hold them accountable and liable in case of non-genuine sale.
With Facebook and Instagram also increasing becoming a platform for e-commerce, leveraging AI technology to enable automated removal can also go a long way.