Mark of a Pro
Two days before Thanksgiving, the Cherokee County (Georgia) Sheriff's Department recovered the body of Roberto Alvarez from the bottom of a four-acre pond at Towne Lake Hills Golf Club outside Atlanta. He had drowned while attempting to collect errant golf balls that had splashed down between Holes No. 4 and No. 8 at the public course.
Had Alvarez survived, he likely would have emerged with dozens if not hundreds of the most coveted, high-end golf balls in the world: the Titleist V1 ball. For his efforts he would have received between 8 cents and 15 cents for each ball from either the golf course or another retailer, his infinitesimal slice of the estimated $1 billion golfers spend each year for new and used golf balls.
To breathe during his underwater scavenger hunt, Alvarez apparently drew air through a garden hose connected to a compressor. The Occupational Safety and Health Administration is still investigating.
While unrelated, the death came six months after the Acushnet Co. of Fairhaven, Mass., the world's largest manufacturer of golf balls, raised the stakes in its battle to protect its popular Titleist and Pinnacle brands.
Acushnet now marks all balls with digital fingerprints to protect its profits and the profits of 14,000-plus authorized retailers from unscrupulous or unauthorized resellers, knock-off artists and, indirectly, their employ of the Roberto Alvarezes of the world.
Acushnet's newly introduced Golf Ball Brand Security System marks every one of the 48 million balls that come out of its five factories each year. The company uses invisible dye with specific molecular properties that chemically alters the ink in ways that are hard to replicate. The dye affixes not just an identification number to each ball, but its destination.
Acushnet representatives now can use a handheld infra- red scanner to verify if balls are of its own manufacture. The scanned data is fed into a database, giving Acushnet officials a digital trail of exactly when and where the balls were shipped. When balls turn up in places they're not supposed to be, Acushnet can track down the source.
"Maintaining and protecting trade-channel integrity on Titleist golf balls is our biggest challenge, given the volume and consumable nature of this particular product," says Mike McCampbell, vice president of sales for Titleist USA.
This dogged pursuit of "channel integrity" came about shortly after Titleist unveiled the Pro V1 ball in the spring of 2001. No golf ball has received as much marketing hype especially from PGA Tour professionals such as Sergio Garcia and Phil Mickelsonnor produced as much as demand as the Pro V1.
The ball's solid rubber core and extremely thin but strong urethane elastomer cover appear to add distance to tee shots and control to chips and putts. In early 2001, professionals using the Pro V1 ball won nine of the first 11 PGA Tour tournaments.
"It was insane," says Tim Thompson, manager of Bob's Golf and Tennis in San Jose, Calif. "When it first came out, we couldn't keep them in stock. Everyone was asking for them and they were back-ordered for months."-Market Blues">
Acushnet's profitability is at stake. A dozen Pro V1 balls sell for between $48 and $56 at golf shops and authorized retailers. If pallets of product end up in the hands of unauthorized resellersat one time Target fell into that trap, according to Acushnetthe balls can sell for closer to $30 a dozen. Moreover, the authorized retailers miss out on salesand thereby profitsaltogether.
The value of the brand also suffers. The image of Titleist balls can go from superior to inferior, if Acushnet does not intervene.
The risks of damage are skyrocketing. "This market has been exploding over the last three years," says Jeff Unger, cofounder of GenuOne, the technology firm behind the security system. "There's an enormous amount of counterfeit products moving over the Internet and from other sources, essentially stealing your brand and your sales."
According to the International Anti-Counterfeiting Coalition in Washington, D.C., counterfeit and gray-market products account for more than $500 billion a year in lost sales. Every conceivable industryfrom pharmaceuticals to designer handbags to lightbulbsfaces losing not only sales but also credibility with customers.
With the Pro V1X due to hit courses this spring, Acushnet was determined to find a better way to achieve supply-chain control in a global, networked market.
With its new system, Acushnet enters each item produced and its destination into a database that can be updated, as golf balls move toward retail outlets. Progress can be viewed over the Internet from any spot in the world, on either Windows or Linux computer systems.
The project took several months longer than the 34 weeks originally expected. Some of the problems involved the scanners, which are similar to the those used at grocery store checkout lines. Early in the implementation, Acushnet found the infrared beams could not always read the ink because some colors in packaging, for instance, rendered the dye illegible.
"You learn a lot from every implementation," says Acushnet CIO Peg Nicholson.
Also, GenuOne's TraceGuard software, which tracks the balls and packaging all the way to the outlet, had to be integrated with Acushnet's cash-to-order software so the company could track which customers received the balls and when they received them.
"Knowing the steps required to implement any changes... took a lot of trial and error," Nicholson says. "Over time, taking notes on what was tried to make things connect, we were able to put together a list of steps that would consistently get the connection when changes were implemented."
Nicholson says the project was further complicated by both Acushnet and its contractors' relative inexperience with the Distributed Component Object Model, a protocol that enables software components to communicate directly over a network in a reliable and secure manner. Programming errors that resulted caused more delays.
Nicholson says pinning down where errors occurred was the biggest obstacle. Programs that worked fine during testing would fail on implementation. An error would indicate a problem somewhere within the system, but finding the specific line of code to fix was difficult.
"Error specifics were almost never given so it was difficult to know which object was the cause of the problem," she says.
Acushnet, a subsidiary of Fortune Brands, wouldn't confirm how much the project cost but GenuOne officials say similar implementations cost between $500,000 and $3 million, depending on the number of units tracked.
To check whether legitimate balls are being sold by a retailer, any one of Titleist's 100-plus sales representatives can go to any authorized or unauthorized retailer and purchase a dozen. The balls are then shipped back to the Acushnet plant where they are scanned to determine, first, if they were manufactured by Acushnet, and then to track the entire journey of the balls from production to distribution, and finally to the retail shelves.
If Acushnet finds that one of its distribution or retail partners has violated the terms of its redistribution policy, it could warn the perpetrator, discontinue its partnership or bring legal action against the offender.
Michael Kessler, president and CEO of Kessler International, a computer forensics and forensic accounting investigation service in New York, says technological improvements such as molecular labeling alone aren't enough to stop counterfeiters and purveyors of gray-market products.
"A lot of prevention comes down to old-fashioned detective work," he says. "The criminals will always be adapting to the technology no matter how sophisticated it gets. You need to also get out on the streets and interact with these guys to keep them from ripping you off."
Kessler International provides corporate investigation services and technology to some of the world's largest manufacturers. The firm uses its proprietary Web.Sweep software to search the Internet for counterfeit goods, questionable marketplaces and specific instances of trade either online or on the streets.
"Over the years, we've found that distribution networks are part of some larger organization," he says. "The software allows us to make these connections for our clients and then track them down." Once caught, Kessler usually can get a court order to force the illegal manufacturer to stop production and allow it to confiscate the counterfeit products.
For example, an organized group counterfeiting high-end wristwatches often has the knockoff faces manufactured in one country, the bands in another and the moving parts in a third. All three parts are then shipped to the U.S. where they are assembled by a fourth group.
Web.Sweep systematically searches key phrases that compare closely to a client's intellectual property materials. Using a multiple-language system, the software is then customized to search and filter for copyrighted materials, trademarks and any other name or brand. For example, the software could be used to check for "Kate" and "Spade" in any language as well as any phrases involving handbags and purses. Once the system finds the sites containing any elements similar to a client's intellectual property, they are tagged for personal review by investigators.
"The sophistication of these counterfeiters would amaze you," Kessler says. "It's so huge that Customs and the Treasury Department are just overwhelmed. And there's a lot of evidence showing that much of this money ends up in the hands of organized crime outfits and, most assuredly, terrorist organizations."
Carratu International, a corporate investigative firm based in the United Kingdom, reports that the sale of counterfeit T-shirts helped fund the first bombing of the World Trade Center in 1993. The firm also has unearthed evidence that terrorist groups including Al Qaeda and Hezbollah have received funding from proceeds generated from the sales of counterfeit goods.
In fiscal 2002, the U.S. Customs Service confiscated $98 million worth of counterfeit goods, or less than 2% of all counterfeit goods sold, according to the International Anti-Counterfeiting Coalition.
It's not just money that's being lost.
According to the Centers for Disease Control (CDC), a recent survey in Southeast Asia determined that 38% of samples of the malaria drug artesunate purchased at retail outlets contained no active ingredients. The CDC concluded that at least 30 malaria deaths in Cambodia could be linked to inadequate treatment due to counterfeit drugs.
In 1991, a General Motors investigation discovered that a woman and her child were killed in an auto accident when a counterfeit brake made of wood chips failed.
And then there's the unpredictable loss of lives, like that of Roberto Alvarez.
Acushnet Base Case
Headquarters: 333 Bridge St., Fairhaven, MA 02719
Phone: (508) 979-2000
Business: Manufactures Titleist golf balls and other golf equipment and accessories
Chief Information Officer: Peg Nicholson
Financials in 2001: $946 million in sales; $131 million in operating income
Challenge: Install anti-counterfeiting and product-tracking system on manufacturing line