Faking it!

2011-06-03 15:17

When most people think about the effect of counterfeits on legitimate brands – and when brands themselves litigate against counterfeiters – they focus on the “business stealing” effect: Every fake Prada handbag represents a lost sale for Prada.

But a dirty little secret is that Prada rip-offs can also function as free advertising for real Prada handbags – partly by signalling the brand’s popularity, but, less obviously, by creating what Massachusetts Institute of Technolgy marketing professor Renee Richardson Gosline has described as a “gateway” product.

For her doctoral thesis, Gosline immersed herself in the counterfeit “purse parties” of upper-middle class mums.

She found that her subjects formed ­attachments to their phoney Louis Vuittons and came to crave the real thing when, inevitably, they found the stitches falling apart on their cheap knockoffs.

Within a couple of years, more than half of the women – many of whom had never fancied themselves consumers of handbags costing $1?300 (about R9 100) – abandoned their counterfeits for authentic items.

A study, by Northwestern University economist Professor Yi Qian, takes a different ­approach.

She found what amounted to a random jump in counterfeiting activity that ­resulted from events entirely unrelated to the clothing industry.

In the early 1990s, a string of quality-control problems among food, drug and gas-tank producers in China made headlines across the world.

And in 1994, the Wall Street Journal ­reported that “bogus medicines have flooded parts of China, causing deaths and disabilities”.

With the rising body count, Chinese ­authorities didn’t have the time or the ­resources to keep close tabs on what was happening in handbag or sneaker ­factories.

To document the impact of this drop in enforcement, Qian put together data on production costs, sales and retail prices for 31 brands with serious business in China, including multinational giants like Nike and Reebok.

She obtained similar figures for counterfeiters and records seized from counterfeit factories by ­enforcement authorities.

With policing severely curtailed, counterfeiting took off in 1995.

Qian estimates a nearly 100-fold increase in the production of fakes within just two years.

If the flood of rip-off sneakers were crowding out sales of legitimate brands, you’d ­expect to see a corresponding drop in their business.

Indeed, after stripping out the effects of the generally booming Chinese economy, Qian did find a steep drop in sales of branded products – but only among low-end product lines.

Top-of-the-line items actually saw an uptick in sales between 1994 and 1996, even as counterfeit sales took off.

The copies of low-end items – produced with cheap fabric on cheap, locally made machinery – were scarcely different from the real deal, which were also ­produced with cheap fabric on cheap ­machinery.

So it’s easy to understand why consumers might opt for the lower-cost counterfeit.

It’s a lot harder to make vinyl look like alligator skin, or to replicate the precision of imported Italian equipment.

High-end products were therefore ­insulated from the encroachment of cheap copycats.

Qian’s findings do not suggest that Nike, Reebok, Prada or Louis Vuitton should be any less tenacious in going ­after counterfeiters.

According to Gosline, one reason why customers upgrade from Chinatown ­imitations to the genuine article is the twinge of guilt that comes along with engaging in back-alley counterfeit ­purchases.

If there were less legal sanction against counterfeits, it might diminish those feelings of guilt among consumers.

That said, global brands might devote more of their efforts to upgrading their own products, taking a page from the playbook of footwear manufacturers ­challenged by Chinese counterfeiters in the 1990s.

In addition to ramping up their own enforcement efforts to substitute for the work of government investigators, these manufacturers made their high-end items even more expensive, to further distance their products from imitations.

They added more top-tier leather, more crocodile hides, more use of imported ­machinery.

Most of these improvements came in the form of upgrades to surface and side materials, which would clearly distinguish authentic shoes from knockoffs.

The manufacturers seem to have come to the same conclusion Qian did: For top-of-the-line products, imitation isn’t merely flattery – it’s also good for business. – Washington Post


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