Two years before we were all wrapped up in the panic of Y2K, The Federal Bureau of Investigation (FBI) made a prediction. Counterfeiting would become THE crime of the 21st Century. Two decades later and the knock off industry is a lucrative and growing industry. In effect, the more the luxury goods industry flourishes, the more alluring it becomes to counterfeiters.
With the help of globalization, the knock offs have moved from the back allies to a world scale.
According to Claudia Gessler, the author of Counterfeiting in the Luxury Industry: The True Costs of Counterfeit Goods (2009) fakes are viewed as harmless because they simply constitute a cheap alternative purchase. With the help of globalization, the knock offs have moved from the back allies to a world scale. Not only are they more accessible, but the imitations skills have improved to the point where distinguishing authentic products from the copies is a challenge for the average customer. On one hand, there’s the argument that counterfeits not only impair legitimate businesses, but also have a grave bearing on the global economy. On the other hand, there are schools of thoughts that believe that there are benefits to having copycats. But before we dive into the debate, let’s look a little deeper into what counterfeiting is.
One of the most referenced definitions of counterfeiting is “the act of producing or selling a product containing an intentional and calculated reproduction of a genuine trademark” (McCarthy, 2014). This is because most business definitions indicate that these replicas are done solely to mislead the buyer that they’re purchasing a genuine artefact. However, in the world of luxury and fashion, that’s only half the story. There’s deceptive counterfeiting where the customer is a victim of deceit, having being duped into buying a fake. Then there’s ‘non-deceptive counterfeiting’ where the customers not only know that they’re buying fakes but are willing participants. The luxury industry is largely impacted by the latter, which contributes to the counterfeit industry valued at nearly half a trillion dollars by 2013. That’s roughly 3 million consumers a year paying for artificial designer products that range from meticulous copies to use of a brand feature such as the logo.
Thanks to the internet, things don’t appear to be losing steam any time soon. In truth, nearly a third of the sales are over the internet. What makes the issue grow in complexity is the fact that the internet provides counterfeiters anonymity and gives them the ability to work remotely while targeting a global audience. Should they smell the feds on their heels, they simply shutdown shop and launch a new website. Need an example of what the authorities are up against? The Social Media and Luxury Goods Counterfeit: a growing concern for government, industry and consumers worldwide study by The Washington Post uncovered 20,892 fake Instagram accounts selling counterfeit goods. Over the course of three days in 2016, the researchers observed these accounts upload a combined 146,958 new images and gain 687,817 new followers. Armando Branchini of Altagamma, the trade group for Italian luxury firms, further explained to the Economist that the post isn’t helping either. One counterfeiter can send out thousands of packages of single items around the world which is impossible for authorities to monitor.
ARGUMENTS AGAINST COUNTERFEITS
So we know that counterfeiting represents up to 7% of global trade. But according to the Organisation for Economic Co-operation and Development (OECD), it leads to the loss of over 200,000 jobs across the world as well. Thus buying that little knockoff bag isn’t just costing someone their livelihood, but also strengthening the link that exists between counterfeiting and organized crime. According to OECD and the European Union IP Office (EUIPO), the money from the purchases can help fuel the works of drug cartels and terrorist groups. Additionally, these products are often made in conditions that go against human rights. This include child labour, hazardous environmental practices, and meagre working conditions.
Then there’s the fact that with cheaper price tags comes reduced responsibility to quality. An article in Vogue UK highlights some of the shortcuts that counterfeiters take to knock of those extra zeros. For example, ‘Cobalt-60, a radioactive isotope, is often found in metal straps. Chemicals used in the leather tanning process are not flushed out properly and can cause rashes and skin irritations. Sunglasses are without UV protection.’ Set aside how this probably hinders the customer’s chances of social elevation, is the health risk worth it?
Findings purport that these knock offs could be beneficial in terms of a sampling tool.
As we’ve previously mentioned, luxury’s economic basis caters to the functional and dream side of production. A luxury brand’s DNA, built on name and value, and is shaped from the perfect combination of tradition and technological innovation. It’s what creates the desire to belong to a higher or superior class. But flooding the market with Rolex watches that don’t last a week or discoloured Chanel No.5 perfumes dilutes the brand. Not to mention, rips off their intellectual property, patents and trademarks. Deceptive counterfeiting can lead to consumers blaming the original manufacturer if the product doesn’t meet their expected standards. And if these consumers don’t realise that they have been conned, they would not only swear off the product, but advise those in their circle to do the same. Now that’s a blow to the desirability aspect the brand has dedicated time and resources to cultivating.
ARGUMENT FOR COUNTERFEITS
“Imitation is not just the sincerest form of flattery – it’s the sincerest form of learning.” ― George Bernard Shaw
Brands such as Prada and Louis Vuitton are understandably concerned with growing counterfeit industry. They argue that it affects their bottom lines, sales and the perception of the prestige value. But could there be an upside to having knock offs in the market?
Renee Richardson Gosline spent two years investigating the relationship between genuine and fake luxury goods; as highlighted in her ‘Counterfeit Labels: Good For Luxury Brands?’ article for Forbes. Gosline’s findings purport that these knock offs could be beneficial in terms of a sampling tool. AKA fakes are a gateway to the real deal. After buying a knock off, consumers surprisingly developed an attachment to the real brand it was fashioned after. She found that their knockoff encouraged them to go into the store and get acquainted with the original. One reason being, they began to notice the inferior quality of the knock off, which grew their desire for the true quality of the brand. Thus their mentality shifted from good-deal purchase to wanting an investment piece that didn’t fray or fall apart. Thus counterfeit consumers could be viewed as potential customers, since their purchase is an indication that they like the brand. Perhaps they couldn’t afford the genuine products immediately but they could convert to loyal customers later on.
The Luxury Strategy has also derived silver-linings from the counterfeiting business. The authors suggest that it can be a way to diagnose the health of the strategy of the brand. How so? Counterfeiters will only rip off brands that have achieved a significant awareness threshold. For example, the way customers can recognise Louis Vuitton from its logo or print, as well as Christian Louboutin’s red sole. Basically, it’s a confirmation that the luxury brand has successfully created the dream and functionality aspect that other’s most copy it.
Additionally, it can still be used to verify the quality of the brand’s strategy in areas of distribution and production. Kapferer and Bastien suggest that counterfeits can indicate that a brand’s distribution network could be too selective (customers don’t have easy access to the luxury good and thus can’t tell a real from a fake) or too uncontrolled (fake products being sold along real products). It could also indicate that the production process has some loop holes that allow merchandise to be leaked into the market through a subcontractor.
While some economists do urge luxury brands to see the benefits of having copycats, it can’t be denied that they are making loses in sales and goodwill to this booming industry. There are rebuttals to these advantages. Such as, could Gosline’s findings only be relevant within a certain societal class? And sure, it IS flattering to be so sought after that they need to copy the brand’s moves, but is it worth the cost of brand dilution and lawsuits? Louis Vuitton doesn’t seem to think so. They’ve dedicated a specific team to simply managing and protecting the company’s intellectual property rights. Do LV knock-offs still exist? Definitely. But would you sit by and let someone steal your idea? Look out for tomorrow’s post that will delve into why consumers knowingly buy these products, as well as, examples of what some of the bigger brands are doing to protect themselves.