August 3, 2011

Counterintuitive Counterfeits

The counterfeit industry has long been the shady brother of legitimate, high-end manufacturers. Conventional knowledge says fakes steal sales from genuine brands, but could they actually be good for business?

A preliminary study of counterfeit sales in China (the birthplace of all these fine products) suggests that rip-offs may serve some good after all. 

In the 1990s, China suffered a bout of well-publicized cases of food-poisoning and gas tank explosions. As policing efforts were diverted from counterfeiters towards the drug, food, and gas industries, knock-offs proliferated. Instead of losing business, however, high-end labels saw rising sales in the following years.

There might be several reasons for this:

  • Fakes serve as free advertising by signaling brand popularity. All publicity is good publicity, right?
  • Owning a fake could eventually lead to purchasing the real thing. MIT marketing professor Renee Gosline calls counterfeits “gate-way” products that allow the owner to form an emotional attachment to the brand.
  • A guilty conscience helps propel counterfeit owners to buy the genuine article.

As more brands and corporations go global, the best solution against counterfeits and copycats  is differentiation through quality. For high-end labels, luxury materials that are harder to replicate fetch higher prices anyway.

Imitation may be flattering, but it’s so much better when it’s also profitable.