Counterfeiting and Branded Good Companies in International Strategic Marketing - Essay Example

Counterfeits are reproductions of a trademarked brand that are quite similar or identical to genuine articles (Phau & Teah, 2009). They are illegal, low-priced and often low-quality replicas of original products in terms of performance, reliability or durability (Wilcox, Kim & Sen, 2009). Packaging, labeling and trademarks are intentionally kept similar to pass of as original. Counterfeiting is different from piracy (which is generally related to software) and from ‘grey market’ which denotes original goods but through unauthorized channels or distribution system. Counterfeiting is production of goods similar to the original article; they are cheaper alternatives of the original and there may not be perceivable difference in quality (Phau, Teah & Lee, 2009). OECD (1998) defines counterfeiting as any manufacturing of a product which so closely imitates the appearance of the product of another to mislead a consumer that it is the product of another. Hence it also includes trademarks and copyrights infringements, including packaging and labeling or any other significant feature of the product. Counterfeiting is a civil offence, a criminal crime apart from being a social, political and serious economic problem (Bian & Veloutsou, 2007). However, according to the OECD (Organization for Economic Cooperation & Development, 2007) the total value of counterfeit goods in 2005 was $200 billion (Gistri et al. 2009) and by 2007 it has estimated to have exceeded $500 (Phau, Teah & Lee, 2009). It is estimated that about 15% of the branded products sold across the world are counterfeit (Cross, 2006). The core target for counterfeiting brands is the luxury brands. It has increased to such proportions because of global trade and emerging new markets (Phau & Teah, 2009). Counterfeiting thrives because in some countries such as the US, their legal system protects only functionality and not designs or the style. In other countries even this level of protection is not present (Hilton, Chot & Chen, 2004). Countries like China and Hong Kong has no way to deal with counterfeiters and moreover, many times counterfeiting takes place outside the jurisdiction of a country (Nejdet, 2000). North Korea too engages in secret counterfeit printing and packaging of billions of cigarettes and drugs sold in the US (Cross, 2006). Phillips Morris has been able to trace the counterfeit version of its Marlboro brand at more than 1300 stores in the US. Such illicit activities generate more than half a billion US dollars. The counterfeiting is done so well that packs of Marlboro seized in Miami even urged the smokers to visit a website to find information about the dangers of smoking. Hence, making blatant copies or counterfeits can flourish with no fear of going against the law. However, it is possible to track the counterfeit gods because the counterfeiters do not change the variably printed tracking numbers that can be found on legitimate packages. This can be used in advertisements for the sake of the buyers interested in genuine products. Counterfeiting of goods initially started in elite consumer goods like branded clothing and accessories but now it covers a wide range of industries (Prendergast, Chuen & Phau, 2002). China has been identified as the most notorious country in counterfeiting where the sources of counterfeit goods can be traced. The range of counterfeit goods in China includes apparel, cigarettes, electronic, food, mobile phones and even pharmaceuticals. It is estimated that almost 20 percent of the goods sold in the Chinese market are counterfeit goods (Phau & Teah, 2009). International counterfeiting is financially lucrative as it has very little risk involved. Only the profit margins may be lower. Most countries are experiencing high inflation, currency devaluation and low purchasing power (Nejdet, 2000). Under the circumstances, counterfeit products provide the buyers a cheaper alternative to branded goods. Counterfeiters get an oppurtunity in countries where unstable or frequent government changes take place. Counterfeiters usually target the US based multi-nationals for several reasons. Laws and regulations do not permit checking counterfeiting across borders. Moreover, as a part of the international marketing strategy, manufacturers announce or advertise their products in several countries. While advertising they do try to differentiate their products from others especially where competition is fierce. International branded products have strong consumer reputation and brand recognition which draws the attention of counterfeiters. Product counterfeiting can be done in two ways. The first method is when the international counterfeiter purchases the product as a user and then reproduces it in a different country where the original product has not yet been marketed (Nejdet, 2000). In such a strategy, the counterfeiter is saved from detection and legal prosecution. The second method involves an employee or an insider who steals the know-how and sells it to the counterfeiter. This know-how can be sold in a different country where the product is manufactured and then the finished product is sold in the original market of the brand owner. Such form of counterfeit receives no publicity because the brand owner is scared of the adverse publicity it can fetch to his brand. Counterfeiters comprise of people with an entrepreneurial inclination who do not have any guilt of using others’ ideas as their own (Nejdet, 2000). Counterfeiters may not even realize that there is anything wrong. For instance, the Chinese do not understand the concept of trademark or brand equity. Counterfeiting may be cultural accepted as they do not perceive anything wrong in such acts. In such situations, suppose say some Chinese entrepreneurs copy some product from the West and sell it in their local market, the original brand owner is not affected. This does not take away his regular customers and nor does it impact his brand image. This is because the Chinese buyers would not even be aware of the original product or the brand value. They only get lured by the physical attractiveness of the product. Only if the original brand is sold in China, it can impact the original brand owner. This too would happen if the original brand owner advertises and finds and brand- and quality-conscious customer base in China or any other country where such counterfeiting takes place. Another group of counterfeiters include the real criminals who are experienced in such acts. There is protection against such crime and this is more rampant in the software industry. From time to time criminals have been arrested and hence in this case too the original brand owners do not have much of a problem. The third group of counterfeiter includes governments like in China. The Chinese government’s involvement has been found in several products. For instance, a company based in Beijing sells video games titles that have been stolen from Nintendo while Shenzhen-based Company deals in counterfeit compact discs, which is apparently run by the son of a general in the People’s Liberation Army. However, as mentioned earlier, as long as these branded goods do not sell their original products in China, it does not create any problem for the brand owners. The demand-side counterfeiting also contributes to the existence and thriving of the counterfeit market. The counterfeit goods market thrives because of two types of consumers – the first group purchases the goods unknowingly and unintentionally. They are actually victims of similar looking articles. The second is a willing participant in the counterfeit market because this is done intentionally. They are thus known as ‘willing accomplices’ rather than as victims of deception (Phau, Teah and Lee, 2009). Hence there are two types of transactions involved in counterfeiting – deceptive and non-deceptive (Nia & Zaichkowsky, 2000). Deceptive are those who are not aware that they are purchasing a counterfeit product while non-deceptive transactions take place when the purchasers are fully aware that what they are buying are not genuine products. This allows the counterfeit goods manufactures to claim that they are not involved in illegal production because the buyers knowingly purchase their products. Various authors have studied this aspect and the intention behind such illegal purchase. However, their intentional purchase of counterfeit goods is not a problem for the branded goods companies engaged in international strategic marketing (Phau & Teah, 2009) as can be justified by arguments. Counterfeiting of goods can have several implications for brand owners and manufacturers. They are likely to face loss of revenue due to sale of substitutes and it can also diminish the level of quality associated with the genuine product. The exclusiveness of the brand can also be reduced. All of these can however be turned into oppurtunities and is not really a problem for the brand owner. Besides, the additional demand enhances the brand awareness of the product. Each of these points has been discussed elaborately. To a large extent, the brand owners can protect the trademarks against international counterfeiters. They can use holograms or smart cards and biometric markers to protect and authenticate genuine products (OECD, 1998). The theory of planned behaviour (TPB) suggests that there is a linkage between the attitude and intention of the buyers. Hence in this case, those who buy counterfeit products do so knowingly. They intentionally purchase the counterfeit of the brands and they have nothing against the brand owner of genuine products (Phau, Teah and Lee, 2009). They purchase it for their own benefits which range from economic benefits to social benefits. Social influence plays a vital role because many times they purchase counterfeit goods under the influence of peers. This again provides the brand owners to target the potential buyers who are under the influence of their peers. Counterfeit hence is an oppurtunity to brand owners to expand their customer base. They can emphasize on personal image thereby attracting those that buy counterfeit goods under pressure. The brand owners can advertise of the embarrassment that one would face when friends discovered that they had been using fake products. Such issues affect the self-image of an individual and he would prefer to stick to branded products. There are arguments that if the prices of the original brands could be kept affordable, it could reduce the incidence of purchase of counterfeit goods. However, reducing the price can adversely affect the self-image of the buyers. This is because when the prices become affordable by many, there would be too many users of the product which would lose the exclusivity charm or appeal that the buyers of genuine goods like to have. In international marketing, very often firms have to enter into complex licensing agreements to achieve the economies of scale through volume production. This leaves the brands vulnerable to the threats of the grey market, parallel importing and counterfeiting (Moore, Fernie & Burt, 2000). For effective international marketing, the global brands have to engage in a global advertising strategy, a focused product development strategy and a carefully controlled distribution policy. All of these have significance in international marketing as the apparel sector has the highest degree of counterfeiting. A global advertising strategy can communicate the exclusiveness of the product which would help the discerning clients from differentiating between the original and the counterfeited products. A focused product development strategy enhances the fact that international brand owners have this capability of constantly investing in research and development which the counterfeiters cannot afford to. A controlled distribution policy is essential and the list of all distributors must be circulated or advertised so that the buyers interested in genuine products know the location where to purchase the original goods from. Once the international marketer has these in place, counterfeiting is not really a major problem that can be said to be insurmountable. In fact, its flagship stores serve as the advertising points and buyers interested in genuine products would seek all relevant information from such points of distribution. Counterfeit brands can at times be misleading where even the brand owners fail to distinguish between the genuine the fake products. Some knowingly buy the counterfeit products while others are misled into buying them. Nevertheless, brand owners contend that this does not affect their brand value or the satisfaction and the status of the genuine brand luxury items is decreased because of the availability of the counterfeit products. They also do not agree that the availability of the counterfeit products negatively affects the purchase intentions of the original luxury brands. While some argue that it might impact consumer confidence in genuine products and destroys brand equity apart from loss of revenues (Bian & Veloutsou, 2007) others believe that counterfeiting is a sign of success for the counterfeited brand. The counterfeited products would continue to exist because there are buyers for such products. These buyers engage in the purchase of counterfeit products because they are unable to afford the original luxury brand. At the same time, it gives them a sense of status when they use the counterfeit products because others cannot easily differentiate between the two. This itself suggests that brands that are well-established, liked and respected will be counterfeited. In fact these reputed brands pay a price for the recognition, contend Bian and Veloutsou. Counterfeit products of branded goods are the ones that have a demand. They are willing to pay for the visual attributes and the function without bothering about the quality (Phau & Teah, 2009). What needs to be noted here is that names that are well known or worth counterfeiting are targeted for illegal production. Counterfeit products would exist because there is an inner dimension of consumption, linked to personal gratification. Then there is the social dimension that an individual gains by using the brand (counterfeit posed as original) in front of others. Consumers of counterfeit products even collect all data about the original brands which helps them in picking up the counterfeit product and they feel they have used the original product. This is the point which the owners of the original brands have taken advantage of. While advertising or promoting their brands, the owners emphasize on the positive, functional, and in a more abstract manner, the aesthetic and emotional experience of owning the brand. This means, sale of counterfeit goods is an oppurtunity for the brand owners to find newer and innovative ways of retaining their brand equity and of educating the consumers about the product. As Gistri et al mention, awareness of counterfeit products provides the brand owners an oppurtunity to apply the concept of brand community. The branded goods cater to a sophisticated class and the unsophisticated class, according to Hilton, Chot and Chen (2004) are not certain of the quality even after purchase. “Imitation is the best form of flattery” and hence when other copy the designs of the apparel in the fashion industry, it shows that the product is desired and worth copying. Gucci expanded rapidly in the 1980s and its products were available at too many stores and outlets. This led to brand dilution and their exclusivity suffered. As volumes of poor quality counterfeits reached the markets, Gucci’s sales dipped and led to losses for the company, Gucci then changed their strategy, withdrew their products from the market and recreated its air of exclusivity. Now this can be viewed from different perspectives. They had expanded in such a way that exclusivity was lost anyway. This provided them an oppurtunity to bring back their exclusivity. It also demonstrated that Gucci was a brand that people liked and desired. This is what Mark (2007) means when he argues that every negative incident that damages a brand’s reputation, there are a number of occasions when the counterfeit brand can protect the genuine brand. If a young woman with meager income is seen with a Gucci bag, it would probably be brushed off as a counterfeit product. It may be genuine but it helps to brush it off as fake because people with prestige would like to feel that only those in the high income bracket can and should be using Gucci. This is how the existence of the counterfeit brand can protect the genuine brand. For branded good like Coca-cola, counterfeiting can damage the goodwill and the brand name. Suppose for some reason Coca-cola Company were go to up in smoke overnight, they could manage the resources and rebuild purely because of the goodwill they have created in the market (Leisen & Nill, 2001). However, counterfeit products can damage this goodwill which they have taken decades to build. Counterfeiting has a negative impact on the economy as it also leads to unemployment. Most companies send out warning signals to the buyers to be able to recognize the genuine product but there are many who knowingly purchase the counterfeit products. This is known as non-deceptive counterfeiting as consumers willfully purchase the goods. They “get prestige without paying for it” as the counterfeit goods are relatively cheaper than the original brands. Thus, the counterfeiters justify that they are not actually taking away the customers of the branded goods (Nia & Zaichkowsky, 2000). They are only helping some customers to fulfill their desire of using the branded products that can be relatively cheaper. Mark (2007) also contends that the buyers of fake goods are not the customers of branded goods. This is because the buyers of branded goods are the self-conscious individuals concerned about the impression they make on others (Nia & Zaichkowsky, 2000). They are concerned about their appearance, about getting approval from others, and they are more sensitive to interpersonal rejections. It helps them to communicate meaning about themselves to their reference group. Some purchase branded goods to satisfy their appetite for symbolic meanings. Those who have a strong positive image of the originals would never purchase counterfeit products. Yet another reason that brand owners have nothing to fear from counterfeited goods is that counterfeit goods are inferior in quality. As such frequent repairs, breakdowns and malfunction is possible soon after the purchase and since they do not carry warranties, the buyers are likely to be in financial risks. Such words spread fast and the counterfeiting company is likely to be rejected, thereby protecting the original brand owner. Hence the company does not actually lose customers even when counterfeit goods are available in the market. In 2006, only 20% of those who purchased the counterfeit brand would have bought the genuine product (Mark, 2007). On the other hand, those who want the branded products, buy them not because they want the product but it is the desire to own the brand. One would not buy a Hermes Birkin bad for £10,000 because she want a bag; she would do so because she wants the brand. Her utility for the bag can be fulfilled by a bag costing say £200 but her desire to be seen around with the brand would remain unfulfilled. In the luxury brand sector, many times companies actually use counterfeit sales to predict the demand for their own brand and determine its health. Moreover, many times, the counterfeit brand is the first encounter or association that the consumer has with the brand. He then develops an awareness and aspiration for the genuine product. However, it may also happen that the buyers of genuine products may refrain from purchasing the genuine product because they can be taken as using the cheap imitations even when they are using the genuine product (Phau, Teah & Lee, 2009). The brand owners need to convey the right message through carefully word in the advertisements that would caution the buyers that have intention to purchase only the genuine products. This has become necessary as due to advanced technology the quality and appearance of fake goods can be misleading. The brand owners can also include some special design that could differentiate the genuine from counterfeit goods, thereby being a step ahead of the counterfeiters. The brand owners would also need to have a distribution strategy in place and publish the list of genuine distributors so that the buyers keen for genuine products are not misled (Prendergast, Chuen & Phau, 2002). This is necessary because the buyers of genuine products identify a fake product because of the price and the location of availability. The consumers should also be educated on how to detect fake goods. Education may be expensive but an educated can translate into higher profits for an MNC in the long run (Nejdet, 2000). Whenever any counterfeiting is detected, the brand owners have to take a proactive approach and be aggressive in dealing with the counterfeiter. This would enhance the confidence in the brand and deter counterfeiters in the future. International marketers take independent legal actions and employ anti-counterfeiting firms to conduct investigations and raids on the counterfeiters (Wee, Tan & Cheok, 1995). Nevertheless, counterfeiting continues in the international markets due to ever-increasing demand for the branded products. Counterfeiting in the international scenario is most prevalent in the apparel industry. Besides, there is no international forum to check the counterfeiting that takes place freely. The counterfeited garments are easily distinguishable, as they are low priced and they have colour-run-offs (OECD, 1998). Thus, the branded goods companies have nothing to fear from the counterfeit market because the product quality is poor. Moreover they carry no warranties thereby adding to greater financial risks of the buyers (Phau & Teah, 2009). Brand owners are not willing to reduce the prices of their goods just to discourage counterfeit products. This would reduce the brand value and erode the exclusivity of the customers. Price is not an issue that brand owners should address (Wee, Tan & Cheok, 1995). Most counterfeit products are replica of the original branded goods that command a high premium because of the high cost of production and mare development. Hence it does not make sense for the brand owners to match the price of the counterfeiters. This strategy is justified because the buyers of counterfeit products think of themselves as smart shoppers who have not given in to the snobbish attitude towards the branded products. The branded good company does not need such customers but they have and should stick to the customers that have a genuine appreciation for the quality and price of the branded goods. However, today counterfeiting is no more restricted to luxury goods and has entered every segment including auto parts. The international marketing strategies of these companies are responsible for the increase in counterfeiting. Companies engage in artificial market segmentation and yield pricing depending on their own purchasing power in key automotive markets (Trott & Hoecht, 2007). This is incentive enough to the parallel importers and the proliferation of the grey markets that would not rise if the pricing strategies did not attempt to maximize yield in the segmented markets. Thus, price incentives and ease of imitation are the two keys factors that encourage counterfeiting. International marketers are now pursuing an imitation strategy especially when it comes to copying technology. Many MNCs, when entering new markets enter into joint venture to take advantage of the local expertise. This requires sharing of technology and poses a risk. Under the circumstances, companies have to be selective in their potential partners so that they do not engage in undesirable counterfeiting activities. However, imitation only enhances competition and competition leads to innovation in product attributes, in marketing strategies and in pricing. Imitation should be taken as another form of competition which enhances the quality of the brand owners. Imitation also reinforces the acceptability of the original product in the international market. Thus, once again imitation only serves to popularize the brand and does not cause any problem, provided one takes the basic precautions. Counterfeiting in China is extremely severe but companies like Panasonic crack down on counterfeiting when they find that it affects their profit rations, and not otherwise (Xiaowei & Zhenwu, 2003). Sony too faces the same problem as Panasonic in China but they contend they do not engage in attacking the counterfeiters because the legal expenses would be very high. There are several others who feel that small instances of counterfeiting are not really worth fighting. Attending to every case of counterfeiting would be too expensive and some companies do not even have the man power to handle this all the time. Moreover, in China, ever after fighting, the chances of receiving any compensation are remote. Procter & Gamble is losing US$150 million annually in counterfeiting. The degree of protection differs for famous brands and trademarks compared to ordinary brands. However, as of 2007, those who sell fake brands are heavily fined in China which could be as high as a month’s income (Weekly Watch, 2007). In the past the punishment received was negligible which did not deter the counterfeiters from continuing to produce fake goods. However, change has been taking place in Beijing which shows that tough action is necessary to crack down on counterfeiters. When the counterfeits are threatened of survival, they would stop engaging in such acts, and not otherwise. At the same time, even the market regulators have to be cautious and they must have the discretion to resist the bribe they are offered. Thus, it can be seen that international marketing strategies have to be devised for expansion and for growth and development. This requires advertising overseas and tying up with different agencies and companies in foreign countries. Foreign market entry thus has to be strategically considered as this is one of the ways that counterfeiting starts. This requires proper control over the distribution system and proper information to the consumers of the points of sale. As a part of the international business strategy, international marketers have to take up counterfeiting very seriously. The international marketers should be familiar with the country laws where they intend to market their products. To safeguard their own interests, the brand owner should have a thorough knowledge of the foreign market. The original brand prices are always significantly higher than the counterfeit goods and it is felt that a reasonable price and difficulty in imitation could keep the counterfeiters at bay. However, those that have the entrepreneurial inclination to counterfeit would not be deterred by any factor. They could find means to achieve their goals. Counterfeits do not really impact the original brand, its brand equity or sales in anyway. The customers of the two segments are entirely different. In fact, the brand owners stand to gain because of the counterfeit products. It only proves how much the brand is valued and respected. Counterfeits can even contribute to increasing the sales. All that is required of the brand owners is to enhance the communication messages explaining the exclusive features of the brand and justify value for money. They also need to have a right distribution strategy in place as buyers of branded goods usually differentiate between genuine and fake goods based on the price and the place where such goods are available. There might be someone who is lured by the brand value and switches over from counterfeit to the original brand. While the laws in many countries is a deterrent to the brand owners from taking action against the counterfeiters, at times taking interest in every incidence of counterfeiting may also not be cost-effective. Brand owners have to ignore such instances unless it starts affecting the profit ratios. Thus, in international marketing, counterfeiting is not really a major problem for branded goods companies. References Bian, X., & Veloutsou, C. (2007). 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