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Whats the advantages of chinas counterfeits marketing essay

By Neelima Mahajan Is counterfeiting always bad? How does the prevalence of counterfeits impact brand owners? Should the likes of Gucci and Prada crack down on counterfeits?

China is full of fake brands. What are some of the broad implications of a market like that? There are many general implications. I look at the 4-P implications of counterfeiting on the market. What I found was when counterfeits enter the market, authentic brands have incentives to upgrade their quality and innovate. As a result their marginal costs and some other costs increase.

They have to charge a higher price to recoup those costs as well as to signal a higher quality, so that consumers can differentiate counterfeits from the authentic products. So traditionally they have the products sold in a lot of the retail stores.

  • The quickest way to halt any market is to curb the demand that created that market;
  • Stopping these enterprises seems doubtful because of the increasingly aggressive behaviors of fraudulent distributors;
  • Is the government doing enough?
  • Is there anything else you want to add?
  • In our lab experiments in a separate study with another colleague we found that when people are exposed to more income inequality in the region,… So for poor who live in a more unequal neighborhood, they actually have more desire to acquire a counterfeit in order to compensate for the lack of economic resources and the feeling of powerlessness than people in the more equal neighborhood.

But after they were infringed by counterfeits, they found it to be very effective to rent their company stores and display authentic certificates on the wall. They also collect different quality levels of products in this one store of their own so they could garner more control of their distribution channels.

And in these leased company stores, they would have the employees to do more informed advertisement to consumers, to teach consumers how to differentiate the counterfeits from the authentic products. In terms of the advertisement, there is also a de-promotion effect, for the counterfeiters.

Companies like Nike, Adidas and a lot of these branded companies would have their own employees walk around the market and track down counterfeits and report to the government.

Then they would collaborate with the government to outlaw these counterfeit localities. So this self-enforcement sort of de-advertises or de-promotes the counterfeiters.

And of course the vertically integrated, licensed stores also de-promote counterfeits because counterfeiters have little incentive to imitate that strategy—otherwise they get identified very easily by the government.

You have been talking about the government enforcing intellectual property rights IPR. Is the government doing enough? In fact, I found in my data that there was a sudden surge in counterfeiting from to and some following years.

I looked into why that was the case, as well as interviewed the companies. I found out that it was largely due to an actual policy shift around that time because of a series of accidents that unexpectedly took place in seven safety sectors, such as food, drugs, gas, etc.

These accidents were unexpected and caused a lot of safety hazards, so the government had to emergently reallocate resources away from the fashion industry to these industries to ensure that sub-quality products and counterfeits in these safety prone sectors were ruled out.

As a result, the enforcement on trademark monitoring by the government in the fashion industry, shoes included, loosened significantly. And that leaves loopholes for counterfeits to enter.

And that creates a very nice, natural experiment for me. What I found was exactly that after this sudden surge of counterfeiting in the market, there were these 4-P reactions in the market.

Of course, it really depends on the parameter values. There were also large areas of the parameter range where the welfare was detrimental. Can you share an example of how this 4-P effect played out with a given brand? In my sample there are a collection of multinational corporation brands as well as domestic brands, and I have brands from the renowned brand category all the way to the small brand level.

What was interesting was that at the time I started collecting my samples, some of the brands started with similar price and quality level in their products. And after the natural experiment, which associated with the sudden surge of counterfeiting, the brands that were infringed by counterfeiting witnessed a sudden jump in quality and price, as compared to the brands that were not infringed by counterfeiting.

Counterfeiting: Good or Bad?

So we clearly see these 4-P effects for the treatment group as compared to the control group. In terms of brands and, particularly luxury brands, what are some of the typical reactions that you see? Louis Vuitton faced this problem in China and in reaction, they opened more stores. Is that a good thing, or should they really be going after these small guys?

Which sectors to protect more? Which sectors to protect less? The companies also face the question of how to optimize the internal enforcement against counterfeits of their own. And the question lies in whether the benefit of tracking all counterfeits outweighs the costs of tracking down all of them, which could be insurmountable in some cases.

My research actually helped address some of these questions. I analyze the product line level data of a panel of brands operating in China and I again look at what happens to the sales of different product line levels after the counterfeits enter. I also probed deeper into the heterogeneous effect across product lines within each brand. And then pulled this across the whole sample of brands. The end result points to the fact that counterfeits could have a positive effect on sales of the high-end products and a negative effect for the low-end products in the same brand.

And this is analyzing the different product line sales for the same brand, and finally getting the average effect, pulling across all the brands in the sample. And I have a theory model that tries to generalize the findings and the rationale is that when counterfeits enter it could actually whats the advantages of chinas counterfeits marketing essay brand awareness. A metric they often look at is how many people wear the brand.

So the more brands they see on the street being worn, the more popularity they infer. The opposite effect is the common-sense business stealing effect.

You have a close substitute, which tries to imitate your appearance and quality, so it steals business from you. The net effect really depends on the interplay of these two countervailing effects. The fact that at the high-end counterfeits are less of a substitute helps in the end because the advertisement effect outweighs the substitution effect. For the lower-end products, the business stealing effect outweighs the advertisement effect, resulting in a net negative effect.

I further conducted lab experiments to probe into how consumers think about this issue, how they react to exposure to counterfeiting. In the lab I randomly assigned the exposure to counterfeit to two groups. I found an analogous, heterogeneous effect—the purchasing intent for the authentic shoe stimuli increased when they were exposed to counterfeit. I also asked these subjects to state their motivation behind their purchasing intent ratings.

Counterfeiting: Good or Bad?

It shed light on how brands could prioritize the enforcement. So it seems to me that brands could prioritize enforcement against counterfeits that are close substitutes to their products, so as to ameliorate the business stealing effect. But they may not need to worry too much about the other types of counterfeits that are just generally out there helping build word of mouth and brand awareness and advertising for the brand. This is an economics approach to things, and there is also a sociology approach.

Sociology research done by my colleague at MIT, Renee Gosline, found that consumers who purchased counterfeit in the first year actually followed up with purchases in more authentic products of the same brand. Is there anything else you want to add? I think the different research also speaks to policymakers in various dimensions in terms of enforcement.

  • Among sub-standard counterfeit goods coming into Europe are mobile phone batteries susceptible to explode upon use;
  • I found out that it was largely due to an actual policy shift around that time because of a series of accidents that unexpectedly took place in seven safety sectors, such as food, drugs, gas, etc;
  • Counterfeit Medicines Lastly, and most importantly, the American people should be aware of counterfeit medicines;
  • The Harmful Effects of Counterfeit Goods Arlee Sowder Abstract The business of counterfeit goods is one of the largest underground industries in the world and growing rapidly.

And one other surprising policy prescription might be to reduce income inequality. Your maid is also buying Louis Vuitton, which is likely to be a knock-off. In our lab experiments in a separate study with another colleague we found that when people are exposed to more income inequality in the region,… So for poor who live in a more unequal neighborhood, they actually have more desire to acquire a counterfeit in order to compensate for the lack of economic resources and the feeling of powerlessness than people in the more equal neighborhood.

So reducing income inequality could also help to eliminate some of the demand for counterfeits.