Current Affairs

Designer brands shed big bucks to stave off copycats


Thailand is on a drive to clamp down on black market branded goods with its “Stop Fake Goods” campaign aimed at tourists, which started at the end of last year.

The country wants to clean up its image on the world stage. Last year, the Organisation for Economic Cooperation and Development (OECD) and the European Union’s Intellectual Property Office ranked Thailand fourth among countries globally where most counterfeit goods originate. The ranking is dominated by Asian countries with China in the first spot followed by Turkey, Singapore, Thailand and India.

So far the Thai government’s efforts have been successful. The Ministry of Commerce said last year the number of counterfeit products has been reduced by more than 85% from previous years.

According to a report released by Global Financial Integrity, the international market for copycats is still huge. In its March 2017 report, the value of global trade in counterfeit and pirated goods was estimated to stand between US$923 billion and $1.13 trillion annually.

Copycat products are popular because they confer on consumers the social status associated with luxury goods, without the high price. In our joint study on counterfeit goods at the National University of Singapore (NUS) Business School and the University of California Los Angeles (UCLA), we made three observations as to why they are likely to successfully enter the marketplace.

First, many counterfeit products closely resemble the original despite being, on closer inspection, of low quality. In China, for instance, ill-equipped, low-end factories that produce imitation goods are mindful that by producing better-quality copycats, they run the risk of encroaching on the profits of genuine brands. If they maintain a lower quality, their impact on genuine brands is lower and genuine brands are more likely to “tolerate” their presence. These factories also avoid attracting the type of attention that results in calls for enforcement of anti-counterfeit measures.

Second, regardless of how the fake product performs, the potential threat is sufficient to force luxury brands to lower the prices of their genuine goods.

Some companies have introduced “second-liners” at lower prices to beat the competition from counterfeiters.

Liverpool FC in the English Premier League entered Asia thinking that merchandise sales would thrive given the popularity of soccer and its club and star players in Asia.

However, it found it had to compete with a rampant counterfeit market. The club subsequently struggled as consumers were able to purchase similar-looking shirts in local sporting goods stores at a fraction of the cost.

Even tourists from Europe are known to purchase counterfeit jerseys in bulk from countries such as Thailand to bring back home to sell.

For Liverpool, the club’s solution was to cut the cost of its latest shirt from US$87 to $30, in an attempt to convince Asian consumers to buy its official merchandise. While the lower-cost version may look similar to the official jersey, it was redesigned using simpler materials and is not made by the club’s official sponsor, New Balance.

In an effort to fight back against the counterfeit market, luxury brands such as Burberry, Cartier, Chanel and Prada have also aligned their pricing models across Asia and Europe to have more control over their respective brands.

Despite such discounts, it is still challenging to compete with fakes that look similar but cost much less. Moreover, price cuts like those undertaken by Liverpool FC risk a potential backlash from fans back home who are already unhappy with the high prices they have to pay — especially when they realise there are cheaper versions of the originals available outside their country.

That leads to our final observation on the impact of counterfeits on consumers’ social status. They offer consumers the opportunity to gain more respect from others — as long as they are not discovered. In the event that they are found out, they may be humiliated or shunned by their peers.

The ubiquitous counterfeit market has caused luxury brands to rethink their strategies for the region. Many have resorted to creating a genuine copycat of their own product and/or lowering the cost by more than half.

While data from the Thai Ministry of Commerce indicates their efforts to date have been quite successful, the challenge now is to ensure they sustain this success.

Counterfeiting is almost a part of the local culture, and Thai businesses are especially resourceful in staying ahead of the law.

In other regional markets, many firms produce and sell imitation products because of efficient supply networks and large, under-served markets.

For Thailand to sustain its anti-counterfeiting efforts, there has to be a holistic long-term programme including public education efforts and stronger law enforcement.

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