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Fake Designer Handbags, Real Profits

The conventional wisdom is that counterfeit handbags might look a little like the real thing, but are a serious problem for top brands. A new study, however, claims that the fakes might be good for business.

A story in Slate Magazine titled Fake Prada bags explains:

When most people think about the effect of counterfeits on legitimate brands—and when brands themselves litigate against counterfeiters—they focus on the “business stealing” effect: Every fake Prada handbag represents a lost sale for Prada. But a dirty little secret is that Prada rip-offs can also function as free advertising for real Prada handbags—partly by signaling the brand’s popularity, but, less obviously, by creating what MIT marketing professor Renee Richardson Gosline has described as a “gateway” product. For her doctoral thesis, Gosline immersed herself in the counterfeit “purse parties” of upper-middle-class moms. She found that her subjects formed attachments to their phony Vuittons and came to crave the real thing when, inevitably, they found the stitches falling apart on their cheap knockoffs. Within a couple of years, more than half of the women—many of whom had never fancied themselves consumers of $1,300 purses—abandoned their counterfeits for authentic items.

Photo © www.at.yoka.com

This logic is certainly curious. The fraudulent items will drive down sales at first, but they obviously increase brand awareness. Eventually, they build real brand loyalty. But how do you study this effect in the larger economy? Is failure is the secret to success in this case as well?

As the Slate article puts it, the question is a bit tough:

Measuring the net effect of counterfeiting, though, is a tricky matter. If Prada sales increase alongside counterfeit sales, is that because fakes provide valuable advertising? Or could the sales increase merely indicate higher demand for Prada products, both real and fake?

To resolve the problem, an economist from Northwestern named Yi Qian happened on a data windfall. It turns out that in the mid-1990s, a host of other quality-control issues outside of the apparel business kept Chinese regulators busy. You may remember the rash of concerns about food poisoning, heavy metals and issues with counterfeit drugs. In a single year, the Quality and Technology Supervision Bureau cut their budget for tracking one type of apparel by two-thirds. Not surprisingly, this caused a huge surge in the unmonitored fakes in the months to follow. But instead of the fraudulent products squeezing out the legit competition, the authentic vendors actually did better. It seems the widespread availability of cheap knock-offs made the real thing that much more desirable.

We’ll say it again: failure is the secret to success. If somebody is selling bad copies of your product, it might not be a reason to panic. Instead, it might be the foundation of next years booming sales figures!

This entry was posted on Tuesday, May 31st, 2011. You can follow any responses to this entry through RSS 2.0. You can leave a response, or trackback from your own site.