Counterfeits: Good for Luxury Brands?

I used to work for the chief executive of a European luxury brand. He once told me about a flight he had taken from Paris to New York - first class, of course! He sat next to an elegant woman of a certain age, who, an hour into the flight, took out her handbag. To his immense pleasure, the chief executive recognised one of his brand's latest designs.

However, his bonhomie faded as he surveyed the handbag from across the aisle. Thirty years of savoir faire meant it took him just seconds to realise the bag was a fake. Shaking with anger, he spent the next six hours restraining himself and self-medicating on Cognac. Eventually, he could hold back no more. Leaning across, he whispered to the woman, just loud enough for the rest of the cabin to hear, 'If you can afford to travel first class, you can afford the real thing!'

If the latest report on counterfeit luxury goods by law firm Davenport Lyons is to be believed, my old boss is in for many more difficult flights this year. It seems the prevalence and popularity of fake luxury products continues to grow. Two-thirds of respondents were happy to own fake items. Equally concerning was the changing profile of consumers for fake luxury goods; 20% of the 3m Britons who bought these goods had household incomes in excess of £50,000 a year.

The luxury goods market is tipped to grow to £1trillion in global sales by 2010. With the top luxury brands enjoying operating margins of 60%-70%, it's not hard to see why many marketers view counterfeit products as the biggest threat to these brands.

In reality, they are no such thing. The first flawed assumption is that a consumer who buys a fake would have otherwise purchased the genuine article - this is hogwash. A woman does not buy a Hermès Birkin bag for £10,000 because she needs a handbag. She wants the brand and for all the utilitarian verisimilitude of a £200 copy from Shanghai, this is something even the best fakes cannot offer.

It's true that millions of fake luxury handbags are sold each year. But very few of them, if any, cannibalise the sales of the real thing. Davenport Lyons reports that in 2006 only 20% of purchasers of fake brands would have bought the genuine article. I suspect even this figure is an exaggeration.

The second flawed argument against fakes is that they harm the brand equity of the luxury brand. Perhaps, but I would argue that for every negative incident in which a fake damages a brand's reputation, there is an equal number of occasions on which it helps protect the genuine brand.

Let's say you are walking down Bond Street and a young man of apparently meagre income and untidy countenance barges past you with a Gucci bag (the same one you own) slung over his shoulder. You curse him under your breath, but just before you reappraise the great house of Gucci and its fine clientele, you pause and sneer 'Must be fake'. It is probably not, but sometimes it helps to have genuine brands mistaken for forgeries when brand equity is at stake.

Indeed, counterfeit products may be good for luxury brands. Because they are usually manufactured by lean, market-driven entrepreneurs, they are often the first signal of a luxury brand's renaissance (when copies appear) or of the final nail in the coffin (when they don't). As a result, more than one great luxury house uses counterfeit sales to predict demand for its own brand and gauge its overall health.

Fakes are also often the first place where consumers develop an awareness and aspiration for genuine luxury. After all, Davenport Lyons found a third of consumers for fake luxury said they would be more likely to buy the real thing in the future as a result.

Courtesy of Marketing Magazine

Sponsored By: The Brand Positioning Workshop

Comments

[Budd Margolis]

Counterfeit goods do not benefit the brands they poorly imitate, are criminal and harm society in many ways:

1. Support organized crime and terrorist groups
2. Manufactured using children under extremely abusive conditions
3. General labour conditions are exploitive and abusive. No health and safety here!
4. Produce no taxes
5. Take jobs away from legitimate companies
6. Are produced with no regard to the environment

Counterfeit goods is an evil which should be eliminated from our society.

[Eli Portnoy]

There is another side of this luxury story. There are cases where a the luxury brand's product quality and image is overrated/highly inflated (as is the price) and the fake is actually better. From my experience in the luxury good industry I have many examples of this. In one such case the luxury manufacturer (Louis Vuitton) would NOT stand behind the product and refused to replace it when the item fell apart after only several uses (and 31 days after purchase).
The equivalent fake would have lasted at least as long if not longer for a fraction of the price.
Sometimes luxury brands NEED the fakes to keep their image alive.

[Heike Fiedler]

I find your article very interesting as I am currently working on a study dealing with the positive effects of counterfeiting for brands. In your article you state that "more than one great luxury house uses counterfeit sales to predict demand for its own brand and gauge its overall health". What are the sources of this assumption? Do you have any proof for it? I agree with you that counterfeiting does have positive effects on brand awareness, brand equity etc., but I find it very difficult to verify this. I can hardly see luxury brand managers admit that counterfeiting can be good for their brand, while at the same time they sharply condemn it whenever the occasion arises. Any idea on how to confirm the positive effects of counterfeiting on luxury brands would therefore be welcome.