Even pirates have their redeeming qualities.
The counterfeiter might be a profit-sapping scourge to many designers, but recently published research from a trio of academics shows that fakes can also push brands to up their game — particularly in terms of aesthetics.
A study published in Market Science academic journal looked at 31 brands that sold fashion leather and sport shoes in China from 1993 to 2004. The Chinese market proved to be something of a petri dish to the researchers, since it saw a major influx of counterfeits after 1995, when the government pivoted away from the enforcement of footwear trademarks to respond to problems in other sectors, including gas explosions and food poisonings.
“Established companies don’t sit idly by while they are copied shamelessly,” said Yi Qian, a professor at University of British Columbia Sauder School of Business, who cowrote the study. “They react by improving their products to set themselves apart from their illegal competitors.”
The research showed that when there was a moderate amount of counterfeiting, brands would essentially resign themselves to splitting profits with counterfeiters and improve their product to capture “high-valuation expert consumers if the innovation cost is not too high.”
But the brands eventually became more proactive.
The study said: “When counterfeiting grows too rampant and fools too many consumers, the market incentives turn….The authentic brand will invest to innovate and differentiate itself from counterfeiters in terms of searchable quality….Counterfeiting induces the authentic producer to invest more in the product’s searchable quality (e.g., appearance) and less in experiential quality (e.g., the functionality of the shoes, not apparent to consumers at the time of purchase).”
That move to sharpen a brand’s appearance helped the established shoe companies in China weather the counterfeit storm but also boosted prices.
“In particular, the branded companies that survived counterfeit infringements all significantly improved their shoes’ surface, side materials and appearance, whereas functional quality such as sturdiness and flexibility did not witness any significant changes,” the study said. “These innovations pushed up marginal production costs and hence raised authentic prices after counterfeit entry.”
Qian told WWD that research shows counterfeiting, in addition to spurring innovation, can also help advertise brands, serving as buzz agents, while pushing authentic brands to vertically integrate their distribution and open licensed specialty stores.
“Subsequently both brand image and customer loyalty are enhanced,” he said.
The study, “Untangling Searchable and Experiential Quality Responses to Counterfeiting,” appeared in the July-August edition of Market Science, a journal of the Institute for Operations Research and the Management Sciences.
The research was conducted by professors Qian; Qiang Gong of Wenlan School of Business, Zhongnan University of Economics and Law, China; and Yuxin Chen of New York University Shanghai.