Right to buy counterfeit

Courtesy New York TimesI want the right to buy counterfeit goods. I will launch into a detailed argument shortly, but first, I will tell you why this post came about.

The NYT?s blog had an article about a recent ad campaign on NYC pay phones, which tells you why buying counterfeit goods is bad. Apparently, it?s because you are supporting child labor, drug trafficking, organized crime and even worse.

And what, pray, is the ?even worse?? The ad itself doesn’t say, but the NYT helpfully suggests that it might be terrorism. Apparently, the terrorist cells involved in the Madrid train bombings were financed by, among other things,? the sale of counterfeit CDs and stolen cars.

Well, all I can say is, I am glad they were not financed through the sale of tomato soup. Or dark chocolate. Or well, toothpaste. What would we all do then?

As for supporting child labor, I find it hard to believe that only counterfeit goods are produced using child labor? It?s true that sweatshops are not as prevalent now, many companies have policies against it, though I don’t know if they are always strictly implemented. For instance, I cannot believe that Tirupur employs zero child labor. Not a single kid? Not even the tea/ coffee boy? Look at the bevy of brands which source from Tirupur though..

But leave alone the ridiculous ad. Why do decent, law-abiding people buy counterfeit goods?

There are two types of consumers who buy counterfeit goods. One category is the consumer who gets duped into buying counterfeit products unknowingly, while they intended to buy the original. That is cheating, and I am not strongly against consumers getting cheated.

But there is a second category – consumers who seek out and knowingly buy counterfeit products. They know these are knock-offs, and while these are law-abiding consumers who would never dream of doing anything wrong, they buy counterfeit products without a qualm. Why do they do that?

Three reasons:

(i) They cannot afford the brand name goods, but still aspire to owning the brand,
(ii) They believe that the price of the goods should be lower. Basically, it is a form of protest against perceived mis-pricing.
(iii) They cannot buy the original product either because it is not available or because there are some regulations that prevent them from purchasing it.

Reason 1: Obviously, these are aspirational buyers who would buy the original product if they could afford it. The Louis Vuitton bags that are sold in NYC sidewalks are lapped up by people because they would also like to share the experience of owning a Louis Vuitton bag. There is no issue of lost revenue to LVMH from these counterfeits, because none of these people can afford a Louis Vuitton bag, or is going to buy one at its current price.

Reason 2: It?s a form of protest. The people who buy pirated DVDs and books or download free music are actually making a statement that they believe these items are mis-priced. They are also willing to settle for slightly lower quality for the lower price.

Reason 3: The regulations are not in touch with everyday reality.

Growing up in pre-liberalized India, I heard a lot about the ?Black Market?. I even had to write Hindi essays about the ?Kala Bazaar? and how this was a grievous ill to society. The Black Market, in my mind, was a shady assortment of shops that people would venture into after dark, or perhaps it was only frequented by smugglers.

Yet, like most families I knew, we would buy sugar in the same ?Black Market?, especially around festival time, because the ration sugar was quite inadequate.

We also had gold smugglers who were the staple of movie villainhood, and hawala merchants who would, no doubt, in some dark corner of a building, exchange your Rupees into grubby dollars.

But there was a reason why gold smugglers and hawala merchants thrived. Gold could not be imported freely ? there was never enough gold to meet the demand.
RBI also had enormous restrictions on the amount of foreign currency one could take abroad. People who came to the US in the 70s tell us stories about how they were only allowed to bring in $7 into the US. Seven dollars. Imagine, they may have had enough money to tide them through their first meal in the US.

Now that gold can be imported freely and RBI has moved from a fixed to a floating exchange rate, and restrictions on students and tourists are much more relaxed, we don?t hear too much about the smugglers.

Let’s face it – there is an economic reason why people buy counterfeit products. Unless companies address this reason, sale of counterfeit products is not going to go away. There is no point in having laws which are unrealistic and do not address the underlying issue.

Companies should recognize that counterfeiters are potential customers. The proportion of people who would switch from counterfeit to the original product (if the price is right) would be much higher than the conversion rate for walk-in customers. Think about it – who is more likely to buy Microsoft Vista – the person who is currently using a pirated version of Vista, or the person who is using Safari?

But why don’t companies see these customers as a market segment?

Isn’t the basic principle of marketing – to listen to what your customer is saying? The purchases of the counterfeit products of a company are trying to say something. But is anybody listening?

Advertisements

16 thoughts on “Right to buy counterfeit

  1. All a matter of margins and snob-value.

    The companies probably reckon that they would have to quite noticeably cut prices to bring in more customers than make more of a profit than they already make, ie, if they cut prices by 50%, the number of customers would have to more than double, for it to make the move worth it.

    And the danger in dropping the prices too much means that the original buyers, who could afford it and probably bought it only to show that they could do so, will stop buying what has now become a “popular” good.

  2. ??! : I agree. If it is economically not worth it to decrease the price, or if it would harm the brand value (read snob value), then the companies should stick to their price but ignore the poor guys buying cheap knock-offs, since those customers are never going to buy the original product anyway. Why scream from the rooftops that no one should be allowed to buy knockoffs? Is buying overpriced product X (or a lookalike) some inalienable right of the wealthy?

  3. Lots of time the drive against counterfeit goods tends to be more of an exercise in scaring the counterfeiters. It may be the only whip the industry can wield to protect the brand name and the profits. Imagine, if everyone carried a Louis Vuitton, whether real or fake, the real thing wouldn’t be such a desirable item any longer.

  4. Interesting arguement.. I strongly believe in the arguement for reason 2 with the exeption in supporting up and coming bands or small time independent filmakers–

    I am no economist nor an MBA but to the arguement asking the companies to reduce the price of the product — arnt there too many middle men involved because of which they cannot reduce the price?. in the case of say those trolleys in Madras that go about selling harry potters at 50 rupess ( much better print quality than the low priced editions in book stores that sell at 300 ) is that its directly from print to the trolley so they still make a large enough profit enough to sustain

  5. Sujatha: That’s not strictly true. The buyer of the $1000 bag is not going to mind because some passerby on the street has a $20 knock-off; it’s clearly fake.
    Plus, snob value only applies to some categories. The buyer of the pirated book/CD harms the profits, certainly, but not the brand name..

    filarial: I guess the original publishers also spend money on marketing, which adds to the cost..but it’s not just higher costs, many times the margins to pirated companies are also lower than the margins to the sellers of the original high-priced stuff.. so it comes down to companies just trying to extract the maximum price consumers are willing to pay.

    km: I am certainly using “pirated” and “counterfeit” interchangeably. As for “smuggled”, unless the counterfeit goods are being manufactured locally, it’s certainly possible that they were smuggled in..though I only used the smuggled gold example to show how laws that are out of touch with reality sometimes cause people to take risks and breach the law.

  6. the first kind – the cheated kind, the figures are astounding. i recently did some work in counterfeit medicines – 1 out of every 3 pills you take is a counterfeit? it doesnt matter where you buy it from.
    ok. i went off on a tangent. but the figures have been haunting me for a while. been meaning to do a post for ages. maybe now i shall start it.

  7. You are absolutely right. Counterfeiters operate on the same principles of economics and the capitalistic model that “regular” companies do. If you remove the moral and ethical dimensions, it’s a simple case of supply and demand.
    Kamini.

  8. Very interesting perspective. I need to think some more.
    Since I’m personally quite anti-brand snobbery and believe in buying something of good quality irrespective of its pedigree, the entire fake, wannabe scene seems so pathetic. Which is not saying it isn’t real.
    I guess rich people need to be exclusive, and poorer people need material goods to aspire to, which is what this entire market caters too. But pirated books and music reduce even the tiny copyright that the creator gets from authorised sources. And those who manufacture or deal in spurious drugs are beyond the pale.

  9. Pingback: Right to buy counterfeit at Blogbharti

  10. Arunima: 🙂
    A Cynic in Wonderland: I have read about a lot of companies selling fake pills on the Internet..I look forward to reading your post 🙂
    Kamini: I agree, cheating consumers is immoral and unethical. But the case where there is no cheating is just free markets in operation.
    dipali: Right, it’s not about whether I personally buy fake brands, but I do not see why I should not be allowed to if I wanted to.
    Plus, while pirated books and CDs do reduce royalties, the bigger losses are really to the publishers. Again, perhaps if those books were properly priced, more people would have bought the original..

  11. sanjukta: Thanks! I believe we will see more and more people downloading movies and burning their own DVDs. Already iTunes allows movie downloads that are cheaper than store bought DVDs.. if DVD/ downloaded movie costs come down to $1, piracy should come down drastically.

  12. The consumer always has a choice: not to buy it. When it comes to fashion, people buy counterfeit because simply they are vain. There are equivalent quality items that are not brand name or pretend to be brand name could be bought for much less, but many people are so eager to own a brand name, even if it is a knockoff. It’s vanity.

    The problem with counterfeit is when it is sold as authentic, at the price similar to authentic.
    Some counterfeits are so good now it is hard (not impossible) to distinguish from the real ones.
    Take Rayban for example, just for one model, 20% of the listing
    are selling counterfeit. The sellers may not even realize
    that they are selling
    counterfeit version as the imitation is very good.
    However, they are still inferior
    quality and there are some subtle
    differences from the original.

    When the counterfeit are
    good copies, it is difficult for buyers to tell,
    especially if the
    sunglasses don’t break shortly after purchase.

    I had an real, original Rayban
    3320, but I lost it. A replacement I bought on eBay
    from a seller with
    many positive feedback broke few months after I purchased it.
    After
    sending it to Rayban for repair, they responded with a letter indicating it
    is
    a counterfeit and I was surprised. Considering that I actually owned a
    real one
    before that and I wasn’t even able to tell. Later, I bought
    another
    real one from a store and compared the two and saw some subtle
    differences.

    The issue here is that I had no reason to suspect that I was buying
    counterfeit. I wasn’t shopping for one. I bought from a reputable seller
    who has many good feedbacks, and I paid about retail price, expecting
    to get an real Rayban. Yet, despite of the fact I owned an identical
    model before, it still fooled me. Fortunately, the inferior material quality
    caused it to break and I was able to find out. After comparing again to the
    real one, you can see the difference in quality in that particular part.

    So yes, counterfeit harms consumers who don’t even want to buy counterfeit
    because it taints the supply chain.

    Sunglasses already could be a problem as the optics could be made of glasses of low quality and
    risk breaking. There are also other dangerous scenarios where counterfeit electronics
    could fail:

    http://www.edn.com/article/457610-Distributors_fight_counterfeit_components.php

    In India an othe developing nations, counterfeit medicine is a big issue. The counterfeit doesn’t have to pass strict quality control and could endanger the health of many people.

    Furthermore, pirating intellectual property harms the author. Sure the price could best
    set lower according to the local economy and purchase power as Microsoft finally
    did in China. However, $5 DVD did not eliminate piracy completely either.
    DVD still offers more features and better quality audio and video than something
    downloaded from iTune if we are comparing price of legitimate distribution.
    You often get multiple languages in subtitle and audio on a DVD movie, and that is a premium many still are willing to pay.

  13. All for it. As far as medicine goes, anyone remember Bayer knowingly selling HIV infected medicine? I think they are a “LEGITIMATE” company.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s