This long read from The Guardian is an excerpt from a new book Authenticity: Reclaiming Reality in a Counterfeit Culture by Alice Sherwood about the business of counterfeit goods. Sherwood begins by showing just how big the fake goods market is: “According to some estimates, the trade in fake products is worth $600bn per year. As many as 10% of all branded goods sold may be counterfeit. It is estimated that 80% of us have handled fake or falsified goods (whether wittingly or not). Sales of luxury goods have soared in recent decades, but fakes have grown even faster: one estimate suggests that counterfeits have increased by 10,000% in two decades.
It’s not just the overall figures that boggle the mind. One French customs raid confiscated enough fake Louis Vuitton fabric to cover 54 tennis courts. A swoop on a seller on the online Chinese shopping platform Taobao netted 18,500 counterfeit bags, aprons and footwear. A bust in Madrid impounded 85,000 counterfeits ready for the Black Friday and Christmas markets. In Istanbul, in 2020, almost 700,000 counterfeit haircare products were seized.” Indeed, Sherwood writes about her visit to a museum for fake products in Paris and the office of an anti-counterfeiting organisation where she understands the efforts of the luxury goods industry to fight the counterfeit trade to not much avail.
But the rest of the article shows how the value of the brand that the luxury goods makers so carefully build and support through advertising, in some ways makes the economics of counterfeits attractive.
“When people would rather buy a more expensive genuine article than a cheaper fake – even if the two items look almost identical – it’s because they are buying not just the product’s tangible qualities, but also its intangible ones. We buy into the reputation of the brand and the reassurance that gives us. We buy into the image that companies create around brands through glossy advertising and PR. We buy into the cool they conjure up by sponsoring the right parties, by getting the right actor or rapper to be the face of the brand, by getting the right people to be seen drinking the product, or wearing it, or using it. The power of the intangible attributes of a brand is that they change not just how you feel about the product, but how you feel about yourself.
Many different words are used to describe a brand’s intangible qualities. Some talk about “meaning”. Grootswagers spoke of “the dream”. Kouters used “goodwill”. Advertisers like to talk about “image” and marketing professionals prefer “brand equity”. From the counterfeiter’s point of view, it’s easy: intangibles are simply the part of the product that they don’t need to copy.
It suits companies that produce branded products to separate the tangible from the intangible, to locate manufacturing wherever is cheapest and to spend more on beaming out the brand message. But what is becoming increasingly obvious is that the brands’ business strategy suits the counterfeiters even better. All they have to do is make a copy of the physical product at the lowest possible cost, and they can free-ride on the money that the real manufacturer has spent on advertising, sponsorship deals and all the other costs of building the brand. Free-riding on all the effort it takes to develop and market a successful product (no one ever bothers to fake a failure) is a supremely low-risk way of making money. Yes, counterfeiting is illegal, but the penalties are much lower than for drug-trafficking and other organised crime. It’s betting on a winning horse after the race has been run. The more brands spend on promotion, and the less, proportionally, on the physical product, the bigger the window of opportunity they leave open for counterfeiters.”
Sherwood’s way out is for the brands to collude and cut spending on advertising and instead spend more on product. As she herself acknowledges, that’s unlikely to happen, thanks to capitalistic tendencies of free market compeititon.
“Selling feelings – intangibles – is such a good strategy that no individual brand dares stop. Manufacturing cheaply, and adding more and more value to the product via narrative and image, is a good recipe for survival. But if everybody is employing a similar strategy, the only way to compete is to go bigger on intangibles than the next guy. And therein lies the problem.
The story of modern marketing has been the story of a runaway arms race. Image-building, brand-titivating, social media babble, creative advertising, celebrity endorsements: all the activities that lead the consumer to think warmly of your brand are the brand manager’s weapons. But because selling intangibles is a gift to free-riding counterfeiters, the more companies spend on this kind of brand-building, the more they fuel the rise in fakery. And that is potentially calamitous for brands as a whole.
The best way out would be for brands to decide together to put their foot on the brake and agree that everyone should simultaneously cut spending on intangibles – a move that would leave the competitive hierarchy untouched while allowing them all to spend more on their workers and their products. But the chance of that happening is almost zero. It would require the brands, first, to admit the problem openly among themselves; second, to trust all the other brands to do the right thing and not to cheat by secretly increasing rather than reducing spending on intangibles; and, third, to expose the value or otherwise of the different parts of their brands to wider view. No wonder they would rather tackle the counterfeiters than the causes of counterfeiting.”
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