Counterfeit consumer goods are so common these days they’re practically cliché. “I know a genuine Panaphonics when I see it,” quipped Homer Simpson over two decades ago. “And look, there’s Magnetbox and Sorny.”
Despite the sometimes laughably bad knock-offs that populate Buzzfeed listicles, copycat manufacturing is a serious problem.
With the number of counterfeit products having increased more than 10,000% since that Simpsons joke first aired, the International Chamber of Commerce (ICC) estimates that the negative impacts of counterfeiting and piracy will drain $4.2 trillion USD from the global economy and put 5.4 million jobs at risk by 2022.
What’s driving this copycat manufacturing epidemic?
That’s the question two professors recently tried to answer in an article published in Manufacturing and Service Operations Management. Gregory DeYong, assistant professor of operations management at Southern Illinois University Carbondale and Hubert Pun, assistant professor of management science at Western University, have been researching this problem and what manufacturers can do to fight against it.
Focusing primarily on the fashion and electronics industries, they researched product introduction, competition, and subsequent market reactions. Using a game theory approach, they mathematically defined the goals and profit structures of the original and copycat manufacturers, assessing the big picture in terms of competition and profitability.
Not surprisingly, they found that financial stakes and profit margin are the two biggest predictors of copycat competition; you’re not likely to see any “Wolksvagens” or “Marcedes” driving on the highway. That’s also why high-margin products like fashion items or smartphones are particularly prone to intense competition from copycats.
According to DeYong, there are two ways copycat competition comes into play. Some companies simply cheat and produce what appears to be an identical product, right down to the label. While the quality is typically not nearly as good, the pricing is much lower. The only real recourse against such outright deceptive marketing is through legal avenues.
However, it’s the “look-alike” products flooding the market that really cause nightmares for manufacturers, DeYong said. It used to be the case that a major fashion designer could create a new product line, debut it on the runway and release it to eager customers a few months later. Now, it’s not uncommon for copycats to hit the market within days of a product launch.
This is arguably a natural consequence of today’s modern manufacturing technology, enabling the production of knockoffs that are closer to the originals than ever before.
Using an online business for sales and distribution also reduces costs, according to DeYong. Court battles are an option to fend off look-alike competitors, but manufacturers seldom go that route.
Although DeYong admits that some customers have sufficient brand-loyalty to wait for the real thing, many budget-conscious shoppers would rather opt for the cheaper copycat versions.
It’s the consumers who fit in neither of those categories who are up for grabs in the competition war. DeYong and Pun found that manufacturers of original items have three options for beating the copycats.
“They can deter the copycat with the threat of lower prices, basically showing the copycats that they can start and win a price war so the copycat doesn’t even enter the market,” DeYong said. “Or, the manufacturer can actually lower prices so the copycat finds the market less attractive. The third alternative is that they can just decide they want to skip the pricing issue altogether and simply be content with the high end of the market and let the copycat capture the value-conscious consumers, just co-exist.”
“As a manufacturer, you need to determine what classification you fall into,” DeYong said. “If you’re not going to take legal action for copyright infringement, then you need to see what course of action works best for your company.”
Manufacturers can also take a more proactive approach by keeping their designs secure until they hit the stores and limiting their advertising of new products, especially in advance of their release. By holding onto their design monopoly longer, they can increase the likelihood that consumers will purchase originals.
“By keeping products under wraps and getting them to the market faster, companies can assure their products are fresh and exclusive for a longer period, increasing their attractiveness to consumers, and securing a larger portion of the market before copycats jump on board and piggyback their sales on the original products and the advertising for them,” DeYong said.
“Part of the difficulty is realizing that if you have good products, they will be copied, and some consumers view copycats as the Robin Hoods of the industry, bridging the gap to make things more affordable. It’s David versus Goliath, status versus price. But if companies are careful in researching and determining their strategies they can secure their places in the supply chains. The battlefield is getting ahead of the counterfeiters so you’re not competing with them head-to-head.”
Written by: Ian Wright for Engineering.com. For more information, check out Pun and DeYong’s paper, “Competing with Copycats When Customers Are Strategic.”