Faking It

by Ben Perreira

Last night I went to watch five startups present their ideas to a room full of techies and investors in Santa Monica, then met a friend for drinks at a nearby wine bar. My friend is a lawyer who knows a lot about branding and trademarks. Our discussion grew especially spirited when we started talking about counterfeit goods and copying designs. 

In 2012 In-N-Out sued the founders of CaliBurger for opening a “tribute” to the California chain in China. Today QZ posted an article that states that half of the Chateau Lafite wine sold in China is counterfeit. While I don’t want to single out China, a very large and growing economy is fertile ground for counterfeit goods. 

The point about copying other brands is a larger one: the damage to a brand is generally pretty minimal. Imitation is the ultimate form of flattery, they say. Being copied is a sign of strength. Just ask Apple

Why don’t counterfeit goods damage a brand, one could reasonably ask?

New entrants (i.e. copycats) copy products that are too expensive for a large portion of the population. Someone who wants a real Rolex is unlikely to consider instead buying a counterfeit Rolex for 1/4 the price. S/he is going to ensure s/he has bought the real thing. Peace of mind is part of the value marketers add to a product. They remind buyers of the history or process by which a product is made. A counterfeiter sells only a cheap veneer. 

How we use a product after we buy it is also an important part of this equation. I sometimes use the anticipation-experience/ use-memory model to outline the three stages of product purchase. Since memory is generally the longest and most complex stage, as well as self-regenerating (e.g. you create your own memories with your car), having an authentic product is critical. Imagine showing your friends your fake Rolex that cost you $1000. Your self-image around owning a genuine Rolex and the image your friends have of you as an honest person suffer from that purchase. All of a sudden $1000 seems like a pretty high price to pay for something that is symbolic of only phoniness.

I find the article about Chateau Lafite interesting because it speaks to the power of branding. Few products are subject to the placebo effect in the same way wine is. It could be the air of elegance combined with the complexity of taste compounded by alcohol, but something about wine makes the bullshitter is us come out. Chateau Lafite’s brand would certainly be damaged by counterfeiting if counterfeiters are selling the wine at market price, indicating purchasers are being fooled by the branding (and, of course, their own senses of taste). The net effect of the damage is the amount of market share lost to counterfeiters selling the product at market price.

The people who know, know. They ensure what they’re paying a large premium for is the real thing. Sure, companies can help protect their brands by making this easier to do. But the rest of the people who bought counterfeit goods probably weren’t going to buy your product to begin with. Buying knockoffs, be they counterfeit or not, at a cheaper price will always be a practice for a large segment of the population. Great ideas will always be copied. I’ll take my chances (and margins) by building a strong brand and continuing to innovate in ways that would only exhaust copycats.