Luxury's Invisible hand can solve its counterfeiting issue.
- Mary Ariyo
- Mar 19
- 5 min read
In 1947 a copywriter by the name of Frances Gareth coined the fame phrase ‘A Diamond is
Forever’, this helped to rebrand the diamonds industry, establish De Beers as an industry leader and
led a generation of consumers to deeply associate diamonds with marriage and engagements. The
phrase and accompanying campaign was an indisputable success, it is often discussed in business
and fashion schools alike till very day. It introduced the idea that a company or industry could build
a consumer base and resolve seemingly existential issues it faced in a single sweep. Today we argue that it might be in the interest of well established luxury fashion houses (conglomerates and
independents alike) to address the industry’s counterfeiting issue in a similar manner.
According to the Harvard Business Review, the estimated value of counterfeit goods is in the region
of $4.5 trillion as of 2019, of which counterfeit luxury goods make up for between 60-70% . The
growth in the value of counterfeits is in part due to the increasingly digital manner in which we buy
luxury goods. For every legitimate luxury e-tailer, there appears to be hundreds of vendors selling
counterfeits of varying quality. Some choose to sell on platforms like AliExpress, others on the likes
of eBay or Amazon, whilst the bravest are placing their fakes on secondary resale platforms like
TheRealReal. The magnitude of the counterfeiting issue is hard to ignore, we have seen a number of
cases taken to court like the Tiffany&Co vs eBay, TheRealReal vs Chanel and most recently
Hermes prosecution of two former employees for being part of a counterfeiting ring that made
$2.24 million in profits from the sale of high-quality counterfeits. The luxury conglomerate “LVMH
alone employs at least 60 lawyers and spends $17 million annually on anti-counterfeiting legal
action” (Fontana, Girod and Kralik, 2019). Despite all this nothing really seems to be changing?
In a paper by Bekir, El Harbi & Grolleau (2011) called “How a luxury monopolist might benefit
from the aspirational utility effect of counterfeiting?” an interesting reason for this lack of change isput forward. The authors argue that luxury monopolists (LVMH, Kering, Richemont etc) are
inadvertently benefiting from the sale of counterfeits in two major ways. The first being, that these
counterfeit sales are giving aspirational consumers a taste of the luxury life, in a way not too
dissimilar to the entry-level (low quality) items that they sell themselves. Buying counterfeits is in
essence ’upscale emulation’. The luxury brands ultimately belief that with time these aspirational
consumers will eventually switch over to authentic items. The second benefit is a result of
engineering luxury good production and material sourcing in such a way that enables would the
brands to drive up the cost of production for counterfeiters and also the amount that these luxury
brands can sue the counterfeiters for when prosecuting. The problem with these benefits is that even though they make business sense, they are not sexy and ultimately they do not play the
psychological hand which enables luxury goods to generate large profits despite operating in the
polar opposite way to other industries.
Take for example the rationale behind the idea that aspirational consumers are likely to consume
counterfeits and entry-level luxury goods in the same way. It assumes that the consumer’s decision-
making process is driven purely by status, more specifically by the need to mask insecurity about
lower social status. By this judgement morality, intelligence and economic value play no part in the
decision-making process, we disagree with this across all levels. In regards to morality, the decision
to buy a counterfeit is based primarily on the ability of the consumer to dissociate their actions from
illegality. Despite campaigns like ‘Buy a fake Cartier get a genuine criminal record’ consumers have
been able to sooth themselves with rationals around the economic benefits of spending less and
attaining the same status. For consumers whose decision making process is based on the economic value, the probability that they will ever switch over to authentic luxury goods is low. For “highly educated elite consumers (who) reject mainstream status symbols because they did not want to appear materialistic” (Chen et al, 2018) and buy counterfeits, assuming their need for quality is met they too are unlikely to switch over to luxury goods. Considering these outcomes luxury brands are losing against counterfeiters.
Perhaps the best solution to combat this requires luxury goods industry to combine technology,
craftsmanship and psychology. It has been said that only a Chanel Atelier can spot the difference
between a genuine Chanel bag and a fake, if one is to assume that this is true then surely the likes of
Chanel should assume the role of the ultimate authenticator for its good? Though it may not be
feasible to send every Chanel handbag that is sold across the world to be personally examined by
someone at Chanel, it could potentially be in the interest of the fashion house to digitalise the
knowledge of these specialists. By creating a process that employees and potentially secondary
resellers like Vestiaire and TheRealReal could use in order to filter out fakes, fashion houses can
create an access point for themselves into the budding luxury resale market valued at €26 billion in
2019. Bain & Co referred to the secondary resale market as a “ ‘new touchpoint’ for acquiring
younger customers (who could be) educate(ed) and introduce(d) to the wider luxury eco system”.
This definition of the secondary marketplace offers a healthy alternative to counterfeits. Luxury
goods companies could also realise profits from digitalising their knowledge. For example, Chanel
could license out and temporarily accredit secondhand resellers on a product by product basis,
requiring these marketplaces to destroy all fakes and update a blockchain ledger every time they
come across genuine Chanel product.
The luxury goods industry at large is not famed for its swift adoption and integration of technology so it would most certainly need to partner with companies like Microsoft, Lucidchart in order to kickstart their process mapping. There are also Fashion Tech companies like Entrupy and Fashionphile who are turning authentication onto a science using product knowledge and AI that fashion houses could lean into in order to for the industry-specific knowledge.
In regards to Fashion Houses owning the authentication process on a psychological level, we
propose that luxury fashion house play into two things. The first being the affinity and loyalty that
some (who buy counterfeits may have) with the brand, its culture & heritage as a tool to convince
them that buying these counterfeits translates to them personally damaging the legacy of the brand.
The second being the snobbery and status factor. Consumers who buy luxury, either do so for
quality, rarity or the status it affords them, consuming fakes offers people the opportunity to portray
as being of a higher class. Should a luxury fashion house launch a campaign that offered consumers
a social reward for ‘checking the authenticity’ of an item in store, they could in effect engineer a
system in which status and snobbery polices and shames the consumption of counterfeit goods.
Ultimately stripping the consumers of counterfeits of the status they covet pushing them to buy the
genuine pieces. Bekir et all (2013) put it simply “If fakes do not succeed in delivering the status
conveyed by genuine items, they can ultimately push aspirational consumers to revise and increase
their willingness to pay for some genuine items (Barnett 2005)”. There is room for luxury fashion
houses to in essence act as the invisible hand pushing these aspirational consumers to leave
counterfeits behind. This will require technological change and a coordinated effort by the biggest
players in the industry but it is achievable.
Sources:
employees-under-the-microscope/
platforms-liable-for-counterfeits-is-introduced/
counterfeit-lawsuit/
305484737_Counterfeit_Luxuries_Does_Moral_Reasoning_Strategy_Influence_Consumers%27_Pursuit_of_Counterfeits Eight Themes That Are Rewriting the Future of Luxury Goods: http://bit.ly/2UxyfD1
Comments