The Right To Buy Counterfeit Goods

I 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.

Courtesy New York Times The New York Times’s city blog had a recent article about an 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 New York Times 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?