Cost-Benefit Models of Stakeholders in the Global Counterfeiting Industry and Marketing Response Strategies

Article excerpt

Abstract:

Global counterfeiting is escalating despite resistance by many parties. We identify three groups of stakeholders who have vested interests in either resisting or promoting counterfeiting. Among resistors to counterfeiting are national governments, international policymakers, and corporate intellectual property owners; among promoters are the counterfeiters themselves and many consumers. We argue that current supply-side resistance approaches alone are inadequate; attention is also needed to resisting consumer promoters on the demand-side of the market. Drawing from a review of the literature, we develop a new analytical framework which depicts complex interfaces between IP owners and consumers. A second framework presents actionable marketing strategies targeted to different consumer segments.

INTRODUCTION

On May 19, 2005, the long-awaited sixth and final movie in the Star Wars saga opened in movie theaters worldwide, but people who did not want to wait for the official release downloaded the movie from the Internet six hours earlier (Wall Street Journal 2005). Surprisingly, each of the last three installments of George Lucas's space saga has become available for download prior to its official release in movie theaters (Jones, 2002). Compare this example of global counterfeiting with Oh's (2006) report of a study by the Center for Academic Integrity at Duke University. Using a sample of nearly 50,000 undergraduate students at sixty-nine institutions, the survey investigated attitudes and behaviors with regard to cheating. In the survey, 26 percent of all respondents admitted to serious cheating on exams; 54 percent admitted to plagiarism. The study's author noted an increase in cheating over the past fifteen years and blames technology for making cheating easier. Student respondents, for their part, used recent corporate and political scandals in the U.S. to justify their behavior.

Although exact numbers are impossible to obtain, estimates of the extent of counterfeiting worldwide range from 5 to 10 percent of world trade. For some industries it is said to reach as high as 30 percent (Trainer 2004). This is equivalent to about $500 billion in lost sales revenue for legitimate companies. Microsoft alone estimated that its revenue would double without software piracy (Oullette 1995). Procter and Gamble estimated that 20 percent of all P&G products sold in China are counterfeits (Strategic Direction 2003). Early in the millennium, fake cars started to appear in China, hurting global market leaders such as Toyota, Honda, and DaimlerChrysler (The Economist 2007). Despite efforts to curb counterfeiting, trends indicate an escalation of illegal activities. This theft of intellectual property (IP) rights through counterfeiting has been called the "billion dollar threat" to the U.S. economy (Paradise 1999). Balfour (2005, 96) has referred to a "counterfeit catastrophe," remarking that the "global economy is at a critical juncture."

These observations draw attention to two dimensions of international marketing: macro-level environmental factors that allow counterfeiting to persist, and micro-level consumer behaviors that perpetuate demand for counterfeit products. Increased counterfeiting along with depressing reports of unethical attitudes and behaviors among consumers and future business leaders do not augur well for future protection of IP rights.

Corporate IP owners paint a dark picture of lost sales, lowered profits, and damaged brand reputations. National governments lose tax dollars and see legitimate local employment opportunities shrink. Governments and international organizations, such as the WTO and the UN, continue to legislate against counterfeiting and try to police global markets. Member nations are exhorted to strengthen their respective IP protection laws and aggressively pursue counterfeiters through the courts (Ostergard 2000). For their part, scholarly researchers have called for suffer legal penalties and more efficient enforcement of laws already on the books and have developed normative guidelines to help corporate IP owners reduce their commercial losses (Kaikati and LaGarce 1980; Bush, Bloch, and Dawson 1989; Harvey and Ronkainen 1985; Harvey 1987; Shultz and Saporito 1996). …