Brand licensing and counterfeiting

By Felix Salmon
April 26, 2009

Ryan wades into one of my favorite subject areas today: counterfeiting.

Ryan is absolutely right that counterfeit goods are, in many cases, more likely to help than harm the business being knocked off. Dolce & Gabbana, as I’ve mentioned in the past, passively encourages the counterfeiting of its brand by refusing to lift a finger to help prosecute counterfeiters. But Ryan goes one further:

Why don’t designers sell their own knock offs? Even if they couldn’t put other counterfeiters out of business, they’d at least capture some share of the revenue. And while perhaps the designers aren’t all that interested in investing in such a low margin business, one would think they’d at least consider licensing someone to legally produce knock offs. That looks to me like big bills left on the sidewalk.

This one, I’m afraid, doesn’t quite fly. There’s always pressure on luxury goods manufacturers to produce “diffusion” lines and the like at ever-lower price points — but go too far in that direction and you end up with what happened to Gucci in the mid-80s: so much brand dilution that you cease to be luxury at all.

What’s more, we live in a world where “expensive” is largely synonymous with “quality” or “luxury” — price is the main criterion that people use to determine how good something is. If you can get a real Prada bag for $20, your inclination to buy one for $2,000 or $20,000 naturally evaporates somewhat.

Looking at it another way, the luxury brands are already licensing their own knock-offs, but to avoid cannibalizing their own high-end sales, they make sure that the licenses are always for a category outside the headline-grabbing formalwear sector: things like perfumes or eyeglasses or jeans. You didn’t think those Prada shades were handmade by Milanese artisans, did you?

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Or one could ask Burberry what happened when they offered their wares for cheap:http://img.thesun.co.uk/multimedia  /archive/00074/F_200411_november16e_742 36a.jpg

If your brand is good enough to be counterfeited, then you know you have a strong product.