China Retail As Piracy Prevention.
One of the things I love about being a lawyer is what I learn from clients. I recently started working with a company that makes a high end consumer good. In the US, this company sells its products to high end retail outlets, including department stores. It has no retail outlets.
This company has been doing more and more of its manufacturing in China and, like so many, it has recently decided the time has come for it to sell its product line in China as well. They have told me that "in order to maintain exclusivity and to prevent piracy," it will be setting up retail stores in China and selling its product only from those stores. That way it will be obvious both to them and to consumers that any of its product that is not in these stores is not the real deal.
Now I am sure this is nothing new to many of you (so go ahead and call me out if you wish), but this is actually the first time I have heard of a company going into China retail to protect product integrity.
What do you think?
Comments (8)
Read through and enter the discussion by using the form at the endWilliam - August 14, 2009 10:16 AM
I still think they'll have to do some marketing to let people know that only the retail stores are selling legitimate products. Quite a few brands (low-end and high-end) have their own retail stores but also sell through distributors. I don't think Chinese consumers will automatically assume that only your client's stores are authorized retailers.
anon this time - August 14, 2009 10:43 AM
China has high end piracy outlets, complete with company logos, letterheads, packaging etc. in 04' I bought a pair of Nikes from the official - and I mean it was in every way a spot on duplicate of any tony Niketown retail shop you might see in the U.S. - and a week later the shoes were literally coming apart at the seams. When I went online to try to find that model at U.S. stores, guess what? No such model existed.
The Ipod I bought was legit, but the ear buds were not. If I had wanted official and real Apple earbuds for my Ipod, I would have had to go back to the shop and buy an additional set, which very well might have been the ones they removed from my Ipod and repackaged.
Companies can move Heaven and Earth to establish legit franchise/branch locations, but when your salesman are selling product out the back door and replacing it with duplicates, what can you do?
Liquor distributors are notorious for this. In fact, there is no point in even asking the bartender to open your cold one right there in front of you; several years ago there was a Chinese language article about people who had tools to reseal bottles they had opened and emptied of their original contents.
"Real" computers with counterfeit Intel processors. Switcheroos that happen DURING DELIVERY, with the real stuff going who knows where.
There are a lot of really excellent translation blogs that translate stuff pertaining to Chinese social welfare, politics, etc. I wish there were more that were devoted to nuts and bolts biz stuff, because the latitude that reporters are not allowed in writing about "mass incidents" and such is more prevalent in biz writing.
Ah well. Caveat Emptor and all that nonsense.
uk visa lawyer - August 14, 2009 10:54 AM
I think it's a smart idea... I'm interested to see how it works for them.
michael - August 14, 2009 12:59 PM
That suggests consumers care whether or not the product is real. It's been my experience that people are most concerned with getting a quality product. I'm thinking about previewing pirated DVDs to make sure the picture's clear. Having said that, I guess it depends on what you're buying. Some things might be difficult to inspect on the spot, eg food or drugs.
Richard - August 14, 2009 7:16 PM
This is not an uncommon brand protection strategy. It's part of the reason there are substantially more branded retail stores in China than in the U.S. Also, for better or for worse, many Western firms find themselves forced to compete directly with pirates and counterfeiters.
In the early 2000s, a mid-size, global, EU-based bath and body store started receiving reports of look-alike shops popping up in major Chinese cities, include in high-end Beijing shopping malls.
The Chinese look-alike stores copied trade dress completely, copied the entire product line on a seasonal basis (ie: a lavender product line for spring that would match that of the European company), mimicked store/sales counter designs and product literature, and borrowed the European company's "backstory" and history.
The European company found that the Chinese look-alike firm had placed stores in major shopping malls and struck advertising deals with high-end publications.
Of course, since the EU firm had not moved into China or registered its IPR here, the Chinese company was doing nothing wrong. So, the EU company took this opportunity to move into the Chinese retail market, as they had been eyeing the market for some time. They moved into every mall that the Chinese firm was in and used their economic muscle to force the shopping mall management to kick out the Chinese copycat. They bought advertising space in the same magazines and convinced the magazines to drop the Chinese brand simply by outspending them. Essentially, the EU firm came in and out-competed the Chinese copycat.
To this day, the copycat firm still exists, but has been decidely marginalized. The EU firm continues to follow it around the country, muscling into the Chinese company's retail markets as a way to protect the brand.
b. cheng - August 15, 2009 1:01 AM
It's not only to guarantee what you're getting is the real deal, but things are just different here. In the US, you go to Foot Locker to buy a pair of shoes, not a Nike store, but in China, everyone has their own stores (or shops within a store). There is very little mixing of brands.
Mark Lepine - August 16, 2009 9:04 PM
Different strategies are used by different merchants and this can have a lot to do with the products. "High-end high street" brands that make a lot of product in China, (because of their scale they have to), tend to be easier to copy because, err, they make a lot of it in China and the knowledge and materials are in supply. The consumers are not silly and they know this, meaning a premium brand in the US or EU may lose some of its cache a little if you know its made in a generic Donguan factory. Hence the channel, and experience, being so important to both merchant (so they can charge more) and consumer, identifying with the brand.
Top tier luxury brands don't necessarily need the same protection as their product is expensive to copy and it is relatively easy to distinguish a fake Gucci or Louis Vuitton bag from a pair of Nikes or a Polo T shirt (at least on the day of purchase). Also you check a lot more if you are paying $8000 for a bag rather than $300.
I remember a few years ago the president of Prada saying something along the lines of thanking the copiers as it saved his marketing budget - I don't think that's the offical line now though.
The allure and willingness to pay for the real McCoy is very strong. Hong Kong's continuing luxury retail boom is a testament to how much mainland consumers want quality and authenticity and how much they will pay to get it.
I think the luxury brands with stand alone stores have a much easier market entry than mid market or high end high st. brands - by their nature they need scale and so in that space I think the best opportunities actually are for homegrown Chinese brands - I am at a loss to see why more US and EU companies don't partner instead of going it alone. In fact I cannot think of one. Anyone else?
Fraud Investigation Services - March 26, 2011 1:01 AM
That is a good way to prevent product piracy! Different approaches do apply in China, but the real issue is how the government there keeps letting IP violations occur.