Flip through a fashion magazine. You’ll see celebrities in high-end designer outfits worth thousands of dollars. But at the bottom of the page, there will often be “Similar Styles” –clothing that looks almost identical to the celebrities’, but for a fraction of the cost.
Welcome to copycat manufacturing.
Successful products are often copied by lower-cost producers (copycats) piggybacking off the original’s creativity and success. It happens across industries – pharmaceuticals, fashion, and electronics to name a few. Ivey’s Assistant Professor Hubert Pun’s research looks at the copycat epidemic: what it is and how manufacturers can prevent it.
“It’s a problem that is really close to home for me as a Canadian,” Pun said. “Counterfeiting costs Canadians $20 to $30 billion a year. It’s a huge issue here, and it’s big in Asia, too. I grew up in Hong Kong, so I have witnessed this problem first-hand.”
He recently co-wrote a paper, “Competing with Copycats When Customers Are Strategic,” with Gregory DeYong, an assistant professor at Southern Illinois University (Carbondale, IL). Pun and DeYong look at how product quality and consumers’ behaviour affect original products and subsequent copycats. They found companies with low product quality are less likely to face copycats, and can further discourage copycats by reducing prices and limiting their advertising. If the original is affordable, customers aren’t willing to pay for a copycat product. And if original manufacturers don’t heavily advertise products before they’re released, copycats don’t have time to create and sell similar products.
Alternatively, companies with high-quality products are more likely to face copycats, and are best to seek out legal prevention.
Creating high-quality products is not necessarily better for the manufacturer. In fact, the manufacturer can become a victim of its own success, Pun said.
“We intuitively think that, if we have a high-quality product that must be good for the manufacturer, but that’s not necessarily the case,” he explained. “Sometimes it might hurt you because it actually creates more space for the copycat to introduce its product.”
Pun gives the example of high-end fashion. When Burberry introduces a new clothing line, it garners attention around the world. Copycats see it’s something the average consumer likes but can’t afford, and therefore they can introduce a similar, cheaper line that will sell well. Stores like Zara and Forever 21 are infamous for this, Pun said.
Another surprising conclusion is the lack of success behind urgent campaign promotions e.g. “Buy now, pay later” or “Buy now or never.” Consumers feel pressured: if they don’t buy the product right away, they’ll miss the opportunity entirely. Although good for original manufacturers in theory, it doesn’t always pan out. Copycats are more likely to enter the market when there’s a limited number available, or a “Buy now or never” promotion.
“If customers already have a propensity to purchase early, these ‘Buy now’ promotions may force the manufacturer to reduce prices to a greater extent in the future to attract the remaining customers who haven’t purchased yet,” Pun said. “The benefits of this strategy only extend to a certain point.”
Pun then pointed to the three typical strategies to handle copycatting:
- Reduce the “size of the pie.”
Reducing the “size of the pie” is accomplished by creating a specific product with a smaller market size, and therefore less room for copycats to enter. If the market is smaller, it’s more challenging for the copycat to justify entering.
- Take legal action.
Seeking out legal expertise to persecute copycats can help protect the genuine, original product. But lawsuits can be difficult – not to mention expensive – because copycats can argue the fine line between stealing and inspiration.
- Do nothing.
If the copycat issue isn’t hurting the business significantly, or if the cost of pursuing the copycat is so huge it isn’t worth the cost, the manufacturer is left to ignore the issue entirely.
Pun is expanding his research to the supplier-copycatting level next. He’ll look at instances where contract factories making original products for a company are copying the designs and selling products of their own.