Consumers from less-developed countries that are poorer appear to be more ready to buy counterfeits. You say a standardized approach is not viable, so should international brand owners consider tailor-making their anti-counterfeiting efforts to countries’ individual economic profiles, and with the current economic climate leaving us all feeling short of cash, should special efforts to stem the counterfeit tide be made right now?

Dr. Chaudhry Yes, tailored anti-counterfeiting efforts are needed, and yes, this needs to be done now. Here is why. We were able to reach about 400 consumers using an Internet based survey in each of five countries: Brazil, Russia, India, China, and the U.S. According to GDP these countries are among the richest in the world and score either high or medium with respect to development on the Human Development Index. Yet, the GDP/capita varies greatly across these countries, with Indian and Chinese consumers clearly being the poorest. Across these five countries, two-thirds of consumers reported complicity with counterfeit products. This means that they willingly obtained, shared, or used a counterfeit product. One-third of our sample of nearly 2,000 consumers reported a high level of complicity. This varied by country, with 52% of Chinese consumers being highly complicit, 47% of Russian consumers, 33% for Brazil, 27% for India, and 11% for the U.S. This data shows that consumers from affluent and developed countries are also willing to purchase counterfeit products.

Dr. Stumpf  Consumers in different countries seem to have very different views as to the appropriateness of acquiring, using, and sharing counterfeits. To capture the degree of consumer complicity (none, some, high) among consumers, we constructed a complicity index that provides an overall measure of complicit consumer behavior taking into account intentions and actions across multiple product categories. Using this index, we segmented consumers into three mutually exclusive and exhaustive categories: non complicit, some complicity, and high complicity. By grouping consumers based on their complicity, we were able to estimate the size of these consumer segments by country for comparison purposes. This type of data yields insight into the value of tailoring anti-counterfeiting strategies to a specific country’s consumers. Based on these data, it would be in the best interest of firms to focus their anti-counterfeiting programs in those countries with the highest propensity of consumer complicity.

Dr. Chaudhry  We understand that regardless of the economic climate it is a costly initiative for organizations to tailor their anti-counterfeiting initiatives to each country. To protect their intellectual property, brand owners must commit resources to devise and execute a strategy to reduce consumer demand for illicit products. Even when the strategy involves collaboration with public or private law enforcement agencies, brand owners need to lead the initiative. This is essential in order to protect high-risk consumers, such as those acquiring fake pharmaceuticals via legitimate supply chains. Brand owners should have begun this process already. A successful execution of such focused strategies will help businesses to recoup revenues lost to pirates, and provide governments with increased taxes paid by both legitimate businesses and consumers to offset enforcement costs of attacking product counterfeiting.

Your survey suggests that some consumers would consider buying counterfeit drugs. Did it surprise you that some people knowingly buy counterfeit drugs, rather than just being landed with them?

Dr. Chaudhry  We did expect significant complicity with fake movies, and 50% of the sample reported that they had acquired a counterfeit movie. I did not expect 10% of the respondents to report that they had acquired a counterfeit pharmaceutical. The average frequency of acquiring any counterfeit product over the past two years was about 3 times. The average complicity rate for both pharmaceuticals and movies varied significantly by country – with 17% of Chinese and 9% of Indian consumers expressing a willingness to be complicit with pharmaceuticals, compared to 80% of Russian and 17% of US consumers expressing a willingness to be complicit with movies. In terms of measuring this type of complicity, we know that a self-positivity bias may affect consumer responses. Self-positivity would underreport complicity. So the actual levels are likely to be higher than those we report for both products.

Dr. Stumpf  Even more surprising was that in some countries over 25% of the consumers indicated an intention to be complicit with a counterfeit pharmaceutical. Such consumers were receptive to acquiring a counterfeit pharmaceutical, sharing it with a friend, and/or using it themselves knowing the potential risk of ingesting counterfeit drugs that do not work, or worse yet, cause harm. Since our study involved self report of actual complicity, we are not addressing the unknowing use of a counterfeit; we may be under-representing illicit pharmaceutical consumption by 50% or more.

When it comes to counterfeit drugs, it would seem that targeted education programs are needed. Should pharmaceutical companies themselves be responsible for these sorts of campaigns or, as it is a health issue, would it heighten the impact and the subsequent effects if an official government stand was made?

Dr. Stumpf  Although the government, private doctors, and other organizations can help education citizens about the dangers of illicit pharmaceuticals, the manufacturer is responsible to ensure consumers know the danger of using counterfeit pharmaceuticals. Learning from successful marketing campaigns that used education to decrease consumption of alcohol and cigarettes, some proactive pharmaceutical companies have already begun using ‘de-marketing’ techniques to demonstrate the danger of taking counterfeit pharmaceuticals. For example, Pfizer launched a ‘regurgitated rat’ campaign in the UK that shows a consumer of fake drugs pulling a dead rat out of his mouth to build awareness of poisons sometimes used to manufacture fake drugs, and to demonstrate the importance of purchasing drugs from a reliable source. Pfizer tied this campaign to a company website designed to further educate consumers.

Dr. Chaudhry In addition to ads targeted at consumers, pharmaceutical trade associations and governments, such as the European Federation of Pharmaceutical Industries and Associations and the European Commission, are targeting the supply chain of pharmaceuticals to address the counterfeit dilemma. In May 2009, the EFPIA announced a pilot program with the Swedish retail chain, Apoteket AB and wholesalers Tamro and KD to comply with the European Commission’s new traceability requirement for pharmaceuticals in the international supply chain. The European Commission reports the success of its European Union-funded BRIDGE (building radio frequency identification solution for the global environment) pilot to provide patient safety using track and trace technology of pharmaceuticals. After reading Katherine Eban’s book, Dangerous Doses, I am skeptical about pedigrees keeping out the pirates in the supply chain. Eban gives several examples of how pirates created fake paper pedigrees for the pharmaceuticals that they were selling across multiple state lines and various wholesalers in the U.S. I am not sure how long the newer technology will keep the counterfeiters out of the legitimate supply channel since the profit incentive is just so large.

Companies need to work with government officials to identify consumer risk through what we are calling a “Matrix of Corporate/ Government Social Responsibility” that uses a straightforward way to assess corporate/government solutions by way of assessing: (1) the level of consumer involvement – whether the counterfeit purchase is deceptive (e.g., fake pharmaceuticals obtained through internet pharmacies) or complicit (e.g., illegal purchases of pharmaceuticals on the internet); and (2) the type of product – whether the counterfeit good is harmful to the consumer (pharmaceuticals) or non-harmful. In the specific case of fake pharmaceuticals, which we know may be harmful to the end users, the government should assist pharmaceutical companies in educating the public about the hazards of participating in this market; this assistance might be in the form of a tax credit. The government could also increase criminal penalties for knowing users of illicit drugs in addition to manufactures and distributors. Government and corporate inaction to complicity will be costly, sometimes including sickness and death of unknowing consumers.

Consumers are being encouraged to buy ‘fair trade’ products, to recycle their packaging, to reduce their carbon footprint and not buy imported products but, on the basis of your survey, how ‘ethical’ do you feel the average consumer is in terms of their complicity with counterfeit products? Did you uncover a difference in the ethical perceptions of consumers in the country markets that you studied?

Dr. Chaudhry One variable we examined was a consumer’s ethical concern in being complicit with counterfeit products. Ethical concern is the extent of consumer agreement that complicity infringes on the owner’s intellectual property rights or damages the industry, and whether they perceive this behavior to be illegal or unethical. The lack of ethical concern is an attitude of perceived lawfulness found to be a justification of consumer illicit purchases. The lack of ethical concerns for the movie industry in each country market we studied predicts complicity; consumers do not see violating intellectual property laws as unethical. Although there may be many reasons for this, highly complicit consumers report a negative attitude toward the movie industry. This opinion was universal. Because highly complicit consumers reported less ethical concern, we suggest that practitioners create a salient connection between obtaining a counterfeit and the ethical implications. For example, the Motion Picture Association (MPA) has been using a campaign featuring two black Labrador dogs “Lucky and Flo” to remind the public, especially children that purchasing counterfeit movies is illegal. The ultimate goal is to influence the way consumers think about the illicit act and get them to equate pirating a movie to a more offensive act, such as shoplifting.

Dr. Stumpf  As expected, non-complicit consumers have a higher degree of ethical concern for movies and pharmaceuticals than those who are complicit. They also tend to perceive that a fake movie or pharmaceutical is of lower quality, and believe in the likely effectiveness of anti-counterfeiting tactics such as product-specific strategies, a reduced price, social marketing, and product cues indicating a counterfeit. While the high complicit consumers view these tactics as less likely to be successful, they still see them as worthwhile efforts by brand owners. It may well be the nature and quality of the message and anti-counterfeiting tactic will work some of the time with even the most complicit consumers. For example, those expressing a willingness to obtain fake pharmaceuticals also indicated that they perceived a ‘fear’ advertisement identifying the health risk to be effective.

Your survey focuses on movie piracy and counterfeit drugs but what are your feelings about fake luxury brands and how should those brand owners be tackling their anti-counterfeiting campaigns?

Dr. Chaudhry  I have never conducted market research on luxury brands, but I feel that counterfeit trade is really almost synonymous with consumer perceptions of fake Prada, Louis Vuitton purses and other high-fashion items. I personally think brand owners are in a really difficult situation in terms of defraying the myth that ‘fakes are fun’ with consumers and will continue to face difficulties in litigation across global markets. Brand owners, such as Burberry are losing their cachet in places like London since the wrong consumer is sporting their fake Burberry’s in the clubs reinforcing the fact that even though this consumer cannot afford the genuine product, the company is suffering revenue losses from brand dilution of its products. The recent divergent outcomes of the litigation filed against EBay for selling counterfeit goods at its internet auction site by both Tiffany’s and Louis Vuitton is testimony to the legal quagmire facing brand owners. In July 2008, after 4 years in the U.S. court system, a U.S. judge declined the liability of EBay regarding counterfeit jewelry sold at its site. However, in June 2008, a French court awarded Louis Vuitton €38 million for failure to block the sale of this luxury goods manufacturers items on EBay.

Dr. Stumpf  As a result of our recent publication, “Getting Real with Fakes,” in the Wall Street Journal, we were contacted by the Public Relations staff at Hearst Magazines, who informed us about the advent of “Fakes are Never in Fashion” campaign launched in Harper’s Bazaar. Their goal is to raise consumer awareness about identifying a fake and to educate consumers about the human cost of obtaining counterfeit products, such as using child labor, funding terrorist activities, and losing tax dollars and jobs. Their advertisement is very creative, such as their current “Crimes of Fashion” and I understand that they held a successful contest to encourage their readers to send a fake purse to them in exchange for the chance to win a real luxury handbag. Hearst Magazines hosts an annual Anti-Counterfeiting Summit in New York City and provides the “Luxury Report” in its January Issue to further bolster awareness of the key issues. Generating peer pressure to diminish consumer complacency about counterfeits and exposing the unethical practices associated with this market could help luxury brand owners decrease demand for their fake counterparts.

You have also studied executive perceptions of counterfeit trade in several different countries. How do company leaders perceive the problem – do they think consumers are aware a product is counterfeit before becoming complicit? What product cues do they think 'tell' a consumer a product is counterfeit? What do executives think drives consumer complicity? What anti-counterfeiting actions do they think will be successful—and might this vary by country or product?

Dr. Chaudhry  In 2009, I published a book (with Dr. Alan Zimmerman), The Economics of Counterfeit Trade: Governments, Consumers, Pirates and Intellectual Property Rights
that provides an in-depth review of a survey we conducted regarding US managerial views of the counterfeit problem, which includes an analysis of the efficacy of an array of anti-counterfeiting tactics targeted at governments, pirates, and consumers. One of our major findings in the U.S. study was a difference in anti-counterfeiting stratagems directed at pirates in terms of the level of counterfeiting activity in the country where the firm was experiencing the highest level of illicit trade. In markets where managers perceived a high-level of piracy, firms were more likely to employ tailor-made actions designed to combat the pirates in that foreign market. In addition, the companies were more likely to use lobbying tactics targeted at both the foreign and U.S. government to alleviate the problem of this type of crime. The firm was also more likely to participate in an international organization, such as the World Trade Organization (WTO). Overall, there was a strong indication that managers do not perceive curbing the demand side of the problem as effective. That is, consumer complicity is not regarded as an actionable item warranting significant management behavior. However, the managers do view deterring the pirates to be an actionable item warranting proactive behavior. They are statistically more likely to use the following tactics: lobbying the U.S. government, lobbying the host country government, participating with international organizations, using company enforcement teams to curtail indigenous pirates, and educating their employees about the counterfeit problem.

Dr. Stumpf  I have interviewed over 300 managers in Australia, New Zealand, Tahiti, South Africa, and the United States about their views of the mounting counterfeit problem. Executives in Australia, Tahiti, and the U.S. have somewhat similar perspectives. They view the seller as the main driver of counterfeit trade primarily for reasons of profits. They view the demand for counterfeits to be driven by desirable product attributes and convenience. Two anti-counterfeiting actions (site licenses and reduced price or rebates) are believed to reduce the demand for illicit products. In contrast, South African executives see weak enforcement as the main reason for piracy, followed by its profitability, and convenience plus the low disposable income or being less educated as the main reasons for consumer complicity. Other than the use of special packaging to deter consumer complicity, they see little value in anti-counterfeiting actions. New Zealanders are the most optimistic believing that piracy and complicity can be reduced by many anti-counterfeiting actions, including special packaging, reducing price, emphasizing product benefits and warranties, stressing harmful effects, offering site licenses, and listing of authorized sellers.

Have you ever knowingly or unknowingly bought a fake? If so, what was it and what was your impression of the product? Did any aspect of the experience resonate with the findings from your survey and recent analysis?

Dr. Chaudhry  In 1999, I purchased my first counterfeit products, a variety of Beanie Babies in the infamous shopping area “Silk Alley” in Beijing, China. At that time, the Ty Company had severely limited the distribution of its Beanie Babies and the secondary market value for a Princess Diana Beanie Baby at that time was over $400 at internet auction sites in the U.S. In China, I paid about $3 for each fake Beanie Baby and took them back to the U.S. to have the collectors figure out whether they were true counterfeits or a gray market product. The bears were so close to the genuine product that it was hard to differentiate, but, it was the incorrect labeling of the product in poor English grammar that was the final clue that the bears were counterfeits. I have also visited the counterfeit markets in several countries, such as Egypt and Tunisia, and often wonder whether I am looking at gray market or production overruns of the legitimate supplier. The fake Lacoste shirts for sale around Canal Street in New York City even had the store bar code tags and their quality was very good. As our consumers suggested in the survey, I did experience a hedonic shopping experience in these counterfeit markets and was surprised by the quality of some of the fake products. However, what worries me more as a consumer is the encroachment of counterfeits into non-traditional goods, such as pharmaceuticals, perfumes, alcoholic beverages, baby formula, cigarettes, and the like since these products represent that area of our matrix where most purchases are deceptive and can harm the consumer.

Dr. Stumpf  I bought a ‘handful’ of fake watches on a trip to Bangkok back in 1990 or so. I clearly knew that they were not real; they were going to be gag gifts for friends. The US Customs officer noticed them and asked me about them. When she took a closer look, she also knew that they were fakes and just let me pass. Most of these watches stopped working within a couple of weeks. That was my first and only purchase of counterfeits. Since then I’ve been given CDs and software that was pirated, which also tended not to be of high quality. For the past decade, I’ve gone cold turkey – I just say no to fakes.

Before we leave this question, I felt that we should consider the experiences of younger researchers, so I asked Leeann Perretta, a Villanova School of Business MBA student who has work experience with two pharmaceutical firms, about her experience with fakes. Here is what she said, “I've never acquired or used a counterfeit pharmaceutical, but I once went to Canal Street in New York City with my boss and a coworker from my first post-college job. Although I am much more of a bargain shopper than a name brand shopper, and pretty much hate shopping all together, I decided that it would be a good bonding experience to tag along for the trip with my new colleagues. It was actually a little scary, being with two women that I hardly knew asking street vendors in hushed voices if they had any “Coach” or “Prada” bags before being whisked away by a shady looking guy to a locked basement with an assortment of knockoffs. I did get an adorable Prada bag for $20, a great bargain even if as a counterfeit. I was informed that its only flaw is that the inside label does not have the brand name printed on it. Since then, due in part to my work experience and business education, I have not repeated the event."

In each of your studies you have collected data on consumer values and the pleasure derived from the shopping experience. How do these factors help us understand consumer complicity?

Dr Chaudhry  We need to further develop our understanding of the market segmentation of complicit consumers. The majority of academic studies on consumers who are willing players in counterfeit trade do not provide any statistically significant outcomes on profiling these consumers by traditional demographics [e.g., age, income, education]. Even the widely reported LEK study conducted for the Motion Picture Association of America (MPAA) could only profile complicit consumers as young, male, and living in urban areas, too broad of a demographic for any type of market segmentation. We are currently working on this problem with our BRIC and U.S. research that looks at demographics and consumer behavior (e.g., personal values that shape whether they obtain counterfeits; level of hedonic shopping behavior when obtaining a counterfeit good) to look at complicity across countries. In our study, BRIC and U.S. consumers who were complicit shopped for illicit goods in part because they found the experience enjoyable whether they were in a virtual or physical market. National market segmentation did not differentiate whether a consumer in Brazil will take greater pleasure in shopping for counterfeits than a buyer in Russia. Firm initiated anti-counterfeiting actions might attack the hedonic buying stimulus, for example showing consumers being arrested in a well-known counterfeit shopping district or attending a fake-purse party, may diminish the sense of pleasure associated with acquiring a counterfeit product in that shopping environment.

Dr. Stumpf  The high complicit consumers tend to have a greater hedonic shopping experience in both physical and virtual markets, and have a lower ethical concern that their complicit behavior negatively affects the movie and pharmaceutical industries. This is not a statement that these consumers are unethical people; they do not view the illegal activity of purchasing counterfeit products as an unethical action. This suggests that complicity may be as much of a consumer attribute as it is a behavior.