June 27, 2017

Study looks at financial drivers behind copycat manufacturing and design

by Christi Mathis

CARBONDALE, Ill. -- Designers and manufacturers spend cash and time developing new products, only to find themselves competing very quickly with cheaper, copycat versions made by knock-off companies.

Gregory DeYong and Hubert Pun have been researching the problem as well as strategies companies can use to battle look-alike products. DeYong is an assistant professor of operations management at Southern Illinois University Carbondale’s College of Business, and Pun is an assistant professor and doctoral program coordinator of management science at the Ivey Business School at Western University in London, Ontario.

Focusing primarily on the fashion and electronics industries, they researched product introduction, competition and subsequent market reactions. Using the game theory approach, which considers how people and organizations interact, they mathematically defined the goals and profit structures of the original and copycat manufacturers and assessed the big picture in terms of competition and profitability.

The financial stakes and profit margin dictate how much copycat competition there is, DeYong and Pun found. Manufacturers aren’t going to get too excited about duplicating staples like bread or milk because the profit margin is so slim anyway. But when months -- or even years -- and thousands of dollars have gone into developing a fashion line, a phone or other big-ticket products, the potential profits result in intense competition.

DeYong said there are two ways copycat competition comes into play. Some companies simply cheat and produce what appears to be an identical product, right down to the label. While the quality is typically not nearly as good, the pricing is much lower and the appearance is similar. The only real recourse against such outright deceptive marketing is through legal avenues, according to DeYong.

It’s actually the “look-alike” products flooding the market that really cause nightmares for manufacturers, he said. Once upon a time, a major fashion designer could create a new product line, debut it on the runway, and a few months later release it to anxious customers quick to pull

out their wallets. Now, it’s not uncommon for a copycat product to hit the retail market within days of a show or product launch.

Today’s advanced technology allows quicker manufacture of more accurate copycat products. These products resemble the originals stitch for stitch and function for function with the exception of the brand label. Using an online business for sales and distribution also reduces costs, according to DeYong. There is still the option of a court battle to fend off the look-alike competitors, but manufacturers seldom go that route.

Some brand-loyal customers will wait for the “real” thing, DeYong notes. They would never consider buying a Forever 21 or Zara look-alike garment. Meanwhile, budget-conscious shoppers can’t afford or simply won’t pay perhaps $695 for a Burberry raincoat or $2,400 for a Givenchy dress. They’ll bide their time until they can acquire a cheaper, copycat version.

It’s the consumers who fit in neither of those categories who are really up for grabs in the competition war. And it’s for these customers that manufacturers must determine if they will adapt and to what degree. DeYong and Pun found that manufacturers of original items have three options.

“They can deter the copycat with the threat of lower prices, basically showing the copycats that they can start and win a price war so the copycat doesn’t even enter the market,” DeYong said. “Or, the manufacturer can actually lower prices so the copycat finds the market less attractive. The third alternative is that they can just decide they want to skip the pricing issue altogether and simply be content with the high end of the market and let the copycat capture the value-conscious consumers, just co-exist.”

Each of the alternatives has risks and trade-offs.

“As a manufacturer, you need to determine what classification you fall into,” DeYong said. “If you’re not going to take legal action for copyright infringement, then you need to see what course of action works best for your company.”

There are ways original manufacturers can enhance their opportunities for success, he added. By taking extra safety precautions to assure designs are kept secure until they hit the stores, and perhaps limiting or being careful with advertising a new product, especially in advance,

companies can keep their design monopoly longer, thereby increasing the likelihood people will purchase originals.

“By keeping products under wraps and getting them to the market faster, companies can assure their products are fresh and exclusive for a longer time period, increasing their attractiveness to consumers and securing a larger portion of the market before copycats jump on board and piggyback their sales on the original products and the advertising for them,” DeYong said.

“It’s a very competitive, cutthroat business out there. As Masoud Golsorkki, editor of the London culture and fashion magazine ‘Tank’ said in a New York Times article, copycats are ‘like mushrooms feeding off the main body of fashion,’” he added. “Part of the difficulty is realizing that if you have good products, they will be copied. And some consumers view copycats as the Robin Hoods of the industry, bridging the gap to make things more affordable. It’s David versus Goliath, status versus price. But if companies are careful in researching and determining their strategies they can secure their places in the supply chains. The battlefield is getting ahead of the counterfeiters so you’re not competing with them head-to-head.”

“Competing with Copycats When Customers are Strategic,” an article detailing the research by DeYong and Pun, was published in the April 2017 “Manufacturing and Service Operations Management” journal.