Why do people buy counterfeit products? 1

Running head: Why do people buy counterfeit products?

Why people by counterfeit products? Monica Rodriguez American Intercontinental University Dr. Yamil Guevara

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ABSTRACT The elaboration and commercialization of counterfeit products is an issue that has been growing prominently within the last 20 years. There is no place in the world free with this type of products. The modernization and the globalization make the counterfeiting process more difficult to control, affecting not only the countries economy, but also its safety and the citizens’ general integrity. Knowing the importance of this problem, different organizations around the world are making a big effort trying to create a variety of countermeasures in order to stop the development of this sector and of course the negative consequences. In order to create effective measures, it is necessary to completely understand the counterfeiting process and the specific reasons why people acquire counterfeit products. The objective of this study is to describe what are the different variables, and their direct influence on the purchaser’s behavior at the moment of buying counterfeit merchandise. The data collection method is based on focus groups, interviews and questionnaires. The results obtained from this study can help to understand the complete counterfeit process and facilitate future studies in order to created adequate countermeasures against this global issue.

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PURPOSE STATEMENT Counterfeit is a serious issue that affects individuals, cities and countries. The world as a whole is being touched by this powerful industry. The free trading of these products is causing a phenomenon of major importance, tempting the consumers to acquire goods that are not necessarily needed. What are the reasons why people want to buy these illegitimate products? What are the factors that influence this conduct? The more knowledge we have about these questions can help to understand the problem and probably establish suggestions for improving the issue on hand.

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Literature Review Counterfeit is a severe issue that most industries around the world struggle with. There are no limits when it comes to the production of fake merchandise. Apparel, electronics, pharmaceutical drugs and food are the most affected industries. The real situation however goes further. It is possible to find any kind of non-genuine good in today’s world market. No matter how complicated or simple they are; what is more, fake merchandise can be found even before the original pieces are launched into the market. Counterfeit is an imitation, usually one made with the intentions to fraudulently pass off as genuine (Lewis, 2009). Counterfeit products are often produced with the intent to take advantage of the value of the imitated product. More often than not, the genuine product has established a substantial value through intensive advertising and trademark protection (Maxwell, 2011). Fake, knockoff, replica, lookalike, imitation, faux and reproduction are some synonyms of counterfeit, and they could or could not be of lesser quality than genuine goods. Sometimes the counterfeit products could not be convincing replicas of the imitated product (Lewis, 2009). Counterfeit merchandise is not only available in the black market or from peddlers on the streets. They can also be found in almost every type of legitimate retail or wholesale location, including large chain department stores, malls, gift shops, pharmacies, supermarkets and flee markets (Lewis, 2009). According to the studies of the Counterfeit Intelligence Bureau of the International Chamber of Commerce, counterfeit goods make up 5% to 7% of world trade. China is the leader for intellectual property rights (IPR)

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seizures, with an alarming 80% of the total valued sized; it makes China the greatest counterfeiting country in the world. India is the second source for IPR seizure, with its main trading product, the imitation of pharmaceutical goods (Maxwell, 2009) (Lewis, 2011). There are many adverse effects that counterfeit trade involves. From the business perspective, the most common effect are the loss of credibility of the company’s name, the loss of money and time invested in research and development and of course the profits that companies lose due to counterfeit product (Lewis, 2011). To the country economic area represents an annual loss of millions of dollars (250 billions per year in USA) and loss of jobs (750,000 in the last year)(Lewis, 2011). To the countries safety, counterfeit trade is the perfect scenario for laundering money, funding terrorists and organized crime groups and to creating methods of terrorist attacks. To the consumer, counterfeit represents a health risks, including illness, injuries, accidents and deaths (Lewis, 2011). The counterfeit industry is so powerful because it is relatively anonymous and extremely lucrative. The investments costs are minimum since they do not require sophisticated technics and specialized human resources. In most of the countries involved with the counterfeit manufacture, legal penalties are low and local authorities that are deliberately involved in the process (Lewis. 2011). Globalization makes the counterfeit extremely easy. The inclusion of many countries on WTO (World Trade Organization) open boundaries and reduce barriers at the time of introducing fake goods to the

Why do people buy counterfeit products? 6 countries, as well as the difficulties in establishing control measures is extremely complicated because of the myriad of products imitated. In order to develop appropriate countermeasures against the counterfeit commercialization, it becomes necessary to understand the phenomenon of counterfeiting as a whole and the main reasons why people buy counterfeit goods. There are two types of conducts that should be taken in consideration at the time of understanding the consumer’s behavior. The deceptive conduct is when the consumers genuinely believe that they are acquiring the original product and later recognize it as a fake (Eisend, Schuchert-Guler, 2006). The degree of consumer’s deceptiveness is proportional to the awareness, knowledge, and experience. The no deceptive conduct is when the consumer knows, because of the price, the materials used, and the shopping location that the merchandise is not genuine, and while being conscious of this situation; still go forward without thinking about the negative implications. In other cases, the no deceptive conduct is also accompanied with an immense feeling of satisfaction, this conduct is frequently observed with the pharmaceutical products acquisition because it represents a cheaper alternative for alleviating or improving customer’s health issues (Eisend, Schuchert-Guler, 2006)(Grossman & Shapiro, 1988a). The Cognitive dissonance is the term used in modern psychology to describe the discomfort felt by a person seeking to hold two or more conflicting cognitions simultaneously (ideas, beliefs, values) (Festinger, 1957). This theory proposes that people have a motivational drive to reduce dissonance by altering existing cognitions, adding new ones to create a consistent belief system, or alternatively by reducing the importance of any one of the dissonant elements (Lynn, 1991).

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Product At first, price is the main reason for buying fake products. With this in mind, counterfeit goods may be attractive to consumers primarily for low-income customers. But the fact is that consumers with a medium and high income buy counterfeit products as well (Prendergast, Chuen and Phau, 2002). It is obvious that price is not the only motive for acquiring counterfeit goods. There are other factors like the products’ quality itself, and the possible scarcity that make the products desirable (Eisend, SchuchertGuler, 2006)(Shultz & Saporito, 1996). Some explanation of the scarcity is illustrated in the Commodity theory (Brock, 1968). Michael Lynn in his article Psychology & Marketing, 1991 “deals with the psychological effects of scarcity. According to the theory, scarcity enhances the value (or desirability) of anything that can be possessed, is useful to its possessor, and is transferable from one person to another….” Consumer The customer’s attitude to buy counterfeit merchandise is conducted by the individual’s characteristics. The demographics and psychographics criteria are determinants and play an important role at the time of influencing the purchaser’s behavior (Eisend, SchuchertGuler, 2006). The need to acquire counterfeit merchandise differs between gender, age, educational level, marital status, employment status and also geographical location (Eisend, Shuchert-Guler, 2006). These factors are not enough; all these named characteristics have relationship with the interests, activities and opinions (IAO) that together form the consumer individual profile (Eisend, Schuchert-Guler, 2006). The

Why do people buy counterfeit products? 8 theory of reasoned action (TRA), predicts behavioral intention, spanning predictions of attitude and behavior. It suggests that a person’s behavior depends on the person’s intention, that means if somebody want to do something, sooner or later they are going to do it (Ajzen , Fishbein, 1975). Personal situation Besides the product and personal points, the customer’s purchase situation necessarily is going to be influenced by the social, cultural environment and the individual mood (Eisend, Schuchert-Guler, 2006). The process of acquiring counterfeit goods is growing rapidly steps around the world (Lewis, 2009). It is common to find an increase in counterfeit purchases during different seasons of the year or during the launch period of any particular good (Eisend, Schuchert-Guler, 2006). Legal aspects It is well known that not all international authorities have the same position against the counterfeit problem. For many countries counterfeiting is not considered as severe as other industrial or economic crimes and see it as an alternative that please the people in disadvantage situations. This theory is known like the Robin Hood effect (Lewis, 2009), and it is a form of justifying the way that some people can acquire desirables and unattainable products without complications (Lewis, 2009). Although counterfeit trading is a crime, it is not seen that way by the consumers as is (Eisend, Schuchert-Guler, 2006). That is the reason why people feel free to buy counterfeit products they know are fake without thinking they are breaking the law.

Why do people buy counterfeit products? 9 Summary The elaboration and commercialization of counterfeit has become a problem of international importance that involves not only economic sectors, but also political, legal, diplomatic, social and cultural areas. The process of counterfeit affects not only wellknown brands, but also goods that require large investments in research, development and marketing. The counterfeiting process diminish the affected companies profits and name, harms the general economy and can cause illness, accidents or irreversible damages to the general population. Behind this enormous world that represents approximately the 7% of the world economy are countries like, China, India, Taiwan, Korea, Turkey and Vietnam which leadership and control the business. The supply exists because the demand exists. More and more people around the world are looking for these kinds of goods, keeping industries busy manufacturing anything the consumer demands. The motivation for buying counterfeit merchandise exists, but what are the factors that influence the consumer’s behavior? What is the cause or the causes for buying counterfeit merchandise? The consumer’s behavior (dependent variable) can be influence for many four main factors. One, the product (independent variable). The price over all is the first motivation for buyers. People found the opportunity for acquiring some products that in normal conditions is not possible. Most of the time these products are bought because of the status symbol, functionality or real need like pharmaceutical goods. The quality that certain brands represent is another factor that certainly push the consumer to buy products that look genuine but are not. The scarcity of any product make it more

Why do people buy counterfeit products? 10 desirable, even more, the counterfeit product’s scarcity increases the demand of some original and fake goods, making them more expensive and desirable. Two, consumer (independent variable), the consumer’s behavior in all cases is going to depend of the individual characteristics. The demographics and the psychographics factors influence in important way the purchaser’s behavior. Some people buy counterfeit because the need of feign a social level, in response to the peer pressure or to be unique in his/her environment. Three, Personal situation (independent variable), there are countries where acquire counterfeit products is more difficult than others. This situation creates a hide willing desire for buying products that are sanctioned by the law. In other cases, counterfeits goods are bought for making gifts, like seasonal presents or even souvenirs. Four, legal aspects (independent variable) around the world counterfeit merchandise is freely trade, in some places the sanctions are stronger than others, but in general this sanctions are not enough or are not applicable in the correct way. Seller and buyers do not feel the fear for trading this kind of product. In fact, they do not feel the commercialization process like something that is against the law. The independent variables performance can affect the purchaser’s behavior (dependent variable) acting alone or interacting between them. Each scenario has its own individualities and the result of this interaction totally determine the final consumer response.

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THEORETICAL FRAMEWORK AND HYPHOTHESES The purchaser’s behavior is the dependent variable. This is the variable that obtains primary interest in the study. The independent variable is the one that influences the dependent variable in a positive or negative way. In this case, four factors were considered independent variables: the product, the consumer (person), the purchase situation and the legal aspects. For better understanding it is necessary to know the meaning of the variables in study. Consumer behavior (Human): refers to the range of conducts exhibited by humans which are influenced by culture, attitudes, emotions, values, authority, rapport, hypnosis, persuasion, coercion and/or genetics (DV). Product: (IV) is the result obtained by labor or effort. In economics and commerce, products belong to a broader category of good. Price: is the quantity of payment or compensation given by one party to another in exchange for goods or services. Quality: In manufacturing, quality is a measure of excellence or a state of being free from defects, deficiencies and significant variations. It is a group of verifiable standards to achieve uniformity of output that satisfies specific customer or user requirements. Brand: Name, term, design, symbol, or any other feature that identifies one seller's good or service as distinct from other sellers.

Why do people buy counterfeit products? 12 Scarcity: is the fundamental economic problem of having humans who have unlimited wants, living in a world of limited resources. Consumer: (IV) is a person or group of people that are the final users of products and or services generated within a social system Demographics: are the general characteristics of each individual, such as, gender, race, age, disabilities, employment status, marital status, educational level and, geographical location. Psychographic: Is the study of personality, values, attitudes, interests or lifestyles. Psychographic is also called IAO (interest, activities and opinion); it is the individual cultural background. Purchase situation: (IV) Cultural context are the circumstances in which an event occurs. Personal situation: assessment of elements influencing your behavior in a positive or negative way. Mood: is an emotional state. Moods differ from emotions in that they are less specific, less intense, and less likely to be triggered by a particular stimulus or event. Moods generally have either a positive or negative valence. In other words, people typically speak of being in a good mood or a bad mood. Law: (IV) is a system of rules and guidelines, which are enforced through social institutions to govern behavior. Sanctions: are penalties or other means of enforcement used to provide incentives for obedience with the law. There are some characteristics that make certain kind of goods desirable. The price is the first motivation for buyers. Consumers see the opportunity of having certain

Why do people buy counterfeit products? 13 products, which in normal conditions is not possible to acquire. Most of the time these products are bought because of the status symbol, functionality or necessity such as pharmaceutical goods. Other characteristics that can affect the product are the quality itself and the brand. Sometimes people are looking just for the brand and not for the quality or vice versa. Scarcities of any product make it more desirable, and this is well known in the counterfeit industry. For example when a new video game is launched to the market for a very first time and is expected to be sold quick, the counterfeiters have already prepared a great number of items to be placed on the market once that the real ones are sold out. Some people buy counterfeit merchandise because they have the need to feign a social level or just to response of the peer pressure. In this case they are going to acquire the fake good no matter what, without filling the sense of guilt for been committed a crime or having the lack of satisfaction, knowing that they are buying a no genuine piece. The consumer behavior in all cases is going to depend on individual characteristics. Certain products are very popular for any particular age or gender. For example software, electronics and games are highly searched for males however, females are more prone to desire apparel. There are some countries where acquiring counterfeit products is more difficult than others. This creates a willing desire for the consumer for buying things that are sanctioned by the law. In other cases, counterfeit merchandise is purchased as gifts, like seasonal presents or souvenirs. Around the world, counterfeit merchandise is trade freely, in some places, the legal sanctions are stronger than others, but in general those sanctions

Why do people buy counterfeit products? 14 are not strong enough, or are not applicable in the right way. Sellers and buyers don’t fear the system and don’t look at the counterfeit process as a crime.

Independent Variables

PRODUCT Price Brand Scarcity

PERSON Demographic Psychographic

PURCHASE SITUATION Social and Cultural Context Mood

LEGAL Sanctions

CONSUMER’S BEHAVIOR Dependent Variable (Eisend, Schuchert-Guler, 2006).

HYPOTHESIS People all over the world will continue buying counterfeit goods regardless of the legal, social, political and economics efforts implemented against it.

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METHODOLOGY In order to determine what are the reasons why people buy counterfeit merchandise is convenient the use of qualitative data collection methods. There are three types of methods that can be successfully used at the time of classifying and collecting the data: the personal interviews, the focus groups and questionnaires. These are three different types of qualitative collection methods than can be use according the required specific level. Personal interview: The interview will be conducted on 100 people between 18 and 50 years old, also classified by gender an psychographics and demographics characteristics. It is going directed into a very specific target population. Let not only have a consistent response of respondents, but also permits evaluate the attitudinal behavior. In this particular study, the personal interview has some disadvantages, are expensive and time consuming, that is the reason why can be supported with other collection methods. Focus groups: In this studio two forums will be conducted, with a participation of 50 people each between the ages of 18 to 30 years old and 31 to 50 years old. This type of data collection method certainly can help clarify the individual profile with emphasis in the psychographics characteristics (perceptions, opinions, beliefs and attitudes) toward any particular product or situation. In this particular case the lack of confidentiality in the responses can influence them.

Why do people buy counterfeit products? 16 Questionnaires: In this study case, 200 written questionnaires will be conducted. This method has a wide scope. Also can be applied with much less effort, in addition, questionnaires are consistently cheaper that the two methods describe above. The results obtained from these are the statistic bases of the study. There are some behavioral theories, motivation-need and attribute-attitude theories that must be considerate in this study, starting from the point that different variables influence the human behavior (purchaser’s behavior). The Commodity theory, the Cognitive dissonance theory, the Reasoned action theory , the Expected utility theory to name some, should be useful to understand the process. DATA MEASURES In this study, the ordinal scale of measure can be use because this permit the to identify and have the variable’s magnitude. For example at the time of analyze the variable product, we can establish the relationship between the price, scarcity and quality, identifying the characteristic that stands on the others and determine which is the most significant attribute. Each value on the ordinal scale has a unique meaning, and it has an ordered relationship to every other value on the scale. PRESENTATION The study is going to be presented as a journal. A journal contains a research written by experts or not in any particular topic, based in the literature review, data collection and final analysis. The complete research can be use as a reference for future investigations and can also make important suggestions and input to the inquired field.

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REFERENCES Eisend, M., & Schuchert-Guller, P. (2006). Explaining counterfeit purchases. 12, Retrieved from http://www.amsreview.org/articles/eisend12-2006.pdf Guevara, Y. (2009). The home depot paradox: An investigation of the relationship between financial performance and customer satisfaction. (Unpublished doctoral dissertation, Capella University). Festinger. (1957). A theory of cognitive dissonance. (Master's thesis, Stanford), Available from University Press. Fishbein, M.,& Ajzen, I. (1975). Belief, Attitude, Intention and Behavior: An Introduction to Theory and Research, MA: Addison-Wesley. Lewis, K. (2009). The fake and the fatal: the consequences of counterfeits. The Park Place Economist, 17(1), 47-58. Retrieved from http//digitalcommons.iwu.edu/parkplace/vol17/iss1/14 Lynn, M. (1991). Psychology & marketing. Wiley , pp. 43-57. Maxwell, H. (2011). Trademark infringement and counterfeit imports in The United States: Possible solutions for a global dilemma. State Bar of Texas. Paralegal Division, Retrieved from http://txpd.org/tpj/61/focus01.asp Mourad, S. (2011, January). The effects of counterfeit on luxury brand buying behavior, in terms of comsunption experience. Paper presented at 10th International Doctoral Colloquium Marketing Trends, Paris, France. Prendergast, G., Leung, H., & Phau, I. (2002). Understanding consumer demand for nondeceptive pirated brands. 20(1557), DOI: 10.1108/02634500210450846 (Permanent URL)

Why do people buy counterfeit products? 18 Sekaran, U., & Bougie, R. (2009). J. Willey (Ed.),Research Methods for Bussines (5 ed., pp. 1-400). Retrieved from http://wps.pearsoned.co.uk/ema_uk_he_saunders_resmethbus_5/ Shultz, C.I. & Saporito, B., 1996. Protecting intellectual property: strategies and recommendations to deter counterfeiting and brand piracy in global markets. The Columbia Journal of World Business, 30(1), 18-­‐28.