Written by Andrew Kuiler, Managing Director @ The Silk Initiative
This week at The Silk Initiative (TSI), we show you evolutions in the “knock-off” space and share ways in which international food and beverage companies can protect their brand equity, and shore up against the threat of counterfeiting in China.
“The problem with fake products today is that they make better quality and offer better prices than the real product…” – Despite the fact that China’s biggest online trader, Alibaba, has signed a memorandum of understanding to combat online counterfeits, these frank words from the lips of its founder, Jack Ma, perhaps sum up why China is notoriously known for being the knock-off capital of the world.
Imitation or inspiration?
No longer just mere copycats, local Chinese companies are innovating at a breakneck speed, creating new threats to MNCs.
Landwind’s Evoque is a range rover at a third of the price of Jaguar’s Land Rover.
No, this is not IKEA!
A handful of staple Chinese brands may have started out as imitations, however, they now have their own strong standing in China. In fact, according to their “Future of China” study, OMD China revealed earlier this year, that the majority of Chinese consumers prefer domestic brands because of growing perceptions of quality. Some high profile examples include…
Founded in 1998, Buy Now boasts of “cheap but good quality products, and exceptionally good customer service”. It’s currently China’s No.1 computer supermarket.
Labeled as “China’s Apple”, Xiao Mi’s stylistic cues and OS have uncanny resemblance to the iPhone. Xiao Mi might still be relatively young but it has already positioned itself as the smartphone industry’s third biggest player in terms of global sales.
Let’s talk about food
The counterfeit food business is booming: empty bottles of legitimate wine are sold on the black market at prices up to $1500 and then filled with counterfeit wine – resulting sales are in the $100 of millions and are estimated to make up 5% of the total wine market in China.
China isn’t the only culprit when it comes to “food fraud” , as the “shocking number of entries” in the Food Fraud Database set up by the U.S. Pharmacopial Convention shows. And, as this case in which the U.S.’ biggest honey packer admitted to “laundering” Chinese honey proves, the harsh reality is that by outsourcing to China, some companies do, unwittingly or not, lose control of their own supply chains.
Illegal importations of honey from China that was mislabeled as coming from other countries are common.
TSI street interviews in Shanghai found that when it comes to food and beverage products, Chinese consumers are much more reticent to embrace knock-offs, for obvious reasons.
”I never buy imitation brands for food and beverages. If the company fully imitates the look of famous brands, it gives me the impression that the company just wants to be fast selling instead of having good quality.”
– Pan Wei, 45, Team Leader
“There has just been too many food scares with low quality food products containing toxic ingredients. I am not a fan of imitation food products – I would rather buy the original, the price difference wouldn’t be that big.”
– Jessie Lin, 32, Mom
Nevertheless, international food and beverage brands should not underestimate the threat from the homegrown Chinese competition. Ferrero Rocher’s three year legal battle with their Chinese “clone”, Trésor Doré, ended in a win for the Italian confectionary brand but other brands may not have legal recourse for action.
Although China is already making changes to its IP laws and has set up a new national court system to handle cases like the Ferrero Rocher vs Trésor Doré one, in the case of Danish brand Kjeldsens and their local competitor, Danisa, everything is considered “fair game” in the battle for Butter Cookie market supremacy.
While Kjeldsens may perform on their quality and heritage story, Danisa has positioned itself as modern and fun and made efforts to assure consumers of its authenticity, moving beyond merely being a ‘copycat’ brand and driving appeal with equities of its own.
So what should new entrants do to avoid going head-to-head like this?
When is comes to brand strategy and protecting brand equity, you should:
- Craft a consumer-led strategy and marketing mix plan to ensure success, especially when you introduce your product into the market where it will face strong competition from established local brands.
- Be single-minded in your communication at all time across your whole marketing mix – proposition, product, pack, price, place, promotion.
- Determine where your most special point of difference is and what claims you can put a stake in the ground on – both from a consumer perception POV as well as a compliance POV.
- Understand your key occasion and primary and secondary target market and focus resource spend on those exclusively.
- Don’t waste resources exploiting competitors’ weaknesses. Instead, make their strength either less important or less interesting by showing that you have something better to offer consumers.
- Craft and implement a Corporate IP Strategy that reflects of a realistic assessment of the business risks and benefits of transferring IP to China.
Remember, if a foreign company doesn’t file its copyrights, patents and trademarks in China, its IP has no formal protection here and Chinese companies have become very clever at leveraging successful foreign brands’ brand equity to their benefit. The likelihood of your brand equity falling foul to counterfeiting can be minimized with measures that reduce the level of exposure to risks.
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