Use of Negative Cues to Reduce Demand For Counterfeit Products

ABSTRACT - The sale of counterfeit products, a $200 billion industry worldwide, represents a serious threat to both the manufacturers of the legitimate products and the welfare of the consumers who purchase counterfeits. Therefore, identifying methods of reducing the counterfeit trade has become a top priority for many businesses and governments. This study examines means of dissuading consumers from knowingly purchasing counterfeit products. Specifically, the findings confirm that cuing negative aspects of consumers’ typical beliefs about counterfeits, such as the high failure rate of counterfeits and the country of origin of the counterfeit relative to that of the legitimate product, can reduce their intentions to knowingly purchase counterfeit products.

Citation:

Goutam Chakraborty, Anthony Allred, Ajay Singh Sukhdial, and Terry Bristol (1997) ,"Use of Negative Cues to Reduce Demand For Counterfeit Products", in NA - Advances in Consumer Research Volume 24, eds. Merrie Brucks and Deborah J. MacInnis, Provo, UT : Association for Consumer Research, Pages: 345-349.

Advances in Consumer Research Volume 24, 1997      Pages 345-349

USE OF NEGATIVE CUES TO REDUCE DEMAND FOR COUNTERFEIT PRODUCTS

Goutam Chakraborty, Oklahoma State University

Anthony Allred, Oklahoma State University

Ajay Singh Sukhdial, Oklahoma State University

Terry Bristol, Oklahoma State University

ABSTRACT -

The sale of counterfeit products, a $200 billion industry worldwide, represents a serious threat to both the manufacturers of the legitimate products and the welfare of the consumers who purchase counterfeits. Therefore, identifying methods of reducing the counterfeit trade has become a top priority for many businesses and governments. This study examines means of dissuading consumers from knowingly purchasing counterfeit products. Specifically, the findings confirm that cuing negative aspects of consumers’ typical beliefs about counterfeits, such as the high failure rate of counterfeits and the country of origin of the counterfeit relative to that of the legitimate product, can reduce their intentions to knowingly purchase counterfeit products.

INTRODUCTION

The sale of counterfeit products represents a serious threat to both the manufacturers of legitimate products and the welfare of the consumers who purchase them. Counterfeit merchandise consists of unauthorized copies sold as legitimate products and accounts for an estimated $200 billion in sales worldwide (Levine and Rotenier 1993). Annual loss estimates for the legitimate manufacturers are considerable across a diverse set of industries, e.g., motor parts ($200 million), Swiss watches ($900 million), perfumes ($70 million), and pharmaceuticals ($50 million) (Matthews 1993). Counterfeit products also present a very real threat to consumer safety. For example, in the auto industry a number of fatal accidents have been traced to the installation and subsequent failure of counterfeit auto parts (Dugan 1984). Other such incidents have occurred with respect to counterfeit pharmaceuticals, medical implants, and airplane parts (Harvey 1988, Ott 1993). Thus, there are numerous instances of counterfeits destroying brand equity and company reputation, increasing the costs of marketing legitimate products, affecting hundreds of thousands of jobs, and threatening consumer health and safety across different industries. Therefore, marketers and public policy makers alike are very interested in identifying ways to reduce and, if possible, eliminate counterfeit products.

Counterfeit activities can be reduced by attacking either of two dimensionsCthe supply of counterfeits or the demand for counterfeits. With few exceptions, academic research and actual anti-counterfeiting efforts have focused on how to keep the supply of counterfeits from reaching consumers. Yet the counterfeiting problem continues to grow such that it appears that a generous supply of counterfeits will always exist as long as there is demand for them (Block, Bush, and Campbell 1993). Those few studies that have focused on counterfeit product demand have shown that consumers tend to attribute counterfeits with properties that may be associated with greater risk and that such risk may mediate consumers’ evaluations of and feelings toward counterfeit purchases (Bamossy and Scammon 1985; Chakraborty, Allred, and Bristol 1996). Specifically, Bamossy and Scammon (1985) found that consumers believe counterfeits are generally of lower quality and higher in defects and that most counterfeits are manufactured abroad such that U.S. manufacturers are harmed and U.S. jobs are lost because of counterfeit purchases. Thus U.S. consumers appear to be aware of some of the negative outcomes and risks associated with the typical counterfeit purchase. Chakraborty et al. (1996) showed that for certain groups of consumers such risks are enhanced and affect evaluations of and feelings toward counterfeit purchases.

In our research, we build on these ideas to investigate whether specific information cues can prompt negative beliefs and expectations consumers hold for counterfeits, thereby reducing their demand for such products. Specifically, we conducted a study to investigate the impact of cues such as the failure rate of counterfeits and the country of origin of the original manufacturer of the product on consumers’ perceptions of risk of buying counterfeit products. To more closely tie our results to demand for the counterfeits and subsequent future counterfeit sales, we measured the impact of these cues and the mediating effect of perceived risk on actual purchase intentions and post-purchase feelings of guilt, rather than purchase evaluations or attitudes. We expected that increasing perceived risk by using such cues would negatively impact consumers’ intentions to purchase counterfeit products. We report the results of this study below and discuss how managers may use our findings to develop strategies to persuade consumers to not knowinly purchase counterfeits.

CONCEPTUAL BACKGROUND

Consumers may purchase counterfeits either knowingly or unknowingly. If at the point of purchase, consumers do not know that they are buying a counterfeit product (i.e., consumers think they have purchased a genuine product when in fact it is a fake) such transactions are called deceptive counterfeiting (Grossman and Shapiro 1988). If, however, at the point of purchase, consumers are aware that they are buying a counterfeit based on price, quality, and the type of outlet from which the product is purchased, such transactions are called nondeceptive counterfeiting. Grossman and Shapiro (1988) contended that in many cases, the public is well aware of these illegal markets and the availability of bogus products and thus purchase counterfeits knowingly.

From a demand side perspective, there is little (other than educating consumers about how to spot fakes) that can be done to eliminate or reduce deceptive counterfeiting because consumers are unaware that they are purchasing counterfeits. Therefore, to decrease deceptive counterfeiting, marketers typically try to restrict the supply of counterfeits. Proliferation of nondeceptive counterfeiting depends on consumer demand for counterfeits and can thus be decreased by reducing this demand. Because this study deals with issues related to consumer demand for counterfeits, we investigate only nondeceptive counterfeiting.

CONSUMERS’ BELIEFS ABOUT COUNTERFEIT PRODUCTS

When trying to evaluate new products, consumers classify them based on cues in the purchase environment and apply the beliefs and expectations typical of this knowledge to form an evaluation or choice. We suggest that consumers’ knowledge, beliefs, and expectations for counterfeit products form such a category that they may use in judging counterfeit purchase situations. For example, many consumers believe that for commonly counterfeited brands, originals are often manufactured in more developed countries but counterfeits are mostly made in less developed countries (Bamossy and Scammon 1985). American consumers believe that the consequences of buying counterfeits made abroad, given that the country of original manufacture is the U.S., include financial losses to U.S. companies and lost U.S. jobs (Bamossy and Scammon 1985). Additionally, consumers tend to believe that counterfeits rate low on quality and performance and high on defects (Bamossy and Scammon 1985). Consumers also hold positive beliefs and expectations about counterfeits, e.g., that counterfeits are less expensive than the legitimate product (Bamossy and Scammon 1985). Given the high demand for counterfeits, these positive aspects likely are more salient or perhaps outweigh the negative aspects of consumers’ knowledge of counterfeits. However, we believe that consumers may be dissuaded from purchasing counterfeit products by cuing, and thus making more salient, the negative aspects of their expectations.

Country of origin of a product is one information cue that may prompt consumers’ beliefs about counterfeit products. Chakraborty et al. (1996) suggested that in the context of a nondeceptive counterfeit purchase, there are two countries of origin that are relevant: the country of origin of the legitimate manufacturer (COM) and the country of origin of the counterfeiters (COC). Their study showed that the COM can influence certain consumers’ evaluations of and purchase feelings toward conterfeits. Additionally, the influence of the COM on consumers’ perceived risk in purchasing counterfeit products appears to mediate those effects.

Another information cue that seems relevant in trying to decrease the demand for counterfeits is the failure rate of such products. Greater failure rates for counterfeit products is consistent with and supportive of an existing belief that might influence consumers’ reactions to counterfeit products. We believe that failure rates will cue that negative aspect of consumers’ expectations, impacting the perceived risk of the counterfeit purchase and in turn negatively influencing consumers’ demand for counterfeit products.

Mediating Role of Perceived Risk

There is some inherent risk in buying a counterfeit instead of the legitimate product since the former may not perform as well as the original. Thus, there may be some risk of loss incurred by purchasing a counterfeit, particularly given the typical beliefs cued by a high failure rate. These risks may take the form of risking wasting money, a low level of performance, safety or well-being should the product fail, and/or time necessary to fix the problem should the product fail. Thus, we expect failure rate cues to impact the risk of such losses, such that the higher the failure rate the greater the perceived risk of loss in purchasing the counterfeit product. Additionally, we expect this greater risk should reduce consumers’ intentions to purchase the counterfeit.

There is also risk in purchasing counterfeits because the COM and the COC are typically not the same. Because consumers expect the COC to be a less developed country and the COM to be a more developed country, consumers may also perceive other more psychological or social risks in buying counterfeits, some of which may be derived from the purchase of foreign counterfeits in particular. American consumers believe the COC is foreign, and so they infer that purchasing counterfeits leads to financial losses for U.S. companies and U.S. job loss. In fact, Chakraborty et al. (1996) found that certain consumers tend to perceive higher risk in buying counterfeits made abroad when the original was made in the U.S. This high perceived risk in turn resulted in lower quality evaluations for counterfeits and higher guilt in knowingly buying counterfeits when the original product was made in the U.S. Thus, given the cue that the COM is the U.S. rather than abroad, we expect that nationalistic biases, patriotism, and concerns about U.S. companies and jobs are likely to mean that American consumers will perceive foreign-made counterfeits as more risky to their self-image or the image portrayed to others. We expect that this greater psycho-social risk should reduce intentions to purchase the counterfeit and increase anticipation of post-purchase feelings of guilt about the purchase.

In summary, we expect that cuing the negative aspects of what consumers believe and expect about counterfeits influences their risk perceptions of such purchases, leading to both decreased demand for the counterfeit and increased anticipation of post-purchase feelings of guilt. We conducted a factorial experiment to empirically examine these ideas, measuring subjects’ purchase intentions to gain insight into demand for the counterfeit product. Additionally, since consumers who feel guilty about purchasing would likely be less liable to purchase such products again, we measured subjects’ post-purchase feelings of guilt to gauge demand beyond the current purchase.

METHODOLOGY

Subjects were randomly assigned into the cells of a 2 X 2 between-subjects factorial design. Each factor represented a different manipulated information cue. The first factor was the country of manufacturer of the original product (COM), with two levelsCU.S. versus foreign. The second factor was the failure rate of counterfeits, with two levels Chigh (15 percent return rate) and low (1 percent return rate). Across all four cells of this design, the country of origin of the counterfeit manufacturer (COC) was held constant as foreign.

Subjects and Stimulus Product Category

It is difficult to identify a typical consumer of nondeceptive counterfeit products because very little demand-side research related to nondeceptive counterfeiting has been conducted. Because of their low income, college students are likely to be representative of at least one segment of the population that knowingly purchases counterfeits. Therefore, a sample of students was considered appropriate for this study, consisting of 87 undergraduate marketing students (all U.S. nationals) from a large midwestern university. Extra credit was offered as an incentive to the students who participated in the experiment. There were 48 percent males and 52 percent females in the sample.

As mentioned above, a wide variety of products is being counterfeited. Based on the results of informal interviews where we asked students to identify products that they believed were most frequently counterfeited, we chose auto parts for our study. Counterfeit auto parts are also frequently mentioned in the literature. The literature is not clear, however, about which specific counterfeit products are purchased knowingly (nondeceptive counterfeiting). The informal interviews suggested that in the student population, counterfeit auto parts are often purchased knowingly. In fact, 92 percent of our sample owned a car and 42 percent indicated that in the past they had an opportunity to buy counterfeit auto parts.

Procedure

Self-administered questionnaires were distributed and completed in class by the subjects. Participants were asked to read a brief scenario that described a purchase situation where a consumer has a choice of buying a genuine product or a counterfeit at a lower cost. Several pretests were conducted to create scenarios that were realistic and easy to understand. In the scenarios, the COM cue was manipulated by designating the manufacturer of the genuine product as "a U.S. company" or "a foreign company." The failure rate cue was manipulated by describing that the counterfeit had either a "1 percent failure rate" or a "15 percent failure rate." Subjects were instructed to imagine that they were in the same purchase situation across conditions before answering any question. After reading the scenario, subjects answered a battery of questions related to perceived risk, purchase intentions, and post-purchase feelings of guilt. The questionnaire took about 15 minutes to complete.

TABLE 1

PSYCHO-SOCIAL RISK IN BUYING COUNTERFEITS

Measures

We were interested in three sets of dependent variables: perceived risk, purchase intentions, and post-purchase feelings of guilt. The risk measures were adopted from Chakraborty et al. (1996) and included eight questions to measure various dimensions of product specific risk associated with tangible losses (financial, investment, performance, safety, time, and opportunity) and risks associated with more psycho-social elements (social and self-image). For instance, the question "What is the risk that the counterfeit will not perform as expected?" was used for measuring performance risk. Subjects responded usng a 9-point scale with anchors "not risky at all" and "very risky." Purchase intentions were measured with a single 9-point item question, "Overall, how likely it is that you would buy the counterfeit?" Post-purchase feelings were measured using two questions such as "If you bought the counterfeit, you would feel guilty," with responses indicated on 7-point Likert-type scales.

RESULTS

A factor analysis of the eight questions pertaining to perceived risk confirmed the two orthogonal dimensions as found in the Chakraborty et al. (1996) study. The two dimensions explained 62 percent of the variance. The first dimension, "loss" risk, included the questions pertaining to financial, investment, performance, safety, time, and opportunity and had loadings of 0.63 or more. The second dimension, "psycho-social" risk, included questions pertaining to self-image and what others think of you with loadings of 0.85 or more. In the analysis, we used average scores of the items loading on these two dimensions as measures of loss (Cronbach’s alpha=0.89) and psycho-social risk (r=0.80). An index was also formed for post-purchase feelings of guilt by averaging the two items measuring that variable (r=0.89).

To check whether subjects were sensitive to the COM manipulation, at the end of the survey they were asked to indicate the country of manufacture of the genuine product. Eighty-nine percent of the subjects in the experimental conditions where the genuine product was made in the U.S. and 87 percent of the subjects in the conditions where the genuine product was made in a foreign country correctly recalled the country of manufacturer of the genuine product.

We expected the failure rate cue to influence perceived risk (particularly the risk of loss), which in turn would influence consumers’ intentions to purchase the counterfeit product and their post-purchase feelings of guilt. We also expected the COM cue to influence perceived risk (especially the psycho-social risk), which in turn would influence consumers’ purchase intentions and post-purchase feelings of guilt.

Effects of Failure Rate and COM Cues on Perceived Risk

We used ANOVA to investigate whether consumers’ perceptions of risk in buying counterfeits are influenced by the two information cues: the failure rate of counterfeits and the COM of the original product. The dependent variables are subjects’ scores on the loss and psycho-social risk dimensions. As expected, the main effect of failure rate is significant for loss risk (F(1,83)=10.47, p=0.01). The means corresponding to the significant main effect of failure rate indicate that subjects perceived higher loss risk in the presence of high failure rate information (means are 5.52 for low failure rate and 6.73 for high failure rate conditions). The main effect of failure rate as well as the interaction effect of COM and failure rate are significant for psycho-social risk (F(1,86)=4.47, p=0.04; F(1,87)=4.45 , p=0.04, respectively). The means for interpreting the interaction effect are reported in Table 1. These means indicate that the knowledge of failure rate about the counterfeit auto part plays no role in influencing psycho-social risk when the original auto part was foreign-made. However, when the original COM is the U.S., the subjects who were told that the counterfeit auto part had a high failure rate perceived significantly more psycho-social risk than the subjects who were told that the counterfeit had a low failure rate.

We did not expect this interaction effect. One explanation for these results is that although failure rate information is useful in making product judgments given a U.S. COM, given a foreign COM the failure rate information is not diagnostic. American consumers, ad our subjects in particular, may view foreign manufacturers of auto parts, whether legitimate or counterfeit, in low regard such that the failure rates are not meaningful cues.

Effects of Failure Rate and COM Cues on Purchase Intentions and Post-Purchase Feelings of Guilt

We also used ANOVA to investigate the influence of the failure rate and COM cues on consumers’ purchase intentions and post-purchase feelings of guilt. For purchase intentions, the main effect of failure rate as well as the interaction effect of failure rate and COM are significant (F(1,83)=5.85, p=0.02; F(1,83)=3.84, p=0.05, respectively). The interaction effect of failure rate and COM is also significant for post-purchase feelings of guilt (F(1,82)=3.92 , p=0.05). The means for interpreting these significant effects are reported in Table 2.

The means corresponding to the significant failure rate main effect on purchase intentions indicate that subjects are less likely to knowingly buy a counterfeit auto part when failure rate is high (mean ratings are 2.78 for high failure rate and 3.94 for low failure rate, with higher numbers indicating more likelihood of buying the counterfeit). However, this main effect is to be judged within the context of the significant interaction effect. The means corresponding to the interaction effect contained in Table 2 suggest that when the original auto part is made in a foreign country, failure rate has no effect on subjects’ intentions to buy counterfeits made abroad. That is, when the original auto part is foreign made, consumers are just as unlikely to knowingly buy counterfeit auto parts whether the failure rate of the counterfeits is high or low. However, for U.S. made auto parts, cuing a high failure rate reduces consumers’ likelihood of purchasing counterfeits. This interaction is consistent with the diagnosticity explanation discussed above. Most important to our purpose, demand for the counterfeit product is least given both the U.S. COM and high failure rate cues.

TABLE 2

MEAN PURCHASE INTENTIONS AND POST-PURCHASE FEELINGS ABOUT BUYING COUNTERFEITS

For post-purchase feelings of guilt, means reported in Table 2 suggest the following. When the original auto part is made in the U.S., consumers feel more guilty about buying counterfeits when a high failure rate of the counterfeit is cued than when a low failure rate is cued. However, when the original auto part is made in a foreign country, consumers feel equally less guilty in buying counterfeits regardless of the failure rate cued. Again, this interaction is consistent with the diagnosticity explanation discussed above. Critical to our purpose, post-purchase feelings of guilt and thus presumably future demand for the counterfeit product is least given both the U.S. COM and high failure rate cues.

Mediating Effects of Perceived Risk

In order to generate some insights about the mediating role of perceived risk on consumers’ purchase intentions and post-purchase feelings about counterfeits, we conducted ANCOVA using a technique suggested by Mitchell (1986) and Petty and Cacioppo (1977). First, we used the perceived risk dimensions as the covariates and the consumers’ purchase intentions and post-purchase feelings as dependent measures. The results of these analyses indicate that when the effects of perceived risk are controlled for, the failure rate-by-COM interaction effects on consumers’ purchase intentions of counterfeits and their post-purchase feelings of guilt are eliminated (F(1,81)=0.98, p=0.33; F(1,80)=0.50, p=0.48, respectively). Thus, perceived risk appears necessary to explain the detected differences in purchase intentions and feelings.

Next, to examine the ordering of these effects to determine whether perceived risk precedes and leads to consumers’ purchase intentions and feelings (rather than intentions and feelings leading to perceived risk), we analyzed the data using the latter as covariates with the risk dimensions as the dependet variables. The results of these analyses indicate that the failure rate main effect remains significant even after the effects of consumers’ purchase intentions and feelings are partialled out of the risk perceptions (loss risk: F(1,82)=4.24, p=0.04; psycho-social risk: F(1,82)=4.85, p=0.03). This seems to indicate that perceived risk is acting as a mediator between the COM and failure rate and consumers’ purchase intentions of counterfeits and their post-purchase feelings of guilt.

Interestingly, the two dimensions of perceived risk have different mediating effects on purchase intention and feelings. In the ANCOVA model for purchase intentions, only the loss risk covariate is significant (F(1,81)=91.63, p=0.01). However, in the ANCOVA model of post-purchase feelings of guilt, only the psycho-social risk effect is significant (F(1,80)=49.96, p=0.01). These results suggest that loss risk acts as a mediator for purchase intentions and psycho-social risk acts as a mediator for post-purchase feelings of guilt.

DISCUSSION

We started this research attempting to identify strategies for reducing consumer demand for counterfeits. One strategy that we felt might be effective is to cue negative aspects of consumers’ knowledge of and expectations for counterfeits, resulting in greater perceptions of risk that would in turn lead to less consumer demand for counterfeit products. The results of this study support our expectations. Specifically, to reduce the demand for counterfeits, companies, trade groups, and/or public policy makers may want to cue or make salient negative aspects of consumers’ typical beliefs about counterfeits such as high failure rates and the U.S. as the COM with foreign countries as the COC. In our study, such a strategy appears to lead to higher perceived risk of loss and subsequent lower intentions to purchase the counterfeit product. To reduce future demand for counterfeits beyond the immediate purchase, utilizing the same cues appears to lead to higher perceived psycho-social risk that in turn leads to higher post-purchase feelings of guilt about purchasing such products. Our results suggest that it is critical to use these cues in combination, because the increased risk, reduced purchase intentions, and increased post-purchase feelings of guilt generally only occurred when both cues were made salient.

Our results should be viewed with caution because of the exploratory nature of our study. Specifically, these results are tempered by our choice of measures, cues, subjects, and stimuli. We measured purchase intentions because we were interested in reducing demand for counterfeits and not simply consumers’ attitudes toward such products. Future research should examine whether these effects replicate when consumers’ actual behavior is measured, e.g., sales. Additionally, future research should examine the impact of consumers’ post-purchase feelings of guilt on their future purchases of counterfeits. Our results were limited to two specific cues: failure rate and COM. However, other cues, such as the lack of warranty protection or redress, may also effectively prompt negative expectations, greater perceived risk, and thus reduce demand for counterfeits. Future research should further explore consumers’ beliefs about counterfeits and cues that may make these beliefs more salient when consumers consider making counterfeit purchases.

These results were obtained in a single, commonly counterfeited product classC auto partsCwith a relatively homogeneous sample of consumers. The information cue effects we detected may diminish somewhat given product classes with attributes that are directly observable or experienced by consumers. Additionally, the likely impact of perceived risk of loss as opposed to psycho-social risk may vary depending on the nature of the product class, e.g., functional versus symbolic. Thus, fture research should determine whether these results replicate for other product classes. Additionally, Chakraborty et al. (1996) found that individual differences such as consumer ethnocentrism can moderate some effects of the COM in a counterfeit situation. Thus, different effects may result given consumers varying from our sample in terms of ethnocentrism, expertise, and other factors. Future research should examine whether our results replicate across other samples of consumers.

We offered an explanation of the interaction effects detected that was based on a possible lack of diagnosticity of the failure rate information given a foreign COM. Other explanations are possible. For example, subjects’ interpretation of our foreign COM cue (subjects were informed that the COM was simply a "foreign country") may have varied considerably, leading to a wide variance in their responses to that cue. Such variance may have produced the lack of differences we obtained between the high and low failure rate within the foreign COM condition. However, we find that this particular explanation does not hold for our results, because the variance for dependent variables within the foreign COM cells was generally smaller than that within the U.S. COM cells. Regardless, future research should examine whether our explanation holds over other competing ideas.

Finally, the framework used and effects detected in our study may be useful in exploring other, similar purchase contexts. For example, consumers often consider off-brands and "generics" as lower priced and lower quality alternatives to name brand products. Companies marketing name brand products may be interested in further research using our framework to identify techniques for reducing consumer demand for their off-brand competitors.

Limitations notwithstanding, our results provide insights into strategies for reducing consumers’ demand for counterfeit products. For managers in the auto parts industry, these findings suggest that anti-counterfeiting strategies should include advertising messages that appeal to consumers in terms of the harmful effects of counterfeits on U.S. companies and American workers’ jobs (i.e., appeal to patriotic feelings), as well as messages that emphasize the high risks of inferior quality counterfeit parts breaking down at inopportune times. There is substantial evidence to back up the assertion that counterfeit products are of inferior quality, especially counterfeit auto parts (Bush, Bloch, and Dawson 1989). Advertisements similar to that aired on television by NAPA (National Automobile Parts Association) showing a family stranded at a dangerous neighborhood due to the breakdown of a cheap auto part may prove useful in reducing demand for counterfeit products.

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