INTRODUCTION:

At the very outset, this study intends to present few facts of Counterfeiting luxury brands which is a universal and crucial issue which is considered at most priority impacting social and economic development across globe. Organization for economic co-operation and development in joint report with European Union Intellectual Property Office in 2019, the value of imported fake goods worldwide topped $509 billion based on 2016 customs seizure data and OCED reports that counterfeiting accounts to 3.3-percent of global trade¹ From past 5 years and specifically 2019 reports indicate that counterfeiting is in galore and ten industry was worst affected². Further, fashion industry was among the first to be severely battered as few brands are presented in Figure 1

Figure 1 indicating the counterfeiting luxury brands (Compiled by Author)

Information asymmetry creates an imbalance of power in transaction in fashion industry for example, customers are unable to know the product descriptions and images alleged by marketers. For example, cloth bearing Dolce and Gabbana logo but not made by Dolce and Gabbana. Similarly, other luxury brands can undergo this counterfeiting issue. Here, customers are unaware of the brands as people like to prefer buying online than offline however, counterfeiting in online appears more serious than the offline space. This undermines brand value and reputation, reduces consumer confidence³ Moreover, products with huge price gaps are seen through gray market across globe and has indirect threat to luxury segment because of imitative nature of products⁴with duplicate logo. Eventually, Counterfeiting adversely affects the development and valuable innovation of the fashion industry. Therefore, luxury brands realized the counterfeiting scenario and initiated measures to protect them as french multinational LVMH has decided to invest €40m each year to improve its products' traceability⁵. This includes monitoring the second-hand market to establish affiliate links with the new owner of its products. One study stated that second-hand products constitute 7-percent of the luxury market, and this sector of the market is growing by 12% every year⁶. However, 80-percent of second-hand market consumers use digital platforms to buy or resell their luxury products, complicating their traceability.

RATIONALE OF THE STUDY:

This paper is an effort to study show counterfeiting luxury brands and how Block Chain technology is implemented and understand the purchase decisions made by luxe consumers taking into consideration from luxury companies perspective of retaining their cachet, credibility and distinctiveness in which luxury brands are worried about. In this context, the very fact is that luxury and fashion industry is sophisticated and creative, highly distinctive in nature and maintain their stature and credibility in luxury landscape. This triggered my mind to understand combating counterfeiting luxury brands the novel approach adopted in present days by integrating luxury brands with Block Chain technology and blended reality

OBJECTIVES:

1. To highlight the counterfeiting practices in luxury landscape

2. To identify the block chain technology process by luxury brands to combat counterfeiting

3. To open new vistas for further research

LITERATURE REVIEW:

Counterfeiting and Counterfeit Market:

It is found through⁷ study that counterfeiting is very popular in Fashion industry followed by Lifestyle accessories such as shoes, watches, leather products and jewelry in which luxury brands namely Louis Vuitton, GUCCI, TIFFANY, PRADA, Chanel, Dior, Hermes, Yves Saint Laurent and Cartier are frequently replicated or imitated. Counterfeiting take two different forms segregated into deceptive and non-deceptive counterfeiting. In the former, the consumer is not aware of the fact that the person purchases a copy rather than the original product and cannot be held accountable for the behavior. This person would be a victim unknowingly and unintentionally purchased counterfeit products whereas in later the person or consumer buy the products knowingly that the products is fake⁸as a result leads to high risk for the brand and negative identity building will be developed over a period of time. Previous studies have investigated the determinants of counterfeiting luxury brands from demographics and psychographics perspective. In this line, psychographic variables drive counterfeiting consumption because they related to desirable identity signals that counterfeit brands that provide status seeking, fashion seeking, smart shopping whereas demographic variables can have ambiguous effect on identity building through brand consumption for instance, variables namely Age, Gender have lost significance in identity building as a result of changing gender and age roles have led to fewer normative expectations and convergence of behavior across demographics.⁸Further, studies have indicated that counterfeiting luxury brands provide different signals in developed nation in comparison with developing nation and therefore play a different role in consumer identity building and the effect of demographic and psychographic variables of counterfeiting purchases⁹. This study being meta-analysis synthesize the effect of consumer demographics and psychographics on attitude, intention and behavior with respect to counterfeiting brands. In continuation, it summarized 610 effect sizes from 98 independent studies and shows that whereas demographics have little impact, some psychographics greatly influence counterfeit purchases, with these influences differing between developed and developing countries. In the former, risk propensity and reduced integrity are stronger determinants of counterfeit purchases and are related to brand signals that refer to identities that consumers attempt to avoid. In developing countries, consumers are more influenced by psychographics, such as status seeking, which are related to positive brand signals for consumer identities.

¹⁰Discusses about the counterfeiting issues in different industry. In fact, this is one of the issue which has to be handled by companies which has severe effect on consumers when they are involved in post purchase regret thinking that the product is genuine but ended up with fake one due to deceptive ads. This study first examined the effectiveness of blockchain as supply chain challenge from companies in which companies realizes the change from deceptive to non-deceptive counterfeit setting. The block chain adoption is reinforced by Government as they mull the consumer privacy concern from block chain adoption and providing subsidy to companies and overall benefits to society. It is believed that counterfeiting luxury products may increase awareness of luxury brand name and make sought after products whereas brand owners denounce counterfeiting as they tarnish the reputation of luxury brands.¹¹Have investigated in their study that Chinese consumers’ consumption patterns of counterfeiting luxury brands differently. This had certain managerial implications to develop effective strategies to deal with counterfeiting brands and the value conscious consumers have positive effect on attitude towards counterfeiting products and has significant positive relation to purchase intention¹². Usually, consumers often give judgement of value based on brand than product itself. So, for consumers it doesn’t matter if their handbags are counterfeit of not as they still be able to wear PRADA in this study. Besides, consumers seeking novelty in a product influence others. However, the path co-efficient shows that there is no significant relationship between novelty seeking and purchase intention. In the fashion industry, brand trademark protection is more important and realistic than design copyright protection¹³ Brands play an instrumental role in rewarding the efforts of right holders, innovators, and investors. As to design protection, it is generally accepted that fashion design could be rewarded for market first-mover advantage. To build a steady relation with customers manufacturers establish their own brands. Who first unveils the design, who has the chance to lead the fashion trend? Therefore, the leader position is quite profitable. This may clarify why many brands hold a fashion show every season.

THE ROLE OF BLOCK CHAIN TECHNOLOGY IN COMBATING COUNTERFEITING BRANDS:

As it is evident that counterfeiting is a big issue in all industry as mentioned in the study carried out by¹⁴ taking it further, study explores the challenges faced by luxury marketers emphasizing on deceptive counterfeiting had negative effect after the purchase process as they consumer felt it was a real product but ended up with fake one. To identify the fakeness in products, block chain technology was developed first for Bitcoin cryptocurrency¹⁴and found suitable for implementation in Luxury industry. This study examines the application of block chain technology and found that there was a change from deceptive to non-deceptive counterfeit setting with differential pricing strategy and paper focused on the government subsidy to be considered to encourage the adoption of effective block chain technology as a result it benefits the customers and society in dealing with counterfeiting.¹⁵ indicated that the issue of fashion counterfeits and trademark infringement becomes more serious as globalization and internet-based trade developed. Unique source method based on the blockchain provides a new way for brands to fight against counterfeits in the fashion industry. Customers can distinguish fake goods from genuine ones. However, blockchain technology lacks predictable legislative rules, raises transaction costs and consumes computational power. In the same line,¹⁶ indicated the emergence of block chain technology in fashion industry faces financial problems in supply chain. After comparative analysis of traditional and block chain based supply chain they derived revenue sharing contract between manufacturer and retailer in supply chain and found that optimal performance between traditional and block chain based supply in which block chain based supply chain system resulted in lower level of operational risk.¹⁶ indicates in their study that though block chain provides transparency and traceability can lead to customer trust and revenue generation but then, some issues can creep in luxury brands supply chain i.e., multiplicity of third parties present in production process and bias towards short term returns on investment. To resolve that, the study highlighted that luxury brands adopt a staggered implementation of private block chain network with small number of third-party suppliers.

¹⁷has discussed the supply chain implementation by opting traditional system or block chain technology. This study examined that in traditional system, company consisting of supplier and retailer wherein they face business risk due to delivery and service with high transaction costs whereas in blockchain technology-based system helps in removing all risks associated in supply chain and saves the transaction costs though initial investments on block chain is required with variable costs. Besides, this study identified the stochastic cases in which implementation of blockchain technology is not applicable

¹⁸has discussed about global supply chain network with centralized system architecture is in place. The study indicates the development of block chain technology from use case of immutable ledger for cryptocurrency transaction to programmable Finally, the key areas of research is about the decentralization, developing decentralized product anti-counterfeiting which adopts block chain technology

¹⁹has explored into the implications of blockchain technology adoption for brand consumer relationships. In this line, the findings from the study is about the effect of block chain distinctive features on strategic issues namely adoption of digital currencies, brand storytelling, role of intermediaries in online advertising, counterfeit consumption and brand transparency are discussed

²⁰Has addressed the relationship between advanced technology and counterfeiting in the fashion industry where in new digital technologies is boosting counterfeiters. Further, innovative system of product monitoring is integrated with portable devices to verify authenticity which is essential thing to combat counterfeiting in association with stakeholders though the block chain technology is useful in industries for example the adoption of effective block chain technology in five Italian wine companies in pilot phase²¹with feeding and reading process which can be configured in Block chain and in similar way in diamond business, Block chain technology supported authentication and certification benefit entire luxury supply chain partners^.21Similar study is done by²² which highlights the challenge faced by luxury marketers due to counterfeiting and gray market in luxury supply chain which is analytical and empirical in nature and suitable implications are discussed in luxury industry^. The unique source function based on blockchain technology aims to eliminate information asymmetry in the supply chain especially in fashion industry consisting of discrete activities from raw material to distribution centers and retail store and transaction will be recorded in a block for every product. Here, blockchain usage is a decentralized transaction mechanism along with security, anonymity and data integrity without any third-party organization in control of transaction²³Firstly, the block chain process in manufacturing, the manufacturer gives each product a unique digital ID on the platform and NFC chip on product. Secondly, every business shall be connected to blockchain and NFC chip and they upload every step of information to the platform with standard Application Program Interfaces. Lastly, a universal mobile application will be created and installed as interface to scan the digital ID to supply chain access with timestamp as mentioned. Figure 2 represents Louis Vuitton adoption of block chain technology.

Figure 2 represents Block chain in Luxury Industry (Louis Vuitton is a fashion and luxury brand which uses AURA block chain) (Compiled by Author)

METHOD:

This study is qualitative and exploratory in nature showcasing the phenomenon of counterfeiting luxury brands from prevailing literatures. Meta-analysis of literature is incorporated to identify the block chain implementation to combat counterfeiting luxury brands. Further, technology is playing a key role in luxury brands

DISCUSSION:

A. Counterfeiting Luxury Brands:

Revisiting the objective 1 of the study, it is very clear that there was proliferation of counterfeiting luxury brands in which it takes two different forms segregated into deceptive and non-deceptive counterfeiting. In deceptive counterfeiting the consumer is not aware of the fact that person purchases a copy rather than original product cannot be held accountable for behaviour and its sort of getting carried out without the knowledge of luxury genuineness eventually, he or she would be victim unknowingly whereas in non-deceptive counterfeiting the person or consumer buy the products knowingly that the products is fake As a result leads to high risk for the brand and negative identity building will be developed over a period of time. Besides, psychographic variables drive counterfeiting consumption that provide status seeking, fashion seeking, smart shopping whereas demographic variables can have ambiguous effect on identity building through brand consumption for instance, variables namely Age, Gender have lost significance in identity building as a result of changing gender and age roles have led to fewer normative expectations and convergence of behaviour across demographics²⁴ According to the report by ASPA, a self-regulated industry body of anti-counterfeiting and traceability solutions providers, counterfeiting has risen steadily in the last few years, and exploiting the pandemic as a cover for their activities. Between February and April 2020, over 150 incidents of counterfeiting cases were reported, mostly about fake PPE kits, sanitizers and masks taking advantage of the huge demand for these products. Fashionbi cites research from the 2018 Global Brand Counterfeiting Report that values high-end goods sold in the counterfeit market in one year at $98 billion. The value of fraudulent goods has only grown which is a serious while luxury brands spend millions a year in legal fees alone to fight counterfeiters

B. Implementation of Block Chain to combat Luxury Counterfeiting:

Objective 2- With the proliferation of counterfeit luxury brands, Block chain technology ensures authenticity and traceability and by 2022 Vacheron Constanin states that it is taken seriously in recent times by luxury companies as there was huge loss due to counterfeiting to check the genuineness of products. In this line, it was difficult time for brands and they formed partnership with e-commerce players Amazon along with Valentino and Salvatore Ferragamo to fight against counterfeiters²³It is understood that though there is no full proof method to mitigate counterfeiting and hard to replicate the original item from manufacturers. Besides, when a branded product has defect support teams can provide legitimacy of owner and digitally trace the entire supply chain and confirm the authenticity of the product. Though block chain technology allows to ensure information has not been altered but it cannot ensure the integrity of information recorded in first place. If a person enters false information in block chain, it will stay forever and wholesaler can simply create an entry for a counterfeit handbag and go undetected. Likewise, consumers can be sceptical about raw material categorized by brand’s third-party suppliers. This clearly indicates that transparency and trust is involved in block chain ledger to have its desired effect in Luxury market.

· End-to-end oversight of raw materials reduces product defects:

Blockchain along with IoT prevent defects due to fake raw materials and satisfy the regulatory requirements. When a product shows up at a warehouse and when it leaves are recorded in a verifiable event log that is easily accessible to all stakeholders. Manufacturers and suppliers can use the blockchain platform to authenticate any products, flag deviations from agreed-upon sourcing arrangements and prevent defective and inferior components from entering the production system. The improved visibility safeguards customers and protects the company from the risk of recalls, lawsuits, and reputational damage, while lowering operating costs.

· Smart tags coupled with blockchain reduce the likelihood of fraudulent sales:

Smart tags and blockchain allow manufacturers, channel partners, third-party retailers, customers, and regulators to verify a product’s authenticity as goods move through the value chain, making it harder for counterfeit goods with adulterated labels to escape detection. Real-time authentication ensures that the majority of sales and revenues goes to legitimate brands and manufacturers. Regulators can digitally trace the provenance and chain of custody for any product being sold.

· Better tracing helps support centre prevent unnecessary servicing and repair:

Front-end applications linked to the blockchain platform make it easy for support representatives to verify whether a claim is genuine or not without seeing the product. Faster and more accurate authentication allows support personnel to direct more of their time and resources to legitimate, high-value purposes, improving responsiveness, reducing waste and improve customer satisfaction.

Brands can also help educate consumers how to differentiate between authentic and inauthentic products with image databases or website verification tools. Others are incorporating NFC smart tags or working with blockchain platforms to allow consumers to authenticate their purchases. Digital passport mobile apps provide the sourcing and authentic information³ In this line, Fashionbi is an research agency for luxury and fashion which has suggested brands to enlist third-party anti-counterfeiting agencies that offer technology that tracks and traces fake products that are sold online. At the same, services like delisting counterfeiters or legal support.²⁴ Furthermore, brands that emphasize on craftsmanship in their product marketing can focus on local sourcing and production that bolster the perception of authentic artisanship. In the same line, Italian fashion brand Fendi showcased the intricacy of the handiwork of its artisans in a film series focusing on craftsmanship. The creative director Sylvia Ventuirini of Fendi says that network of Italian craftsmen is responsible for various collections of Fendi. The campaign reflected the Fendi’s desire to evaluate its place in supply chain during difficult time and broadcast solidarity with its network of suppliers²⁵

Blockchain is considered as one of the luxury trends which is becoming common practice in luxury landscape ^26,27 Furthermore, as mentioned above, blockchain requires integrated approach and active involvement of market intermediaries to ensure complete transparency. This represents a challenge that few luxury companies have taken for adoption of block chain in which luxury brands are collaborating with tech companies for combating counterfeiting.

CONCLUSION:

This study has addressed the nitty gritty of counterfeiting luxury brands in which luxury brands have realized the serious issues and threats posed to their brands and taken initiative with various agencies to combat counterfeiting products though not all companies. It is quite surprising to see that Big brands such as Louis Vuitton, TIFFANY, PRADA, Chanel, Dior, Hermes, Yves Saint Laurent and Cartier are frequently imitated. This study has presented the implementation of Block chain as emerging tool to combat counterfeiting and check the genuineness of luxury products in which NFC and IoT are adopted so that consumers will access the product history and find its genuinity. Furthermore, it is seen that block chain implementation by luxury companies is still in nascent stage and limited literature persist as on date. The study is pertinent to luxury and fashion brands.

IMPLICATIONS:

For many people it seems to be a new phenomenon but from industry perspective, it is very interesting for improvisation in dealing with counterfeiting products here in this case luxury and fashion brands. It is seen through news, company reports and market research that luxury industry is embracing block chain technology but how companies comes forward to implementation fully is the challenge to be addressed in future course of time but yes, it’s a fantastic concept when it comes to identifying the genuinity of products in which luxury brands sell and retain their cachet and maintain high distinctiveness. This study is presented with facts from market reports and relevant literature.

FURTHER RESEARCH:

This study presents the implementation of block chain technology adopted by luxury brands which seems to be in nascent stage. Further, study can be taken up on any luxury brand as case study research and/or comparative analysis of luxury brands and/or impact of block chain technology on counterfeiting luxury brands

REFERENCES:

1. Jillian M Taylor (2021). Blockchain’s promising Future in Battling Counterfeit Luxury goods, https://www.blankrome.com/publications/blockchains-promising-future-battling-counterfeit-luxury-goods

2. https://earlymetrics.com/luxury-brands-using-blockchain-to-fight-counterfeiting/

3. Soon, J.M. and Manning, L. (2019), Developing anti-counterfeiting measures: the role of smart packaging. Food Research International, 123, 135-143.

4. Hou, P., Zhen, Z. and Pun, H. (2020), Combating copycatting in the luxury market with fighter brands. Transportation Research Part E: Logistics and Transportation Review, 140, 102009. doi: 10.1016/j.tre.2020.102009

5. de Boissieu, E., Kondrateva, G., Baudier, P., & Ammi, C. (2021). The use of blockchain in the luxury industry: supply chains and the traceability of goods. Journal of Enterprise Information Management. 34(5), 1318-1338

6. Avery, P. (2008). The economic impact of counterfeiting and piracy. OECD Publishing.

7. OECD, and EUIPO. 2019. Trends in trade in counterfeit and pirated goods. Paris: OECD Publishing.

8. Phau, I., Teah, M., and Lee, A. (2009). Targeting buyers of counterfeits of luxury brands: A study on attitudes of Singaporean consumers. Journal of targeting, measurement and analysis for marketing, 17(1), 3-15.

9. Eisend, M., Hartmann, P., and Apaolaza, V. (2017). Who buys counterfeit luxury brands? A meta-analytic synthesis of consumers in developing and developed markets. Journal of International Marketing, 25(4), 89-111.

10. Pun, H., Swaminathan, J. M., and Hou, P. (2021). Blockchain adoption for combating deceptive counterfeits. Production and Operations Management, 30(4), 864-882.

11. Wang, Y., and Song, Y. (2013). Counterfeiting: Friend or foe of luxury brands? An examination of Chinese consumers’ attitudes toward counterfeit luxury brands. Journal of Global Marketing, 26(4), 173-187.

12. Hidayat, A., and Diwasasri, A. H. A. (2013). Factors influencing attitudes and intention to purchase counterfeit luxury brands among Indonesian consumers. International Journal of Marketing Studies, 5(4), 143

13. Wang Y, John DR, Griskevicious V.(2021). Does the devil wear Prada? Luxury product experiences can affect prosocial behavior. International Journal of Research in Marketing. 38(1),104-119

14. Yli-Huumo, J., Ko, D., Choi, S., Park S., Smolander, K. (2016) Where Is Current Research on Blockchain Technology?—A Systematic Review. PLoS ONE 11(10).

15. Wu, Q.(2020). Fighting Against Fashion Counterfeits: A Unique Source Method Based on Blockchain Technology, International Conference on Education, Management, Computer and Society (EMCS2020), 465-469

16. Choi, T. M. (2020). Supply chain financing using blockchain: Impacts on supply chains selling fashionable products. Annals of Operations Research, 1-23.

17. De Giovanni, P. (2020). Blockchain and smart contracts in supply chain management: A game theoretic model. International Journal of Production Economics, 228, 107855

18. Yiu, N. C. (2021). Toward Blockchain-Enabled Supply Chain Anti-Counterfeiting and Traceability. Future Internet, 13(4), 86.

19. Boukis, A. (2020). Exploring the implications of blockchain technology for brand–consumer relationships: a future research agenda, Journal of Product and Brand Management, 29 (3), 307-320

20. Meraviglia, L. (2018). Technology and counterfeiting in the fashion industry: Friends or foes?. Business Horizons, 61(3), 467-475.

21. Choi, T. M. (2019). Blockchain-technology-supported platforms for diamond authentication and certification in luxury supply chains. Transportation Research Part E: Logistics and Transportation Review, 128, 17-29.

22. Wang, Y., Lin, J., and Choi, T. M. (2020). Gray market and counterfeiting in supply chains: A review of the operations literature and implications to luxury industries. Transportation Research Part E: Logistics and Transportation Review, 133, 101823.

23. Luxury Daily (2021, February). Ferragamo Amazon team to fight counterfeiters in court. https://www.luxurydaily.com/ferragamo-amazon-team-to-fight-counterfeiters-in-court/. Luxury Daily

24. Sarah Ramirez (2021, April 5). Luxury needs authentication and authenticity to fight counterfeit goods. https://www.luxurydaily.com/luxury-needs-authentication-and-authenticity-to-fight-counterfeit-goods/. Luxury Daily

25. Economic Times (2020, July 30). counterfeit-products-create-rs-1-lakh-cr-hole-in-economy-incidents-up-24-in-2019-report. https://economictimes.indiatimes.com/news/economy/finance/counterfeit-products-create-rs-1-lakh-cr-hole-in-economy-incidents-up-24-in-2019-report/articleshow/77259432.cms .

26. Liveareacs (2021, January 19). Online Opulence: 8 Luxury Trends for 2021. https://www.liveareacx.com/trends/luxury-digital-trends-2021/. Liveareacx

27. GlobalData Thematic Research. (2021, May 19). https://www.retail-insight-network.com/luxury-blockchain-consortium

Received on 10.12.2021 Modified on 24.01.2022

Asian Journal of Management. 2022;13(2):145-150.

DOI: 10.52711/2321-5763.2022.00026