Manufacturers have long rallied for tighter regulations to inhibit grey market sales, but a new market report from Euromonitor International finds that premium brands are now being targeted by increasing sophisticated but legitimate cut-price copycats.
Although premium cosmetics continue to gain in popularity on a global basis, not everyone can afford them. Consumers often find that clever advertising campaigns simply flaunt products that are unobtainable.
As a result the $57 billion premium cosmetics segment has created a large market for status personal care products at more affordable prices, which in turn has generated a significant demand for counterfeit cosmetics and toiletries.
China has long been on the radar screen for customs officers aiming to quash illegal counterfeits, but counterfeiters are also getting increasingly sophisticated, finding new ways to market their products that often break no laws.
Leading personal care giant Procter & Gamble estimates that counterfeit goods in China cost it more than 10 per cent in lost revenue, Euromonitor says.
The China Consumers' Association (CCA) claims that smuggled and fake cosmetics dominate complaints by consumers, highlighting the fact that grey market cosmetics are also unsafe. This is because such product have often side-stepped the rigorous testing procedures required of legitimate personal care items.
Often ingredients in such products are of an inferior quality, with claimed functional properties having little or no efficacy. However, the consistency of the product and the packaging often mimic the appearance of genuine products perfectly, making it difficult for consumer to distinguish any physical difference.
One example of a brand that has suffered because of cheaper imitations is the Burberry. In the brand's domestic UK market, cheap imitations of the its famous tartan-wear flooded the mass market causing untold damage to its product portfolio, which also includes fragrance and cosmetic lines.
As a result the damage to the Burberry bane was such that it has been left with no alternative but to pursue sales in its 'less-tarnished' overseas markets, a scenario that other leading cosmetics players are now having to face.
The importance of brand preservation has grown further with the emergence of megabrands such as Dove, Head & Shoulders and Pantene, which all rely heavily on their brand image.
Manufacturers have relied on these big names to extend their portfolios into completely new segments, for example, making the jump from hair care to skin care. Although this has often been executed with great success, the strength of the brands means that imitators pose an even greater threat.
Now a legitimate copycat product for one specific category can pose a threat to a whole brand portfolio valued in the billions.
The report points out that a new wave of legitimate copycat products is cashing in on these established brand identities, offering nothing different, except an oftern vastly reduced price.
One specific example of this is Primo, Euromonitor says. Its Parfums de Coeur range grew to be one of the best-selling mass market fragrance by 'piggybacking' the marketing and branding of the Gorgio scent with the marketing slogan, 'If you like Giorgio, you'll love Primo'.
And with current research suggesting that consumers are becoming more price sensitive in their search for products with perceived quality or premium branding, threats such as Primo could be even more of a problem in the future.
"Snubbing designer labels in favour of cheaper items, they not only seek value for money items but enjoy gloating about their savings, which can only be good news for the cut-price copycats", the Euromonitor report says.
Furthermore, copycat products are moving on from the days when they'd load formulations with inferior quality ingredients. Now labeling often appears to match similar product ingredient for ingredient.
Termed as 'brand parasites', these players are expanding by producing complete brand identities on the back of more expensive products, claiming to match other products in every respect accept price.
Looking at the threat these copycat products pose to the future of the industry, Euromonitor predicts that overt piggybacking on the success of expensive megabrand marketing campaigns is set to pay further dividends at the cost of the bigger players.