Solution for Taobao's Counterfeit Consumer Goods

Introduction 

The introduction of the internet has introduced great changes to human lives in numerous areas such as social interaction, businesses, health, religion, and culture. All these areas have their application of the internet. Most important to this paper is the role it has played on business and more specifically e-commerce in China using Taobao as the case study. E-commerce in China has been on growth since 2003 when Taobao made a major entry into the china's e-commerce platform. E-commerce has grown regarding transactions and online retail as well as cross-border transactions. However, this growth has not been without limitations. Taobao has experienced challenges coming from counterfeits posted and sold on its platform. The platform has great control of the China market and its wide consumer base but a victim to others businesses selling counterfeit products at low prices. This paper seeks to solve the problem of counterfeit goods marketed on Taobao's platform by considering its marketing strategy and the weaknesses in the strategy.

Taobao is a renowned e-commerce platform serving the Chinese market. The platform was launched in 2003 under the Alibaba Group and available to its users in the Chinese language. The platform hosts customer to customer and e-commerce options.

Thesis statement 

Taobao is a mega e-commerce marketing platform facing counterfeit products sale. The problem of counterfeit goods can be solved best through restructuring the platform.

Research question and problem statement 

This paper seeks to answer the question of how best to solve the problem of counterfeits facing Taobao be solved. Counterfeit goods are taking advantage of the marketing power of Taobao and are using the company's large size to sell theirs assuming that they cannot be detected. The main problem is Taobao's large size. A clear understanding of its marketing strategy will suggest loopholes and correction of elements that do not work to ensure the security of the platform and safety of businesses that are using the platform to market their products.

Methodology 

The approach will take a simple case study model. The research paper involved conduction of literature review on the strategies employed by Taobao in marketing. The literature review looked into the competitive advantages it has adopted to identify weaknesses in those strategies. The literature review provided two types of data: qualitative and quantitative data. The qualitative data were summarized and main points identified. The quantitative data provided information on the competitive strength and Taobao's growth pattern since its formation in 2003. The quantitative results are presented in images obtained from the literature materials and tables. The literature review of other e-commerce information is also done to compare the performance of Taobao in China's e-commerce platform.

The result from the literature review was used to derive the analysis of the possible options that Taobao can take to combat the sale of counterfeit goods on its platform. A general conclusion of the weaknesses and recommendations is then presented at the end of the paper. The recommendations include measures that can be adopted within the platform and outside the platform: which involves Taobao, the consumers, and the government.

The findings of the paper cannot be generalized to other e-commerce websites due to their differences in strategies, differences in legal and economic environment given that the paper is a simple analysis and focus of Taobao’s situation thus applicable only to this case.

Literature Review 

Counterfeiting in China 

China faces numerous counterfeit claims and continues to experience incidences of counterfeiting. Counterfeiting is a serious problem in the China market that has affected its trade relations with other countries in the world trade organization (Bhattacharya, 2001). The government has poor regulations and poorly implemented regulations to control the counterfeiting of goods. Black market thrives in cities such as Yiwu where products are sold cheaply than the standards in Beijing (Bhattacharya, 2001). Statistics indicate that distributors of illicit goods purchase 2,000 tons of goods from Yiwu (which is approximately 200,000 distributors) on a daily basis. Counterfeit goods are considered as cheap are ready options for making profits. This habit ensures that black-market stays and that intellectual property rights are violated continuously. Taobao is operating in this environment, which creates battle it has to play in controlling counterfeiting on its platform. Presently, many businesses can purchase goods and resell counterfeit ones in a ready market thereby affecting the company’ success.

Online marketing makes it more subtle to detect counterfeit goods and people associated with it. The practice further complicates the war against counterfeiting. A post by e-Commerce China (2015) identifies that 40% of people who have accidentally bought counterfeit products keep quiet about it but go back to the same sites to purchase. Only 32% report their complaints (e-Commerce China, 2015).

Analysis of Taobao’s marketing strategy 

Taobao.com is the largest website in China dealing with e-commerce. Unfortunately, it makes it an attractive point for capable customers and counterfeiters seeking to buy and launch their goods respectively. The platform has 190 registered users who are business to consumers or consumers to consumers related. Besides, Alibaba group other online platforms include Alimama, Aliwangwang, and Alipay (Lixia & Xun, 2009). Taobao would require a large number of competent employees working in shifts the entire 24 hours. Thus, one of its strength includes its popularity in China. The company uses its messaging platform, payment platform and the consumer and business marketing platforms to strategies itself and ensures safe transactions where the buyers can confirm the quality of goods before releasing their payment. The system should be able to identify the counterfeits or the buyers’ inability to detect them before they pay thus being exploited by rogue businesses.

It is also expected that consumers would consider the pricing of goods before they purchase and will opt for the cheaper variety: even if it were not for the ( Blythe, 2006 ). Taobao should strive to ensure that only authentic goods are sold as a way of protecting not just the buyers but also the businesses using their platform. Taobao focuses on fashionable females as its main market. This strategy has helped the company to grow faster than other platforms that focus on men and especially men in the white-colored sector (Lixia & Xun, 2009). This could be one of the factors predisposing the platform to counterfeit products. Research has indicated that there is a confidence gap between men and women. Men are found to have a higher confidence level compared to women (Kay & Shipman, 2014). However, it affects their women’s ability to identify and report counterfeit products as compared to men. Overall, women are more vulnerable to crimes such as counterfeiting.

Other studies have also indicated that women are less exposed to online consumption decisions as compared to men and this affects their decision making in online purchasing (Yang & Wu 2007). Melnyk, Van Osselaer, and Bijmolt (2009) indicate that women are more loyal than men are and therefore gets attracted and stick to one seller while men will criticize before they are attached to a seller. These studies indicate vulnerability in women that can be exploited by counterfeiters and other fraudsters.

Taobao has a great weakness in its method of establishing pages for sellers without requiring authenticating details (Lixia & Xun, 2009). Therefore, any business can host a page on the website and access the market. The strategy can only work when establishing a larger market and not in a regulated market. The free access attracts counterfeit users who will take advantage of the consumers, which further hinders the platform's ability to monitor counterfeits resulting to loss of customer base and brand image.

Figure 1 : Market Data in China (Lixia & Xun (2009) 

The pie chart illustrates the market share as dominated by the three major e-commerce players in China Taobao, Paipai, and TOM eBay. Taobao dominates the largest size of the market share followed by Paipai and finally TOM Ebay. This gives an impression of the market trend in China whereby the Chinese citizens like their home technology such as Taobao and TOM Ebay. This result also indicates that Taobao contains more customers as compared to the other platforms and thus provides an access point for the counterfeiters.

The figures 2 and 3 show a similar finding where Taobao is still the largest market shareholder in China. Figure 2 provides an impression that Taobao has occupied a half the share of the e-commerce market from 2007 to 2013. Thus, it occupies a special place in the e-commerce, which should also make it committed to controlling counterfeiting on not just its platform but e-commerce in China.

Figure 2 : Taobao’s e-commerce market. Source: Sui (2015) 

Figure 3 compares eBay and Taobao, from this data it is observable that eBay is leading globally regarding global market share. eBay was established earlier than Taobao in 1995. Therefore, it has a competitive edge as compared to Taobao, which focuses on the Chinese market. eBay has 34 categories while Taobao has 24, eBay has 180.6 million registered traders while Taobao has only 13.9 million, eBay has 1.9billion-listed products while Taobao has 16.63 million, eBay has a daily transaction of $44.3 billion while Taobao has only $1billion. These figures indicate that eBay is a giant e-commerce platform. However, Taobao leads in the Chinese e-commerce with 72% market share followed by eBay at 27%. The wide range indicates the purchasing pattern of the Chinese citizens on homegrown online platforms. The trend could be explained by the use of the Chinese language on Taobao's platform.

Figure 3 Comparison of eBay and Taobao (Li, Li & Lin (2008). 

The figures below provide the growth pattern of e-commerce in China. The data is useful to this study as it provides the correct impression about e-commerce’ growth and the central role it plays in the retail industry. The growing size emphasizes the need for the establishment of stringent measures to prevent the problem of counterfeiting that arises with the growth of the market as goods flood online and it becomes to identify authentic and counterfeit products. It is a great challenge to confirm items online since they are not tangible and visual confirmation is limited.

Figure 4 : e-commerce transaction from 2004-2016 Hongfei (2017) 

Figure 4 indicates that e-commerce has been growing rapidly and doubling each year. The level of e-commerce in 2004 was below 50,000 regarding US dollar transaction. The level in 2016 is above 250,000, which is impressive growth. These figures are brought about by Taobao, which controls the largest share of the e-commerce market. Therefore, e-commerce has become an important economic driver that should be regulated to protect the consumers and business that would want to compare fairly and have returns for their investments. Just as Taobao is influencing the growth of the e-commerce market, it should also contribute in the regulation of the market through initiatives that can ensure that only authentic goods reach the consumers through its platform as will be discussed later on under recommendations. Figure 5 and 6 provides the same information on the growth pattern of e-commerce in China and most importantly, figure 6, the role played by cross-border transactions which impact on the e-commerce platforms like Taobao.

Figure 5 online retail trade ( Hongfei, 2017) 

Figure 6 : Cross-border transactions ( Hongfei, 2017) 

Recommended Solutions 

Divide the larger website into manageable sections based on the goods that they sell 

Taobao should break down the large e-commerce platform into subsections that deal with the specific line of goods. The subdivision will improve the management and tracking of counterfeit goods. Besides, Taobao can codify the items posted on the platform so that any strange item posted on the page can be detected as soon as possible. This will require a larger team of experts, which will influence cost efficiency. However, the program will ensure that Taobao can make maximum sales by removing and charging counterfeit goods in the law courts. Punishing counterfeiters will also restraint them but will require collaboration with the government and other bodies charged with managing counterfeit businesses.

Vetting process 

As noted, Taobao's provision of a free platform on which businesses can open accounts at will impedes the company's ability to detect fake items posted on its platform. Regulatory measures must be introduced to keep off such businesses. These measures include vetting of goods and registration of companies.

Taobao should put measures to ensure that goods are vetted before being posted on the platform. The vetting process can be automatic. After establishing the prices of original products, the prices can be used as a vetting strategy whereby all related products, from the same company, are vetted by their prices based on the price of the original items posted on the site. This will isolate products that are trying to sell at low prices, which will be detected as noise (Kim, Adeli, Fang, Villalba, Arnett & Khan, 2011). For example, a product A posted as original with a price of 40RMB can be set as a standard so that another product trying to sell under the name “A” but costing 20RMB will be detected. The system should be designed to detect and report the cases and delete the items as soon as they are reported saving the logs for evidence in case the Taobao decides to pursue a legal suit against counterfeiters.

Moreover, the company should institute a stringent registration process for companies and parties posting their items on its platform. A registration number should be supplied to each company and party that is unique to each entity. This identification number should be embedded onto the website operating system and serve as the root for linking the company to the website. Through this strategy, companies and persons lacking this number will be incapable of posting their items on the website. This will reduce cases of counterfeit and eradicate it if the system is well managed. These strategies will ensure that only the correct items and rightful companies and individuals are posted and post on the website respectively.

Educating the users 

The consumers should be considered first before the business entities seeing that some of the businesses are in the habit of exploiting the consumers. Taobao should undertake a program to educate its users on how to detect counterfeit products posted on the webpage. The consumers are the best tool that the company has relating to detecting and holding the counterfeiters to charge. The consumers have a real connection with the counterfeiters seeing that they pay and posses' items sold by the counterfeiters. Taobao should work in close connection with its consumers. It should create a platform for reporting cases of counterfeits or make it strict.

Consumers may not know to detect counterfeits if it is their first encounter with the product. If the site can include item description in details to guide the consumer before and after purchasing it, the number of counterfeits will drop. The consumers can later check if the item they have purchased meets all the details described on the site and if they do not add up to the descriptions, then they should report the case through the report window. This initiative can be taken immediately as Taobao is organizing for other measures such as the vetting process discussed previously. Since the company serves women as the majority of clients, their vulnerability to counterfeiters is high. Therefore, the consumers should be educated as a way of protecting them from the counterfeiters who may be educated people understanding the psychology of women and their vulnerability.

Consider the pricing of the goods 

Counterfeit products thrive because the original products are expensive and there is a desire among the consumers to purchase them; thus, counterfeiters realize the human want and inability to acquire the original items and capitalize on this by offering items that resemble the original at lower prices. Thus, it can be noted that the greatest threat to the original items is their exorbitant prices. To fight counterfeit, it is important also to use its weapon; pricing. The authentic prices should be controlled at levels that can be purchased by the consumers. This should not involve an arbitrary lowering of prices but control of the supply chain. The strategy will ensure that the goods sold are produced cheaply and can be sold to consumers at lower prices (Lal, 2009). Thus, the consumers will be able to purchase authentic items, and the counterfeiters will have to lower their prices virtually to appoint that they will have to get out of business.

Payment 

Electronic payment is the safest system for a site that is plagued with counterfeits as a means of tracking transactions (Gangopadhyay, 2001). Taobao should insist on Alipay system and ensure that Taobao holds half of the pay until the buyer confirms the authenticity of the item purchased. This will give the consumer and Taobao power to control the sale of counterfeits and time to countercheck the quality of items sold to the consumer. In case the item is not authentic, it is returned to Taobao who then can pursue legal charges. The consumer can then decide to purchase an authentic item or withdraw his purchase but have half of his money as the company pursues after the counterfeit seller and refund the consumer later. As noted earlier on, the consumer should collaborate with Taobao at all levels in fighting counterfeit products, or else they will lose money, purchase items of less worth and lose the value of their money.

Government 

As one of the leading e-commerce platform in China and its experience with counterfeit business, Taobao understands the challenges that face e-commerce of its standard and therefore can be very instrumental in helping the government to shape policies that will help in regulating online counterfeiting. The platform can share information on the modes of counterfeiting, loopholes currently in the law and areas of importance that should be addressed by the legal system.

Consumer base 

Taobao focuses on the local Chinese consumers. A mix of local and international consumers will help in detecting counterfeit products. The local consumers may lack experience with international products sold on the platform, which could be detected by nationals of those countries where the products are produced. An introduction of a global platform, which may be large to manage, will help in the corporation between Taobao and the governments of those countries to counteract counterfeit goods. The recommendation relies on the assumption that some of the counterfeit goods are produced from other countries and readily sold on Taobao's platform where the consumers do not know the products.

Conclusion 

Taobao controls the largest share of e-commerce in China and competes with both local and international competitors. The platform has the largest consumer goods but and counterfeit sellers exploit it. The company has failed to stop the sale of counterfeit goods because of its starting strategy where users were allowed to register without fee or screening. This has allowed counterfeiters to access the platform and sell products that are not genuine. To prevent this problem, Taobao should educate its users who are majorly women to detect and report counterfeit goods sold to them. Women are vulnerable and thus should be protected at all costs. The platform can also unite with the government to establish policies to regulate e-commerce in China, restrict its users to use Alipay, screen them and goods by the establishment of detection measures, follow up court cases and punishment of counterfeiters, and consider the pricing of its goods and service fees. Taobao should occupy a leading front as the largest shareholder and contributor to e-commerce in China also following the traditional history of counterfeiting in China even before Taobao’s emergence.

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