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As Tiffany's lawsuit against eBay gets closer to trial, it has inspired many a doomsayer to challenge the continued viability of eBay's business model. If eBay facilitates counterfeiting, Tiffany argues, they should be held accountable or not exist. Like many companies with lofty pedigrees, Tiffany is acting on fears of more than counterfeiting. They want to clamp down on the online trade of their branded goods - both counterfeit and real - because they fear losing control over the distribution of their products in the face of a growing secondary market. But strategies based on fears never work.
Fighting auction culture today is tantamount to the bricks-and-mortar businesses that tried to block the proliferation of ecommerce in the late 90s. There is no stopping it. Business leaders don't have to like eBay, but if they want their brands to thrive, they will have to accept its legitimacy as one of the world's largest and fastest growing channels of commerce.
Innovative corporations have found opportunities in the secondary market for enhancing their brands and have found innovative ways to deal with counterfeiting without resorting to lawsuits.
Instead of suing eBay, Kate Spade chose a strategy that combats counterfeiters of their luxury handbags head-on. The company employs a team of law school interns to monitor online auctions for fakes. Kate Spade maintains a detailed archive of its collections so it's been easy to spot counterfeits from uploaded photos on listings. eBay provides them with tools to report offenders and terminate their auctions with the touch of a button. The system works well as counterfeiters, dissuaded by their efforts, move to other, less vigilant brands.
Callaway Golf Company, maker of the famous Big Bertha driver, chose a different tactic to deal with the challenges of the growing secondary market. The company built its own online exchange and introduced a trade-in program that allows customers the ability to easily sell or exchange their old Callaway clubs for new ones at participating authorized retailers. The used clubs get certified by Callaway and resold on the exchange. This strategy gives Callaway more control over the flow, pricing and presentation of their products in the secondary market. The program has been extremely successful for Callaway, creating significant customer goodwill and corresponding brand loyalty.
A similar strategy with a slight twist is the lifetime trade-in program offered by Tourneau, the world's largest watch retailer. Tourneau allows you to trade in any Tourneau watch for credit towards a new, more expensive one. This program drives their inventory back to them rather than directly to eBay. After inspecting the watches for authenticity and refurbishing them, they channel them back to eBay through online auction facilitators that sell them as "certified-pre-owned," insuring the ultimate recipient has a positive experience with the brand.
The executives at Kate Spade, Callaway and Tourneau already know what Tiffany and many other companies have yet to realize - that the secondary market is a good thing for brands because it actually increases the value of their products in the primary market. People pay a significant premium to buy a Mercedes-Benz automobile because they know that there will be a strong market for the car when it comes time to sell it. Imagine what would happen if Mercedes found a legal way to stop people from being able to sell their cars, or make it more expensive for them to do so. The value of their new cars would plummet and their brand would erode.
Resale value is quickly becoming a relevant criteria for consideration when purchasing consumer goods, as marketplaces like eBay are creating unprecedented levels of liquidity for items ranging from baby strollers to leather goods. As an informed consumer, you will soon choose the brand of your next purchase based in part on how much it will fetch on eBay next year, which corresponds to how much it will really cost you to own it until then.
We are at the very early stages of this new auction culture, and have much to learn about how it will affect our lives and businesses. While there are many challenges to overcome, there are also opportunities to leverage. Trying to thwart the auction market without examining the broader consequences makes no sense, and ignoring the challenges and opportunities will only risk losing customers, revenues, and brand value in the future.
Tiffany's lawsuit is designed to make it prohibitively expensive for eBay to allow their users to trade Tiffany products on their site. If Tiffany wins, it loses.
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