Counterfeits and E-Commerce: Why Even Build it?

Abstract

This public-sourced case set in early 2021 examines the role counterfeiting has come to play in e-commerce, specifically at Amazon, which represents over one-third of the US online market. The case's protagonist is Amy Vega, who, along with Jason Larson, has cofounded a humidity-detection-device company with a product called the Hygro. Vega and Larson hope to sell the Hygro on leading e-commerce sites such as Amazon. But should they? Vega's research shows that counterfeiting on e-commerce sites is a growing problem that can result in poor product reviews, lower prices, and squeezed margins. The case allows for a rich discussion about the process of selling a product on Amazon: the process, the cost, and the risks. Students can put themselves in Vega's shoes to weigh the different stakeholders' pros and cons when it comes to selling their product directly on their own website versus offering the product on Amazon, where copycats might impact profitability.

Excerpt

UVA-OM-1753

Rev. Jun. 3, 2022

Counterfeits and E-Commerce: Why Even Build It?

Amy Vega opened up her laptop and stared at the email from Jason Larson, her business partner in Hygro, their start-up. Vega and Larson had founded the humidity-detection-device company nine months earlier, just a few months after the global COVID-19 pandemic had started in 2020. The entrepreneurial rush had been unlike anything Vega had ever experienced. Raising seed capital, hiring a small staff, and bringing her vision from whiteboard to fruition had been incredibly exciting. Things had seemed like they were lining up. The pandemic had pushed sales online, the primary place Hygro hoped to sell. The company was about to start contract manufacturing the first large batch of its flagship product and formally launch the new brand, but Vega was uncertain how much to order. That depended on the scale of Hygro's launch and whether the company would sell its products on Amazon or solely on its own site.

Larson's email made his view clear. “I'm not sure what the debate is,” he wrote. “We have to sell on Amazon. It's over a third of the US online market. And besides, we've got salaries to pay. We've got investors who want to see a return. Remember the whole global-domination vision? Bringing health and hygrometry to the masses? The scale we're after can only be found on platforms like Amazon.”

Vega was less sure. The research she had done on Amazon and similar e-commerce platforms had given her pause. Many sellers were complaining bitterly about the effects of counterfeiting on their business. Some talked about death spirals resulting from poor product reviews, lower prices, and squeezed margins.

. . .

Keywords: Amazon, e-commerce, entrepreneur, counterfeit, stakeholders, technology product