In this episode…
A recent China Law Blog article questions the wisdom of rushing out your innovative new made-in-China product in order to ‘beat the copycats’ to market. While there are some situations where this may have some merit, sacrificing IP protection for speed seldom makes sense as you’ll find out in this episode.
What are the benefits and are they outweighed by the risks? What should you do to protect IP? When is the ‘right time’ to go public with your exciting new product and start drumming up some buzz? These and more topics are covered here, so take a listen below…
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🎧 The First To Market Fallacy For Made-In-China Products 🎧
00:00 – Introduction.
00:31 – Current Covid situation chat. Renaud explains some of the restrictions for China and Hong Kong and why it won’t be easy to visit suppliers there any time soon.
05:41 – What is the ‘First To Market Argument?’ Steve Dickinson wrote about the first to market fallacy on China Law Blog recently. The theory goes that launching your product quickly and being the first in the market provides an entrepreneur with certain benefits, such as being easier to get press and reviews by influencers, build up the brand, and start making money from the product before others have a chance to make similar rival products (or even copies). The ‘original’ brand or product often has the most brand recognition and market share and therefore can command a premium. Look at Hoover and Dyson as a brand, for example. Many consumers refer to most vacuum cleaners as Hoovers or most bagless vacuums as Dysons.
The dream is to own a market segment, but there will always be new competitors cropping up after they see an innovative new idea and can replicate it themselves (for example, you launch a bagless vacuum cleaner and others will come along from different brands eventually). Patents and trademarks are needed to stop competitors from copying new innovations completely with cheaper versions after a few months, and entrepreneurs need to keep innovating and investing to stay ahead of them.
11:20 – Is being first to market always beneficial? In B2B or B2C when your product doesn’t make a huge splash (maybe only being known by about 10% of the market after media, Kickstarter campaign, promotion, etc) there is a lot of the market that don’t know about you and so being first, especially without strong IP protection, could be damaging as there is a lot of the market for copycat products to go after and undercut you on price.
12:21 – The importance of strong IP protection. Some entrepreneurs believe that it’s better to focus on getting to market first and if the product is successful, worrying later about design patents, trademarks registration, having a good agreement with the supplier so they don’t misuse IP, etc. They’re concerned that if they spend more time and money to ‘do things by the book’ the product will get to market too slowly and if someone has launched something similar their product may never get off the ground and become successful. They trade off IP protection against getting to market quickly.
13:40 – Does it make sense for low profile products to get to market quickly and deal with IP protection later? In some cases, this approach may work. If it’s not a big market so the fact you’re successful is not going to be very visible to potential copycats (no Kickstarter, Indiegogo, Amazon listings) or you are manufacturing at a low premium with cheap materials and with a low margin so it’s hard for copycats to copy you and make any margin being first without strong IP protection can work.
It also sometimes makes sense to go faster if you’re planning on launching a simpler V1.0, but plan for a more complete product to be launched in a V2.0 or V3.0. Learning and getting feedback from the market by launching a simpler V1.0 that doesn’t include every unique innovation reduces your risks, makes you a few sales, get distribution set up, have evidence of market traction for investors, and in this time you are able to put more energy and resources into launching a perfected V2.0 or 3.0 (This concept was discussed in episode 71 by Renaud and Andy Bartlett).
18:55 – What should higher profile product launches do? If a product is high profile and likely to have big sales and a lot of market attention, skipping IP protection before launch isn’t a good idea. In Steve Dickinson’s article, he explains why first to market is more of a fallacy because copycat companies in China can copy an innovative product they see as promising faster than you can get to market and gain traction and brand recognition. Renaud gives the example of SheIn, a fast-fashion site that can start producing styles in just 1 week!
21:07 – The 2 main IP infringement risks you face.
- Your own manufacturer will copy your product and place it on the market first before you. If your supplier gets excited about your product due to the buzz created online, a successful Kickstarter campaign, and its cool and unique functions, for example, they will put more resources into the project and make it over faster, but they’re also more likely to register a design patent, trademarks, or copy the design and sell to other larger customers as they may feel they don’t need you any longer now they have the good product idea. This could be more common with ODMs who might own some of the IP rights and already have distribution channels, where they finally just cut out clients or favor proven customers over you and so you still don’t get to market first. An OEM may also do this if you don’t have agreements with them protecting your IP. Basically, NNN, development & manufacturing agreements that clarify that you own the IP will be critical for preventing a manufacturer from taking advantage of your ideas.
- Copycat companies will notice your product’s signs of success and market traction and copy you. Electronics manufacturers who specialize in reverse engineering will be checking the internet for new product ideas and have the facilities and distribution channels to get to market before you. They use your own publicity against you to create their own buzz, by paying influencers and bloggers to review their copycat product versus yours to show that theirs is similar but cheaper, for example.
28:06 – Why creating a lot of buzz about your new product before it goes to market can be dangerous. If an innovator has worked on the new product and gotten to a prototype they sometimes do a crowdfunding campaign at this early stage in order to raise funds for tooling to make the first production batch then reinvest money from sales into the second batch, and so on, but this is very risky. If you have a successful Kickstarter campaign everyone can see it and clone companies in China are checking regularly. They then know your price and will aim to undercut it, get to market before you with a quick and dirty version, and torpedo your chance to build market share while you are still spending time on developing the product because you went too early with Kickstarter. They also pay to advertise to have their copycat products shown in search engines when users search for your brand, so, in this way, they also piggyback off of your own buzz and it’s legal and standard practice. This can happen anywhere, by the way, not only in China.
35:48 – How to combat being copied? Registering patents can be helpful, although it’s typically very expensive, so a provisional patent may be better in the short term assuming your product is novel enough to qualify for a patent. Registering trademarks in China is affordable and worthwhile (especially as China requires you to register them there individually even if you’ve registered them in your country). Consider not releasing your fully-loaded product immediately, instead going with a version 1.0 and following up with a more advanced V2.0 once you have gained brand recognition and sales (and then fighting copycats by pricing your older V1.0 product at their price point so they can’t undercut you completely).
38:41 – Wrapping up. You need to decide what your risks are based on the products. In general, if there is more at risk (product IP, money) then it makes sense to at least sign an NNN, development, and manufacturing agreement with your supplier. Get help from experienced parties in the supply chain like lawyers, designers, suppliers, to make up your own mind when the right time is to go live with a product so you can get to market safely with reduced risks before copycats can strike.
- Why the new product development process is more complex than you may think [Podcast]
- Read various blog posts about IP protection on Sofeast.com
- China Manufacturing and the First to Market Fallacy [on China Law Blog]
- Are Shenzhen Manufacturers Innovators or Copycats?
- Making a hard-to-copy product in China
- New Product Launch: Taking Shortcuts vs. Preventing Risks
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