More fakes harming brands during recession

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By: Wise Marketer Staff |

Posted on May 18, 2009

More fakes harming brands during recession

Marketers are braced for a rise in online brand attacks while offline they're up against increasingly global and organised counterfeiting operations - fueled largely by the ongoing recession - according to a brand integrity study by the Chief Marketing Office (CMO) Council.

However, while a significant number of marketers report that they are planning to increase spending on brand protection, many still struggle to understand, monitor and measure the impact of brand corruption and product 'knock-offs' on consumer trust and confidence.

The global survey of 306 marketers, sponsored by brand protection agency MarkMonitor, found that trademark trespassing is moving increasingly online, and that thiskind of fraud is becoming more difficult to identify due to the increased sophistication of so-called 'brand hijackers'.

The Protection From Brand Infection study revealed that marketers are reporting a greater number of incidents or fraud online compared to offline, with 29.5% of marketers feeling that their main vulnerability is in the digital world, compared to 22.6% who feel their main threat is offline.

Respondents also reported that brand value, trust, integrity and reputation are being significantly eroded and damaged as a result of grey market counterfeits, phishing attacks, cyber-squatting, email scams, trademark abuse, copyright and patent infringements, as well as a host of other forms of brand corruption.

Worryingly, measuring the financial implications of this kind of brand damage and the impact it has on product reputation remains a major challenge for most marketers. More than one-third of the marketers surveyed said that they don't yet know the sales impact of knock-offs, grey market products, or bogus brand cloning. At the same time, just over 20% reported that they don't know the impact on brand equity or goodwill either.

"Sophisticated brand extortionists and cyber scammers are boldly preying on unsuspecting consumers with bogus brand-name emails and web sites, offering deals and inducements that entrap, extort and expose consumers to financial loss, identity theft, and even viral infection," explained Donovan Neale-May, the CMO Council's executive director. "Marketers have now awakened not only to the threat to business issues posed by trademark trespassing, but also to the costs of lost brand value, integrity and consumer trust."

There is also a growing recognition among corporate executives that more study into the problem is required, and that a disproportionate number of marketers simply do not have the power to enact real change as the overwhelming majority of companies delegate control of brand protection to their legal departments. In fact, only 15% of marketers said they lead their own brand protection programmes, while 42% of companies have assigned that responsibility to legal, finance or even IT. Only 6% of the executives surveyed said their company has an official brand protection department.

Among the key findings of the study:

  • The top six market segments with the highest prevalence of abuse are digital media, luxury goods, software, footwear and apparel and Internet ecommerce (tied), and consumer electronics;  
  • 30.3% of respondents said their company has a specialised brand protection group with another 17% choosing to outsource those efforts with a third party provider or leaving it up to their industry trade organisation;  
  • 27.4% of respondent reported they spend less than US$100,000 on brand protection annually and the same number reported they have no budget allocations. Only 9.8% say they're spending more than US$500,000, while 2.7% say they're spending more than US$5 million;  
  • The value and integrity of brand assets suffered the greatest impact from counterfeit products, knock-offs or online brand hijackings, with 41.2% of marketers rating this highest, followed by 35% blaming it for undermining revenue and margins, and 26.7% saying these activities raise unnecessary customer concerns and anxieties.

"Brand attacks, whether through online scams, phishing or cybersquatting, impact brand integrity and reputation immediately because these malicious activities are customer-facing and they affect the heart of what contributes to underlying brand value: customer perception," concluded Frederick Felman, chief marketing officer for MarkMonitor. "This expanding use of the digital realm to hijack and misuse brands is unchartered territory for marketers, many of whom have been focused on optimising their online strategies to communicate brand value but are now realising that they must also increase their efforts to protect their brands online."

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