By Keith J. Cutri
Brand owners know that the true value of their product or service lies as much in the recognition and reputation of their brand as it does in actual product quality. Consumers rely on manufacturers and distributors to deliver a quality product and, if that trust is ever compromised, the entire brand’s reputation is at stake. Thus, the increasing global threat of counterfeiting and product diversion is one that looms over marketers and manufacturers alike. Smartphone cloud-based technologies, combined with covert brand protection printing techniques, are quickly becoming one of the primary solutions for mitigating this risk. However, protecting a brand must start with a comprehensive evaluation of the threats that exist in the market, as well as an assessment of how well a brand owner is suited to defend itself against the continuous queue of black and gray market threats. There are a number of risks that brand managers face and how they are addressed could influence the long-term viability of a company’s brand.
Through this piece, we will teach brand owners how to evaluate their own brand protection program and compare their methodologies with leading benchmark programs. You will learn how to identify brand protection risks, protect your brand and your intellectual property (IP). Additionally, we will cover common brand protection pitfalls and teach brand owners how to create a company culture that supports mitigation efforts against counterfeiting and product diversion. All of these components make up what we call the Kodak Scorecard—specifically, how to assess and evaluate the health of your brand protection program. Completing this scorecard is the first step in building a strong brand protection program.
Identifying Brand Risks
The marketplace risks associated with counterfeiting and product diversion for brand owners' distribution chains are significant. Starting with the latter, product diversion, also known as parallel importing, opens up a full spectrum of threats. First and foremost, diversion creates opportunities for counterfeiters to introduce knock-off product to unsuspecting authorized distributors who believe they are acquiring diverted goods at lower costs through improper channels. The counterfeit goods, if undetected, could easily end up being distributed to authorized retailers and downstream resellers, ultimately being purchased by end-users and consumers around the world. In fact, this happens more often than we want to believe. The by-product of counterfeit goods includes customer dissatisfaction issues with inferior product, health and safety concerns, reduction in brand loyalty, loss of market share, decline in revenue and profit, and unnecessary legal liability for the brand owner.
Diversion also disrupts the invisible hand of competition, which in turn, creates conflict between authorized distributors—who play by the rules—and the responsible brand owner. These distributors may eventually lose out to the diverters without the ability to compete on even ground. This creates a call to action or complaint to the manufacturers, hence the conflict with the brand owners providing the supply chain to the cheaters. Meanwhile, the diverters reap many unearned benefits, including channel incentives, lower price points, greater margins and increased market share. Even worse, the illicit trade creates unbalanced internal incentives for brand owner stakeholders, including inflated commissions and bonuses paid out to the geographies overseeing the undetected diversion.
Brand owners can mitigate the risk of counterfeiting and diversion through a comprehensive end-to-end brand protection program. This includes the deployment of overt and covert countermeasures on packaging, labels and products, which allow for ease of authentication in the channels, and cost-effective investigation and enforcement. The program can also include mass serialization coupled with global monitoring through brand loyalty campaigns targeted towards distributors, retailers, end-users and consumers. Through the use of smartphone technology, participants can easily scan codes on pallets, cases and individual products, which in turn, provide invaluable data to the brand owner, including the location of the scans, the item description, the participant scanning the code, and whether the code is valid and in the correct location. This multi-tiered early warning system can provide alerts based on use-case scenarios, which provide a complete global incident monitoring capability fed by thousands of participants engaging in the brand loyalty program. It’s a win-win situation for the marketing team and brand protection managers.
How to Protect IP
Intellectual property, including patents, copyrights and trademarks are what distinguish a brand from its competition. It's critical that a brand protection program mitigate IP risks associated with counterfeiting and diversion. In the United States, the International Trade Commission (ITC) is a governmental agency that guides brand owners on trade policy and fair competition issues involving Customs importation and international trade. Various legal mechanisms, such as ITC Exclusionary Orders, can assist brand owners in defending against patent infringement brought on by counterfeiters importing knock-off product into the U.S.
With an exclusionary order in hand, Customs officials can seize offending product that is discovered at the ports. U.S. federal laws, such as the Lanham Act, can also be applied against diverters who import legitimate product from other regions of the world into the U.S., where the look and feel of the product or packaging is materially different than American consumers would expect. Brand owners can bring civil actions against diverters who violate the Lanham Act. Finally, brand owners can utilize online monitoring software to hunt for copyright and trademark infringements on unauthorized websites, and ultimately conduct Internet auction and website take-downs through the assistance of online service providers.
Typical Brand Pitfalls
The greatest pitfall is doing nothing. Brand owners who ignore the marketplace risks fall behind their competitors who are proactive in their brand protection efforts. The cost of doing nothing could equate to 5 to 7 percent of a company’s bottom line, on average,, depending on the industry and geography. For example, the pharmaceutical industry experiences less than 1 percent counterfeiting in the United States, but over 40 percent or more in counterfeit drugs in India. Global brand owners need to assess risks and develop a comprehensive brand protection program with product authentication, track and trace, global monitoring capabilities, investigative options, and enforcement procedures.
Creating a Company Culture that Supports Brand Protection Efforts
I consulted with a multitude of brand owners around the world, and the key to success in brand protection is understanding the risks and obtaining leadership support within the respective companies. It all starts at the top, and in order to have an effective end-to-end brand protection program that mitigates risk from counterfeiting and product diversion, brand owners need to have a culture that embraces the importance of defending against illicit trade and counterfeiting. It’s not enough to simply deploy covert authentication or conduct anti-counterfeiting raids. The brand owners that are successful developed a robust, well-articulated approach that continually looks for new ways to reduce the exploitation of their hard-earned trade name, IP, products and services.
There can be no cookie-cutter approach to brand protection, as every company and brand has a different set of threats they face in their own individual markets. The best step towards mitigating these risks is by knowing how to evaluate the health of your brand protection program. Gain an understanding of where you stack up against a company facing a similar threat landscape and make sure you have a leading brand protection program to support you.
Keith J. Cutri is the director of business development at KODAK Brand Protection Solutions. Following a career as an FBI Special Agent, Cutri served in various roles within corporate security and brand protection in the private sector. With nearly 30 years of professional experience, he managed several organizations and was previously the North American manager for brand protection at Xerox Corporation, responsible for investigating and enforcing all aspects of gray and black market activity.