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CMO Council: Poor Economy Will Spread Brand Fraud

Trademark trespassing is moving increasingly online, and fraud is becoming more difficult to identify due to the increased sophistication of brand hijackers, according to "Protection from Brand Infection" study
PALO ALTO, Calif. (May 11, 2009) " Marketers are braced for a rise in online brand attacks while offline they're up against increasingly global and organized counterfeiting operations fueled by the down economy, reports the Chief Marketing Office (CMO) Council in a new study of how marketers view threats to brand integrity. Yet, while a significant number of marketers are planning to increase spending on brand protection, they still struggle to understand, monitor and measure the impact of brand corruption and product knock-offs on consumer trust and confidence.

A global audit of 306 marketers, sponsored by MarkMonitor, a leading provider of solutions for enterprise brand protection, found that trademark trespassing is moving increasingly online, and fraud is becoming more difficult to identify due to the increased sophistication of brand hijackers. "Protection From Brand Infection" reveals that marketers are reporting a greater number of incidents or fraud online than offline, with 29.5 percent of marketers citing their chief vulnerability is in the digital world compared to 22.6 percent who cited offline.

Study respondents reported brand value, trust, integrity and reputation are being significantly eroded and damaged as a result of grey market knock-offs, phishing attacks, cyber squatting, email scams, trademark abuse, copyright and patent infringements, as well as a host of other malevolent forms of brand corruption. But measuring the financial implications of brand pilferage and product plundering is a major challenge for marketers.

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

Responses also reveal there's a growing recognition that more study is required, but 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 legal departments. Only 15 percent of marketers lead brand protection programs, while 42 percent of companies have assigned this responsibility to legal, finance or IT. Only six percent of the executives surveyed have official brand protection departments. What's more, over a third of the marketers responding to the survey said they don't know the business impact of knock-offs, gray market product or bogus brand cloning on sales. And surprisingly, just over 20 percent reported they didn't know the impact on brand equity or goodwill.

Among the key findings of the Protection from Brand Infection study were:

  • 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 percent of respondents said their company has a specialized brand protection group with another 17 percent choosing to outsource those efforts with a third party provider or leaving it up to their industry trade organization.
  • 27.4 percent of respondent reported they spend less than $100,000 on brand protection annually and the same number reported they have no budget allocations. Another 29.1 percent report they don't know. 9.8 percent say they're spending more than $500,000 while 2.7 percent say they're spending more than $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 percent of marketers rating this highest followed by 35 percent blaming it for undermining revenue and margins and 26.7 percent saying the activities raised unnecessary customer concerns and anxieties.

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

    The leading strategy marketers have employed to combat online attacks is online monitoring and using third-party providers to root out cyber squatting and misuse of brands and trademarks. Marketers say they place an emphasis on prevention and monitoring misuse because recovery of lost value or actual damages is difficult.

    Budgets for brand protection efforts are holding firm despite the troubled economy with 30.3 percent of marketers planning to increase spending and another 33.3 percent anticipating no change. Marketers said their chief role in assuring brand integrity from trademark trespassing and knock-off confusion was to understand and measure the size of the problem. The implications of brand hijacking are significant. Among those respondents who have estimated the financial toll on sales of brand intrusions, 39.6 percent say the cost is greater than 5 percent of sales, and 8.2 percent said it exceeded 20 percent of sales.

    "As these Internet brand hijackers, pirated product purveyors and counterfeit crime syndicates multiply, marketers must act swiftly to defend their brand franchises, intellectual property portfolios and digital assets from being compromised, replicated or ripped off," said the CMO Council's Neale-May. "We're confident that the coming year will bring about greater understanding of this murky and dangerous threat-scape." The CMO Council recently teamed with AVG to launch a special consumer notification and education center to boost threat detection, dubbed Slam the Online Scam (http://slamtheonlinescam.com/).

    About the CMO Council The Chief Marketing Officer (CMO) Council is dedicated to high-level knowledge exchange, thought leadership and personal relationship building among senior corporate marketing leaders and brand decision-makers across a wide-range of global industries. The CMO Council's 4,500 members control more than $125 billion in aggregated annual marketing expenditures and run complex, distributed marketing and sales operations worldwide. In n total, the CMO Council and its strategic interest communities include over 17,000 global executives in nearly 100 countries covering multiple industries, segments and markets. Regional chapters and advisory boards are active in the Americas, Europe, Asia Pacific, Middle East and Africa. The Council's strategic interest groups include the Coalition to Leverage and Optimize Sales Effectiveness (CLOSE), Brand Management Institute, and the Forum to Advance the Mobile Experience (FAME). More information on the CMO Council is available at www.cmocouncil.org.

    About MarkMonitor MarkMonitor, the global leader in enterprise brand protection, offers comprehensive solutions and services that safeguard brands, reputation and revenue from online risks. With end-to-end solutions that address the growing threats of online fraud, brand abuse and unauthorized channels, MarkMonitor enables a secure Internet for businesses and their customers. The company's exclusive access to data combined with its patented real-time prevention, detection and response capabilities provide wide-ranging protection to the ever-changing online risks faced by brands today. For more information, visit www.markmonitor.com.