Valuing the Brand Protection Function

Transcription

1 Valuing the Brand Protection Function IACC Fall Conference October 18, 2017 Jeremy M. Wilson Director, Center for Anti Counterfeiting and Product Protection Professor, School of Criminal Justice Our Work on ROI Is Growing Dolby benchmarking project Intern red teaming A CAPP Brand Protection Strategy Summit sessions IACC workshops and AGMA panel Sentinel event stock price project Product recall and brand sentiment project J&J brand protection valuation workshop Integrated overview is opportunity for real time feedback 2 1

2 Brand Owners Seek Answers to Several ROI Questions What does ROI mean for a company? Is the goal 0% counterfeiting? Is this profitable? What is the cost of failure? How can we measure brand protection performance? What types of metrics are used? What are the strengths, weaknesses, and assumptions of each metric? What is the accuracy of these measures? What is missing or needing improvement? 3 Our Goal: Identify the Investments We Can Make to Reduce Counterfeiting Appraisal costs Appraisal cost examples Calculating prevalence of counterfeit goods Monitoring online websites Purchasing testing devices Purchasing goods for testing Physical merchant audits 4 2

3 Our Goal: Identify the Investments We Can Make to Reduce Counterfeiting Appraisal costs informs Prevention costs Prevention cost examples Identifying at-risk products Training law enforcement and customs officials Customer education Legal costs (registering trademarks and patents) 5 Our Goal: Identify the Investments We Can Make to Reduce Counterfeiting Appraisal costs informs Counterfeiting Prevention costs (likelihood) + Failure (Controllable; deterrent) Controllable deterrent cost examples Litigation Coordination with law enforcement Uncontrollable, non-deterrent cost examples Loss of brand image Loss of sales + + Failure costs (controllable; non deterrent) Failure costs (uncontrollable; non deterrent) 6 3

4 Preventing and Responding to Counterfeiting Both Have Conformance Expenditures to prevent counterfeiting E.g., logo design, supplier restrictions, customer education Prevention Appraisal Expenditures to detect counterfeiting E.g., market monitoring Expenditures to rectify counterfeiting discovered after getting in the hands of the end customer E.g., warranty costs, litigation costs, lost sales External Failure Internal Failure Expenditures to rectify counterfeiting discovered prior to getting in the hands of the end customer E.g., disposing of goods (seizures), litigation Nonconformance Brands Need to Minimize Total Key insight of quality literature: There is a tradeoff between conformance and non conformance costs Counterfeited 100% 0% products (%) Juran (1974) 8 4

5 Brands Need to Minimize Total Key insight of quality literature: There is a tradeoff between conformance and non conformance costs Conformance Counterfeited 100% 0% products (%) 9 Juran (1974) 9 Brands Need to Minimize Total Key insight of quality literature: There is a tradeoff between conformance and non conformance costs Nonconformance Conformance Counterfeited 100% 0% products (%) Juran (1974) 10 5

6 Brands Need to Minimize Total Total Key insight of quality literature: Optimal level of counterfeited products is NOT zero. Minimize Total Nonconformance Conformance Counterfeited 100% products Optimal level of 0% (%) counterfeited products Juran (1974) 11 Brands Need to Minimize Total Total Key insight of quality literature: Cost tradeoffs can shift over time through learning Nonconformance Conformance Counterfeited 100% products Optimal level of 0% (%) counterfeited products Juran (1974) 12 6

7 Brands Need to Minimize Total Total Key insight of quality literature: Cost tradeoffs can differ across products/firms Nonconformance Conformance Counterfeited 100% products Optimal level of 0% (%) counterfeited products Juran (1974) 13 Brands and Academics Both Seek to Measure Prevalence of Counterfeiting Brand activities Gathering marketplace intelligence Monitoring of internet based marketplaces Monitoring and auditing of physical marketplaces Organizing purchase programs Attempting to track threats to brand activity A CAPP Center research Brand Owner Approaches to Assessing the Risk of Product Counterfeiting (Wilson & Sullivan) Organizing for Brand Protection (Wilson, Grammich, & Chan) 14 7

8 Industry Engagement Highlights Numerous Insights Recoveries (hard $) and seizures (soft $) Misses value of prevention Online takedowns hard to quantify $s Supplier diversion penalties represent recoveries Counterfeiting degradation of the brand Lost sales revenue Lost market share (often emphasized) Brand damage / erosion Need benchmarks and baselines for prevention Compare changes in metrics over time But resources also change over time There is a strong desire to quantify values ($) and provide good justifications for investment 15 We Interviewed Ten Firms to Benchmark Practices in ROI Measurement Small purposive sample of large firms in Food, agricultural, and pharmaceutical Microelectronics and computer products Apparel, luxury, and consumer products Number of brands per firm varies from 1 to 1,000 Brand protection employees vary from 2 to 50 Budget trends flat or increasing Most position brand protection at least partly in legal function 16 8

9 Firms Differ by Industry in Emphases of Brand Protection Spending Distribution of Brand Protection Budget 49% 27% 17% 7% 43% 33% 5% 19% 12% 8% 43% 37% Microelectronics and Computer Food, Agricultural, and Pharmaceutical Apparel, Luxury, and Consumer Prevention Appraisal Internal Failure External Failure 17 Brand Protection Professionals Struggle with Measuring ROI Few have formal ways of showing ROI We asked about evaluation metrics Respondents offered no silver bullet but noted several company specific practices that might be adapted elsewhere We explore differences by metrics and industry 9

10 Most Say ROI Very Important; Some Say ROI is Tied to Resources Eight firms say demonstrating ROI very important (rating it at least an 8 on a 10 point scale) Five firms say ROI estimates highly tied to resources for work (rating it at least an 8 on a 10 point scale) Six firms require at least quarterly estimates of ROI, with two requiring weekly estimates Here We Seek to Focus on Metrics Identify metrics tangible or intangible that are or could be used Categorize metrics into groups Use frameworks for assessing the ability to gauge ROI Examine potential for industry benchmarks Consider other ways to measure performance Thresholds or benchmarks Break even points Measurement model for latent scale of performance Multiple metrics to triangulate estimates over time 20 10

11 Firms Use Broad Variety of Metrics to Evaluate Brand Protection Efforts Arrests Complaints Countries where goods seized Fines Identification of products at risk Internal investigations, notices Inventory management Legal Loss Manufacturer shutdown Market surveys Merchant account terminations Physical inspections Products purchased or returned Response time Recoveries Seizures Training sessions Web shutdowns 21 Estimating ROI Requires Measuring and Valuing Both the Tangible and the Intangible Input Output Outcome Valuation 22 11

12 Estimating ROI Requires Measuring and Valuing Both the Tangible and the Intangible Input Output Outcome Valuation Investment in brand protection Activities conducted with investment Effect of activities Monetizing and comparing inputs and outcomes 23 Estimating ROI Requires Measuring and Valuing Both the Tangible and the Intangible Input Output Outcome Valuation # / cost of personnel Enforcement direct costs... Numbers of Raids Seizure actions Takedowns... Counterfeit prevalence Brand image/value Sales Market share... Outcome ($) / Input ($) Want>

13 Estimating ROI Requires Measuring and Valuing Both the Tangible and the Intangible Input Output Outcome Valuation # / cost of personnel Enforcement direct costs... Numbers of Raids Seizure actions Takedowns... Counterfeit prevalence Brand image/value Sales Market share... Outcome ($) / Input ($) Want>1 All respondents provided broad information on inputs Remainder of presentation focuses on other metrics 25 Firms Most Frequently Measure Outputs Type of Metric # Output 34 Outcome 11 Valuation 8 TOTAL

14 Firms in Food, Agricultural, and Pharmaceutical Industries Use Most Metrics Type of Metric # Microelectronics and Computer Products (3 firms) Total Used by Firms in... Food, Agricultural, and Pharmaceutical Products (4 firms) Apparel, Luxury, and Consumer Products (3 firms) Output Outcome Valuation TOTAL Case Studies Offer Several Other Insights Dedicated inputs and outputs are measured well, but accuracy diminishes with diffuseness Measuring and valuing outcomes are not done or considered challenging Brand owners characterize outputs as ROI Sophistication of measures varies by Need to protect consumer health and safety Ability to show revenue streams Presence of single or multiple brands Level of centralization and tracking Development of industry benchmarks challenged by unique values and uses of metrics 28 14

15 Brands Should Focus More on Broad Outcomes and Valuation Need more metrics on outcomes and valuation Improve both measurements and data systems Parallels can be drawn to challenges in measuring ROI in marketing, human capital, R&D, IT, etc. Reconceptualize performance from narrow financial return to broader value of function Consider a hybrid approach, e.g., track basket of metrics and set performance goals 29 To learn more, please visit a-capp.msu.edu or contact Dr. Jeremy Wilson jwilson@msu.edu (517)