Online Brand Fraud Rises; Marketers Struggle to Quantify

May 22, 2009

This article is included in these additional categories:

Analytics, Automated & MarTech | Brand Metrics | CPG & FMCG | Privacy & Security | Retail & E-Commerce

Top marketers are reporting increasing levels of brand fraud during the recession, especially online, but they are struggling with how to quantify it and many feel powerless to act on it even if they could, according to a global audit of 306 marketers by the Chief Marketing Officer (CMO) Council and MarkMonitor.

The research, which examined how marketers view threats to brand integrity, found that more than a third agree that brand fraud is becoming more organized and global, while nearly as many believe the recession is contributing to the problem.


A growing amount of brand fraud and trademark trespassing is coming from the online world, where it is difficult to identify because of increasingly sophisticated brand hijackers, the study found.? Though the most marketers report fraud in both online and offline venues, 29.5% of marketers say their chief vulnerability is in the digital world, compared with 22.6% who say it’s offline.


Among the many problems marketers are facing: 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:


Quest for Quantification

The study, “Protection From Brand Infection,” finds that though a significant number of respondents identify fraud as a threat and are planning to increase brand protection,? one-third are struggling to understand, monitor and measure the? bottom-line consequences of brand corruption and knock-off products, and more than 20% say they do not know the impact on brand equity or goodwill.


Among those respondents who have estimated the financial toll on sales of brand intrusions, 39.6% say the cost is greater than 5% of sales, and 8.2% say it exceeds 20% of sales.

Marketers Feel Powerless to Help

Though responses indicate a growing need for more study on the topic required, a disproportionate number of marketers say they do not have the power to enact real change because the overwhelming majority of companies delegate control of brand protection to legal departments:

  • 6% of marketers say they head up brand protection departments.
  • 15% lead brand protection programs.
  • 42% of companies have the brand-protection responsibility to legal, finance or IT.

Additional study findings:

  • 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%? say their company has a specialized brand protection group with another 17% choosing to outsource those efforts with a third party provider or leaving it up to their industry trade organization.
  • 27.4% report spending less than $100K on brand protection annually and the same number reported they have no budget allocations. Another 29.1% report they don’t know how much they spend, while 9.8% say they’re spending more than $500K and 2.7% say they’re spending more than $5M.
  • 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 the activities raised unnecessary customer concerns and anxieties.
  • Budgets for brand protection efforts are holding firm despite the troubled economy with 30.3% of marketers planning to increase spending and another 33.3% anticipating no change.

“Sophisticated and savvy brand extortionists and cyber scammers on the internet are boldly preying on unsuspecting consumers with bogus brand name email/websites, 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.”


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