Online Brand Fraud Poses Challenge To Marketers

Marketers say they are seeing an increase in online brand attacks driven by the down economy, according to a study by the Chief Marketing Office Council.

The study of 306 markets, sponsored by MarkMonitor, found that 29.5 percent of marketers are reporting a greater number of incidents of online brand fraud.

Study respondents said brand value, trust, integrity and reputation are being significantly damaged because of gray market knock-offs, phishing attacks, cyber squatting, email scams, trademark abuse and copyright/patent infringements.

Donovan Neale-May

"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."

Only six percent of marketers have official brand protection departments, while over a third said they don't know the business impact of knock-offs, gray market product or bogus brand cloning on sales.

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 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."