Companies face battle on multiple fronts in defending brand value

Image: Shutterstock

A brand is much more than an organisation. It is a perception that has thrived on ethics and earned the trust of the public. Building a successful and reputed brand requires much more than monetary investment. Companies have taken years to build brands and garnered the trust of customers through their untiring effort. Trust is the most integral part of a brand. How then, should custodians of this intangible perception ensure it is not lost?

Over the years, companies have resorted to outsourcing—of inputs or finished products—to cut costs. A challenge, which has been a bone of contention for them since then, has been trusting third parties with the hard-earned goodwill of their brands. Would these parties operate in the right way? Or will they solely focus on deriving maximum profit without an iota of concern about wreaking havoc on the brand name? These questions have usually received vague responses.

Renowned brands, which have a high recall among the masses, face an inherent threat: Being inundated by shadowing brands. There are sections of the market that unscrupulously capitalise on brands to sell their own merchandise: Counterfeiters, grey market suppliers, look-alike manufacturers and scrap dealers.

Counterfeiters manufacture spurious products and pack them in a brand’s genuine, or near-genuine, packaging and offer them to consumers at a cheaper price. Grey market suppliers take advantage of price differences between two locations (within a country or inter-country) and indulge in unauthorised exports from cheaper locations to more expensive ones.

On the other hand, look-alike manufacturers name and brand their products in a visibly similar way to known brands, to deceive consumers into buying their products. Scrap dealers essentially buy scrap (expired and damaged goods) and divert them back to the market. Typically, a company’s packaging material, which could be slow moving, expired or damaged products, are sold to scrap dealers. Scrap dealers bribe a company’s, or a third-party’s, employees to supply good quality products in the garb of scrap or supply packaging material and expired or damaged goods.

But there is more. There is an other section of malefactors—traitors who misuse the responsibility handed out to them, for personal gain. These could be employees, third parties and distributors of a firm.

It has been seen that employees of the organisation are the ones who compromise their integrity and divert genuine packaging or finished goods to counterfeiters or unauthorised exporters. Third parties and their employees could supply genuine packaging, semi-finished or finished goods to counterfeiters. This also comprises those compromising ethics by employing unauthorised or illegal capital and labour. Distributors can divert domestic goods to unauthorised exporters and like third parties, compromise on ethics by employing unauthorised or illegal capital and labour.

Another area of concern is leakage in the supply chain. This could consist of leakage of genuine packaging from third party manufacturers or leakage of semi-finished goods or packaging from a company’s own or outsourced manufacturing units. The outcome of these issues is one which can be pre-empted; the quality of the product is compromised. It is a certainty that a customer or client will notice a lapse of quality and lose trust in the brand. The most impaling factor, however, is that once a loyal customer loses faith in a brand, it is lost forever. These gaps also impact sales, as every counterfeit sold is a lost sale of a genuine product.

Sealing the cracks
A thorough evaluation of the market and supply chain is the foremost remedial tactic. Brands must gather actualities to understand the depth of a perceived impact. Their agenda would need to take into account both internal and external factors, with a keen eye on their supply chain mechanism. Here’s a quick breakdown of the steps that would ideally make up this journey.
a.   External intelligence: This encompasses identifying the availability of counterfeits in the market and using an investigative approach to understand the supply chain methodology. Thus, the weak link in the chain can be determined. The company can then take legal action against identified counterfeiters or sources of the weak supply chain link.
b.   Internal process review and investigations: This avenue looks at detecting leakages within the company’s supply chain to find a weak link, through investigation around the internal operations of owned or outsourced units
c.   Supply chain compliance & integrity reviews: Timely review of the supply chain’s adherence to the compliance framework and an integrity evaluation enables companies to take corrective measures after identifying an issue. It is a useful tool to identify malpractices in owned and outsourced operations; illegal activities, if any, including employment of child labour and exploitation of employed labour or non-compliance of workplace ethics.

A conscientious approach is a brand’s most reliable protection from the stealth that the market presents it with. Brands which have had a tryst with this risk, will certainly corroborate this opinion—it is better to be safe than sorry.

- By Anurag Kashyap, Partner, Fraud Investigation & Dispute Services, EY

The thoughts and opinions shared here are of the author.