By Ron Guido, president, Lifecare Services, LLC
In recent years, many life sciences companies have formalized their processes and expertise to combat counterfeiting through the establishment of a relatively new business discipline known as brand protection. Of course, the first two questions that come to mind are “What is brand protection?” and “Why is it important?” The answers to these questions lie in three value generators that are emerging within brand-protection- savvy companies. Concerned executives are taking a proactive approach to elevate anticounterfeiting activities from a “see-and-treat” mentality (i.e. security breaches) to a more strategic role within the organization.
What is Brand Protection?
Simply stated, brand protection is the collection of capabilities and activities conducted by a company and its stakeholders to help prevent unauthorized use of intellectual property and/or commerce associated with that company’s brands and trademarks. In today’s world of global trade and complex supply networks, brand protection is not a luxury; it is a necessary core competence for any organization that commercializes popular brands.
Like all well-established business functions that incubated from unstructured beginnings, the work of protecting brands originated in the trademark law group, supported by corporate security, quality, compliance, supply chain management, and, of course, brand management. Brand protection is still a nascent function in corporate society, emerging from and nurtured by the wisdom of these important supporting functions. However, as the discipline matures, even if brand protection continues to exist as a virtual function, the major differentiating element over traditional ad hoc working teams is the creation of a sustainable learning environment dedicated to preventive measures.
Where Brand Protection Resides
Assuming your company decides to coalesce its focus against counterfeiters within a dedicated organizational unit, the next decision to be addressed is where should the brand protection function report. This will depend upon a number of factors related to the structure of your corporate footprint with various legal and commercial entities and how centralized or decentralized your structure has become. It also depends upon the roles and responsibilities embodied in your business alliances and comarketing partnerships, as well as your level of contracted manufacturing and distribution.
Having said this, because brand protection must become a featured “discipline” for your company to realize its full value and since such a discipline will strongly promote best practices across the business, an enterprise-based organization makes the most sense. By reporting up to a centralized function, brand protection will command the influence across organizational lines necessary to effect important operational changes. The goal is to rapidly shift the culture from one that responds to incidents as a set of uncoordinated events to one that takes a strategic position against brand attacks and supply chain integrity issues. Furthermore, a single “voice” on brand positions and policies is important in communicating with affiliated organizations, the public, and the industry at large.
Specifically within an organization, the brand protection role functions well when operationally aligned with supply chain management, quality/regulatory/compliance, and legal or strategic marketing. Of these, supply chain management is perhaps the best nest for brand protection expertise, since a large portion of preventive best practices apply to the core supply chain functions of plan, procure, make, ship, and service.
The Value Of A Brand Protection Function
As mentioned above, the primary thrust of brand protection is prevention. Sustained preventive measures lead to the single greatest value driver of this work — patient safety. We can stop here because there is no call to action more significant than a life protected or assuring a life-enhancing medicine is safely delivered to a patient in need.
Yet to help appreciate the full value proposition of brand protection, it is important for business-minded leaders to know that such an investment in resources can yield significant returns for the company, even establishing brand protection as a profit center.
Agreed, it is extremely difficult to quantify the business impact that counterfeits and illegal diversion have on our operation and subsequently calculate the cost/ benefit of countermeasures. This dilemma is largely attributable to the obscurity of illicit trade, the complexities of international supply chains, and the many interconnected business factors that contribute to supply-demand variability.
In some respects, the aggregate activity of all counterfeiters that target your brands is best viewed as an unethical competitor, one which attacks your market share, disrupts your brand equity, creates pricing instability, erodes confidence in your products, and disregards your intellectual property. Placing counterfeits on this level allows us to cast the countermeasures in a business perspective, leading to the proper focus on supply chain integrity as part of your annual process of setting goals and objectives.
In this business context, the level of counterfeit trade can be estimated based upon analyses of market share, demand patterns, average selling price, and most importantly, accounting for total supply. Such considerations should include qualitative assessments of risk, liability claims, the impact on future competition, especially in emerging markets, and quantitative analyses of the loss of revenue and the impact to brand value. While we are primarily driven by the urgent need to reduce risks to consumers’ health and safety, monetized impact analyses are important to set business priorities and to allocate funds to those programs that most effectively drive risk mitigation and revenue recovery.
Brand protection value creation, therefore, is generated from successful achievement of three business objectives:
- recovery of revenue lost to counterfeits and diversion (lost demand and price)
- brand equity enhancements from consumer protection and IP rights enforcement
- collateral benefits from applying security measures to supply chain management
The first value-creating objective, revenue recovery, is perhaps the most tangible when field actions result in seizures of in-transit goods or raids on rogue manufacturers. In such cases, the market value of the confiscated products can be registered and then extrapolated over a logical period of time to record a credit to the overall anticounterfeiting effort. The greatest opportunity for recapture, though, comes from systemic improvement in practices, policies, and processes that prevent fakes from entering the normal supply chain and help eliminate unauthorized trade of genuine goods.
The second category of value creation, brand equity preservation, is related to the negative impact that counterfeits or tampered and mislabeled goods can have on the reputation of your brands and your companies. There are financial models that can be applied to estimate the reduction in brand equity (or market share) that results from a publicly communicated breach of the supply chain (i.e. recall, cargo theft, tainted product, or discovery of counterfeits in the marketplace). Brand equity can also become compromised by undetected counterfeits influencing consumer behavior. Some of the negative implications to brand equity that can result from the presence of counterfeits in the market are:
- increase in brand awareness, but only in terms of bad outcomes
- reduction in perceived quality
- reduction of brand association with high status and value
- interruption of brand loyalty
- reduction in average selling price due to buyers unknowingly substituting genuine goods with lower-priced fakes
The third objective, collateral benefits, is an interesting means of justifying investments in supply chain security because, when many safeguards are implemented, they actually manifest as improvements in the efficiency and effectiveness of the company’s routine operations. Thus, the benefits of applying best practices exceed the costs of implementation.
Collateral benefits are defined as secondary benefits to the company (beyond the cost avoidance of trade interruptions) resulting from investments in secure supply chain practices. These benefits are derived from creating new or improved business capabilities, access to information, more efficient processes, or an enlightened business environment. For example, many companies are beginning to experience the operational benefits associated with unit serialization of finished goods, as required by new track-and-trace regulations. As companies continue to wrestle with traditional business tasks, such as recalls, returns, chargebacks/rebates, expired products, supply/demand balancing and new-goods monitoring, the increased supply chain visibility that is attainable from unit serialization can translate into increased operational efficiency and inventory reductions.
Companies with advanced brand protection programs have developed internal financial scorecards to revenue recovery, cost avoidance, and efficiency gains from anticounterfeiting activities. Such metrics will be further discussed in the next article in this series on brand protection.
The Elements Of A Brand Protection Program
As introduced above, brand protection should be charged with becoming the center of excellence for the enterprise in matters of best business practices to help prevent (1) fake goods from entering the legitimate supply chain and (2) genuine goods from being diverted into unauthorized (gray market) channels.
In order to meet this challenge, the brand protection team must mobilize the people, processes, and technologies that sustain core operational and commercial tasks. Toward this end, the function must serve several key roles, including that of an internal best practices consultant, a trainer, an auditor, and a purveyor of innovative technology.
There are seven core elements of work and expertise that are foundational to a broad-based organizational model for brand protection:
- Incident Management. Aggressively investigate, record, and analyze each incident for root-cause factors, capturing key data relative to principals involved and interpreting forensic results. Classify incidents as to source, product category, location, and harm caused. Establish a culture of civil litigation in addition to criminal penalties. Apply advanced analytics to help identify the behavior and affiliations of the perpetrators.
- Market Monitoring. Proactively examine internal commercial information for abnormalities possibly attributable to illicit trade. Includes incident reporting, Internet monitoring, customs collaboration, field audits, product purchases, supply/demand patterns, and sales/pricing information.
- Community of Knowledge. Awareness and education of the dangers of counterfeits and associated risk-mitigating practices. Includes internal and external educational programs, consumer alerts, internal knowledge portal, and on-line awareness training for both new and experienced employees.
- Influencing Public Policy. Collaborations with legislators, regulators, and other government agencies on anti-counterfeiting laws and policies. Includes collaborating with national and member state governing bodies, industry associations, trade groups, customs and border protection, law enforcement agencies, and nongovernment organizations (NGOs).
- Operations Best Practices. Enhance the security of supply chains through increased visibility and control of product flows and by influencing the practices of suppliers, trading partners, external manufacturers, and customers. Includes distributor management, information systems, in-transit security, channel strategies, packaging safeguards, and track-and-trace systems.
- Technology Adoption. Provide assessments and use cases for authentication and track-and-trace technologies to the product/package to either deter counterfeiters or assist in identifying fake goods in the supply chain. A layered approach to technology adoption is recommended to reduce the risk of being compromised by counterfeiters.
- Global Deployment. Locate brand protection experts on the ground in high-risk zones of counterfeit trade. Provide enterprise support for incidents and best practices implementation. Serve as liaison with internal and external stakeholders, and work with local governments and customs authorities.
Together, these elements provide a useful road map for establishing a brand protection organization within your company or remodeling the brand integrity programs already present. They also provide the basis for setting goals and objectives for the enterprise and for informing regional and local anticounterfeiting teams.
In summary, by establishing an enterprisewide culture of no tolerance for counterfeits, pharmaceutical and biotech companies are taking a resolute stand against those who are violating their brands and placing their patients in jeopardy. A well-designed and wellresourced brand protection organization, preferably positioned at the enterprise level, provides the proper organizational platform to sustain anticounterfeiting programs and work proactively across all functions to create new sources of business value.