Brand Protection ROI

Measuring your enforcement efforts return on investment is one of the more difficult aspects of the brand protection space. Counterfeits harm businesses in multiple ways:

1. They steal business away by deceiving unsuspecting consumers. Sometimes counterfeits are only marginally cheaper than authentic products, and those buyers would happily pay the difference to ensure they received the real item.

2. When counterfeits are abundant and priced lower than authentic goods, it can lower the market value of authentic goods, further damaging the profits earned by both the authentic retailers and brand owners.

3. Counterfeits threaten the reputation and goodwill that brands have established. When consumers purchase items that don’t meet expectations, they are more likely to leave negative reviews or share negative experiences than happy customers are to provide positive feedback. Such negative feedback can have a devastating impact on brands producing quality goods.

4. Counterfeits rob luxury brands of their exclusivity and desirability.

5. Fakes consume customer service and warranty resources.

All of these impact a brand’s bottom line, but some are easier to quantify than others.

Substitution seems to be the method most used to estimate ROI. Basically, the calculation is presented this way:

For every 1000 counterfeit offers enforced an estimated 500 shoppers or 50% ended up purchasing authentic items at an average price of $50 (for example) instead of the counterfeit product. The brand protection company charged $2,500 for a given period and with the 50% conversion rate assumed, and estimated $25,000 came back to the company so an estimated a 10x return on the investment was achieved.

This method corresponds well with the way companies calculate ROI from physical seizures, but one detail often overlooked is the product margin. If the company’s margin on a product is 50% then the return was actually only $12,500 -5X rather than 10X. I’ve seen substitution rates to be estimated to be anywhere from 5% to 75% for different brands and industries. To be frank, there haven’t been enough studies, and most tend to be heavily biased, unclear about the methodologies, and won't relate to your brand/industry in any way. You wouldn’t invest money in advertising, and without tracking whether there was a change in sales. You owe it to yourself to verify ROI by looking at your own sales figures before and after initiating an enforcement strategy.

This might sound like I’m arguing that there isn’t much ROI to be had from enforcing. I am not, but there are better ways of calculating the return. One reason calculating ROI as a function of the number of enforcements is problematic, is that the ROI then becomes proportional to the number of offers enforced. Calculating ROI this way ignores the lasting effect that an effective program can, and should have. When successfully enforcing a platform the number of infringing items reported should drop off quickly with fewer counterfeiters. Even though the offers enforced decrease with time, the value provided back to the company remains as fewer fakes are available for purchase.

To ensure fewer fakes are available for purchase enforcement efforts need to be complete and efficient. Let’s use the example above with 1000 offers enforced. What if 100 counterfeit offers were initially missed. Counterfeits are usually priced enough below the market, that price-conscious shoppers will find them. What I’ve typically seen is that the sell-through rate on the 100 offers missed increases and nearly the same amount of transactions occur. In this example the main effect was to concentrate counterfeit sales into fewer listings. Little actual ROI was achieved even though somewhat high numbers of enforcements were sent.

To illustrate this point:

The example below is a readily locatable listing (The trademark is the first word in the title) and the item is priced roughly 30% below retail (which suggests that most buyers were simply looking to save a few dollars):

Even though some of the buyers were able to identify the item as fake, the company monitoring this brand failed to remove this listing. This one eBay listing has sold at least $106,000 over a 14 month period, or around $7,500 each month. As if this listing isn’t damaging enough, this seller has multiple counterfeit listings of the same brand accounting for over $12,000 in combined monthly sales. It’s also apparent that this seller has additional aliases also selling these counterfeits. Analyzing this brand as a whole on eBay, 4 sellers accounted for 60% of monthly sales, and the top two were counterfeiters.

Another factor that many enforcement-based calculations fail to take into account, is the time value of enforcements. Quite often I see offers sell through all or the majority of their inventory before being reported. Slowly processed enforcements do little to discourage counterfeiters. There might seem be a high number of enforcements tallied at the end of the month, but an effective monitoring program locates and removes counterfeit offers regularly before they have the chance to gain traction and sell significant amounts. Rapid and complete seller enforcements will have the most significant impact and do the most to deter counterfeiters from creating new offers.

So now that I’ve voiced some grievances about calculating ROI based on enforcement numbers. I’d like to propose a better metric. Wherever possible we should measure the reduction in counterfeit sales completed. I fully recognize the lack of transparency on certain platforms, (Amazon being the largest example that does not disclose the number of sales completed by any particular seller). That said, many other prominent e-commerce sites, eBay, Taobao, Aliexpress and others, readily display the number of transactions per listing. I would propose that the reduction in counterfeit transactions is far more important than the number of listings removed. Another benefit of this type of analysis is that sellers with high transaction volume end up sticking out like sore thumbs. This provides opportunities to determine whether there are sellers that merit a test purchase or to potentially recover damages from the worst offenders. (I’ve even seen such damage awards cover the yearly costs of monitoring fakes)

To successfully determine this reduction, the sold quantities must be captured regularly. The chart below represents an effective enforcement program. Even though enforcements have dropped considerably in 9 months, the more important takeaway is that much fewer counterfeit transactions took place, and the sale of authentic goods has increased to replace those sales. It may seem counter intuitive, but the absence of enforcements (as long as you aren't missing the fakes) is evidence that your program is effective.

If you'd like to have your counterfeit problem assessed, or want to confirm whether you have an effective enforcement program, send us a message for a free assessment, and we'll happily tell you if your program seems to be winning the war, or if there are issues being overlooked.