Fighting brand counterfeiting in E-commerce

Table of contents

List of abbreviations

List of figures

Executive Summary

1 The Brand
1.1 Significance of a brand
1.2 Types of brand
1.2.1 The brand as a product identifying discriminating criterium
1.2.2 Competence of a brand
1.2.3 Brand development
1.3 Functions of a brand
1.3.1 Function through Ancestry
1.3.2 Differentiation-, Individualisation- and Identification function
1.3.3 Quality-, Warranty- and Trustee function
1.3.4 Communication- and Advertising function
1.4 The value of a brand
1.4.1 Protectability
1.4.2 Components of brand value
1.4.3 Brand vulnerability
1.5 eCommerce: Review of development and usage
1.6 eBusiness on the Internet
1.6.1 B2B business
1.6.2 B2C business
1.6.3 C2C business

2 Nike: The Brand
2.1 The evolution of the brand
2.1.1 Overview of Nike as a company
2.1.2 Nikes distribution policy

3 Brand- and Product Counterfeiting
3.1 The term brand- and product counterfeiting
3.2 Variety of counterfeiting
3.3 Growth and effects of counterfeiting
3.3.1 Causes of exponential changes
3.3.2 Economic and social effects of counterfeiting
3.3.2.1 Effects for companies and brand owners
3.3.2.2 Effects on consumers
3.3.2.3 Effects on the national economy
3.3.3 Demand for pirated and counterfeited goods
3.3.4 Types of counterfeiting strategies
3.3.5 China
3.4 Counterfeiting on the Internet
3.4.1 Impact of eCommerce
3.4.2 Distribution and Production in eCommerce
3.4.3 Auction Platforms
3.4.4 Online deception strategies
3.5 Counterfeiting and Nike

4 Remedies & present measures
4.1 A look at the law
4.1.1 Law security and trademark rights protection
4.1.2 Judicial position on auction-platforms
4.1.3 Criminal or civil remedies
4.2 Counterfeiting: Methods and resolution in the market
4.2.1 Commercial Web- and Brand monitoring
4.2.2 International Resolutions
4.2.2.1 WIPO
4.2.2.2 TRIPS Convention
4.2.2.3 Community brand Law
4.2.2.4 Product Piracy Regulation
4.2.3 Strategies of international companies
4.2.4 International & national anti-counterfeiting organizations
4.2.5 Customs
4.3 Nike´s methods of resolution
4.4 Improvements in fraud resistance
4.4.1 Technical security features in products and packaging
4.4.2 Coverage of the value added chain
4.4.2.1 Activity in the product development phase
4.4.2.2 Distribution and Marketing
4.4.2.2.1 Communication and public relation
4.4.2.2.2 Price- and condition strategy
4.4.2.2.3 Distribution Supervision
4.4.2.2.4 Logistic actions
4.4.2.2.5 Activity in the production phase
4.4.2.3 Strategic activity
4.4.2.3.1 Do nothing or laisser faire
4.4.2.3.2 Integration and cooperation
4.4.2.4 Political actions
4.4.2.4.1 Cooperation with organizations and associations
4.4.2.4.2 The new bill of Home Secretary Zypries
4.5 The Prospects for Nike

5 Conclusion

6 Table of literature

7 Appendix

List of abbreviations

illustration not visible in this excerpt

List of figures

Figure 1: The Components of a brand (Hopkins et al. 2003)

Figure 2: Example of Brand –Value Hierarchy

Figure 3: Reasons for purchasing brands (online- survey result)

Figure 4: Brand loyalty and mostly mentioned brands (survey analysis)

Figure 5: Reasons for changing the brand due to the existence of counterfeits

Figure 6: Development of hosts worldwide

Figure 7: Bill Bowerman and Phil Knight 1957 Figure 8: Bowerman 1967

Figure 9: EMEA Revenue in Mill. US Dollar

Figure 10: Geographic Expansion in Nike EMEA region

Figure 11: Examples for design infringements (Nike Cortez, Waffle Racer and Nike Shox)

Figure 12: Countries of origin

Figure 13: Hit rate on ranking footwear models as fake or genuine (online-survey result)

Figure 14: Survey analysis: Purchase of counterfeits Figure 15: Desired character of fakes

Figure 16: Stimulation to by counterfeits instead of originals

Figure 17: Reasons for purchasing counterfeits

Figure 18: Direct counterfeiting Type I

Figure 19: Survey results: Where did you hit upon counterfeits?

Figure 20: Relationship between market participants (Kollmann (2000), 129)

List of Tables

Table 1: Top 15 seized goods in 2005

Table 2: How fakes arrive in Germany (EU-commission, statistics 2004)

Executive Summary

The phenomenon of brand and product piracy represents a serious thread for a large number of companies selling various categories of products. Marked and unmarked products of all price classes are counterfeited and in some cases sold globally, which can cause a significant loss of sales and severe damage to image for companies that are affected. The merging of markets, the fall of borders and other barriers to commerce, and especially the Internet and the flight to anonymity it facilitates have given counterfeiters entirely new possibilities for buying and selling their goods. The role of the Internet in these damages is increasing steadily: the German Chamber of Industry and Commerce (Deutsche Industrie und Handelskammer DIHK) estimates the economic damage caused by product and brand pirates in Germany alone at 30 billion Euros annually. To this may be added the estimated 70.000 jobs lost in the last few years.^[1] The number of fake products confiscated by European customs alone in the period between 1998 and 2004 increased by about 1.000 percent and according to estimates, losses caused worldwide reach approximately 450 billion US Dollars.^[2]

Against the background of steadily increasing fake products, questions arise concerning the central distribution channels of counterfeit brand products as well as how companies and authorities that are affected can best respond.

The purpose of this study is therefore first to point out measures for fighting brand and product piracy and second to determine whether the Internet, especially auction platforms, can be identified as a distribution channel for counterfeited brand items.

In the following first chapter of the study, a few basic remarks on brands and E-commerce are first considered. In addition, the concept of brand and its functions are presented, followed by an overview of the development and use of eBusiness in general.

After a brief description of the Nike brand in the second section, the following chapter provides a concrete account of brand and product piracy. Forms in which fake products appear, strategies of counterfeiters, causes and effects are explained. Particular emphasis is placed on the factor of the Internet and the effect of online auction houses as well as the problem of piracy for the Nike brand. It becomes clear that E-commerce has opened up excellent new distribution possibilities for counterfeiters, making it possible for them to offer their products or services over long distances without physical presence. Especially on online auction platforms, often more fake brand items are available than original products and it is evident that online market operators and government authorities must provide better control and clear regulations. How difficult a differentiation between original and counterfeited products on online auction platforms in practice can be, is further shown on the results of an Online-survey which details are worked out in chapter 3.3.3.

The fourth part presents possibilities and measures for fighting brand and product piracy. This includes, as a first step, becoming aware of the problem and recognizing the potential danger for a company. Following recognition of the problem of piracy, the second step is implementing suitable response measures. In addition to the legal situation and international approaches, measures for protecting the value added chain are discussed together with specifically adapted responses of different areas of companies such as Research and Development, Marketing, and Sales. Measures involving company strategies and policies are also considered. The last step deals with some concrete recommendations for how to deal with the problem from the point of view of Nike, which serves as a focus in developing methods for such areas as working together with government authorities, strengthening communication and security, and developing technological means of providing security.

Finally, the fifth chapter of the study summarizes essential points and provides some recommendations. In addition to the need for more extensive legislation and greater efforts from companies to take legal steps – both certainly necessary – constant monitoring of the piracy situation must also be ensured, especially on the Internet. The development of effective communication activities as well as fine-tuning of distribution also promise much success in the fight against lost sales and damaged image.

1 The Brand

The term „Brand” is defined in the German Trademark Legislation in §3 as follows:

“A brand can consist of all signs, especially personal names, illustrations, letters, numbers, jingles , three-dimensional designs including the shape of the product or its packing as well as other arrangements including a product’s colors and colour-combinations as far as they are suitable to distinguish a company’s products or services from others.”^[3]

The legal definition takes into consideration that form/shape/design or features of a product, its packing or layout can become so prominent/ characteristic that consumers assign the products to a certain company without an additional marking.^[4] In the TRIPS-Agreement (Trade Related Aspects of the Intellectual Property)^[5] announced by the WTO a brand is defined in article 15: “

1. Any sign, or any combination of signs, capable of distinguishing the goods or services of one undertaking from those of other undertakings, shall be capable of constituting a trademark. Such signs, in particular words including personal names, letters, numerals, figurative elements and combinations of colours as well as any combination of such signs, shall be eligible for registration as trademarks. Where signs are not inherently capable of distinguishing the relevant goods or services, members may make registerability depend on distinctiveness acquired through use. Members may require, as a condition of registration, that signs be visually perceptible.

According to Nilson, the term “brand“ comes from the Scandinavian word ‘branna’ which means burning. “Brand” is the Swedish word for fire. Thus, branding originated from the act of putting an identifiable mark on something one has produced. Originally this often meant burning the mark on a product, much like the cowboys of the early West began branding their cattle for identifying purposes.^[6]

A brand distinguishes a company from its competitors and stands for a certain product range. It offers orientation to clients in the consuming process by facilitating the recognition of a company’s product and appealing to brand-related emotional aspects. Mass markets with mass production are characterised by a very anonymous relation between producers and consumers. Often companies do not get in direct contact with their clients anymore. This makes it even more important to brand a product and to give it a certain distinctive aspect separating it from uniformity. The advantages of a brand are based on its high level of recognition and a fast disposal of the product amongst the clients. Furthermore a separation from other products becomes possible, usually resulting in higher prices increasing the company’s profits.^[7]

A final definition of the term brand is not necessary or useful because with regards to the continuous technical progress of the company´s product and the creativity of advertising strategies, it can be expected that there will be newer and more innovative sorts of brands in the future.

Nevertheless there are some characteristic aspects most brands have in common.^[8]

Image and business standing

Often goods especially those for everyday use do not show great differences in terms of quality. Therefore producers try to assign a certain image to their products to arouse certain anticipations in the consumers.

Ancestry and Warranty

In contrast to generic goods, consumers are very demanding concerning the quality of branded articles. The client´s subjective valuation of the product´s quality is much more important than objective, measurable aspects of quality. By branding ones product, a producer ventures out of anonymity taking over the liability for his articles.

„Ubiquitous“

The term stands for the aim of a widespread global availability of the brand (for the consumer). A broad distribution increases the brand´s rating and anchors the brand in the consumers’ minds.

1.1 Significance of a brand

Branding has become so strong that today hardly anything goes unbranded.^[9] Between 1998 and 2003, the increase in turnover with proprietary goods of German origin was 3.7 percent p.a.. In figures the turnover increased at 56 billion Euro to a total amount of 337 billion Euro representing almost one quarter (23 percent) of the overall-turnover in the sector of manufacturing trade. The contribution of turnover with proprietary articles to the gross domestic product has increased to 7 percent. 22 percent of all German exports were realized by companies trading branded goods.^[10]

In the branded goods industry sector the gross value added increased from 127 to 142 bn Euro between 1998 and 2003, standing for a plus of 2.5 percent p.a.. The industry sector increased its contribution to the gross domestic product to 7 percent. Between 1998 and 2003 about 1.6 million people were working for the branded goods industry. In the same period about 350.000 jobs were cut in the other sectors of the manufacturing industry.^[11]

For the retail trade branded goods play a central role in product-strategy. They have a great influence on the profile and image of retailers. A widespread and far-reaching supply supported by an attractive presentation and marketing scheme is important for retailers with complete assortments to distinguish clearly from discounters positioned as a counterpart, at least the consumer benefits on brands. They are supporting orientation in the overwhelming flood of offers, reducing the risk of false decisions and spending sentimental value for the client’s self-realization and forming of a public image. Finally branded articles are promoting the competition in the development and quality of products. Therefore the branded goods industry sector has always been a motor of innovation. In McKinsey´s inquiry the FMCG-companies, making more than 75 percent of their turnover with branded products, invested 1.6 times more in research and development than enterprises with a lower share of brands. These figures point out that the branded product industry has an outstanding importance for Germany’s national economy.^[12]

Significance for the consumer

Often consumers are confused by the great number of products which make buying decisions difficult. Therefore brands play an important role in shopping. They have an informational function transporting characteristic product features like origin, quality and image.^[13] Furthermore brands provide orientation for consumers regarding buying decisions which decrease the exercise risk and habituating the act of shopping, because price and quality are taken for granted. Brands also represent a sort of quality insurance for consumers because they are expected to be the carrier of technical progress. That is why customers are willing to invest more money for a well-established brand particularly in the sector of technical goods and drugs. If the identical articles for which the security aspect is less relevant, for instance clothing, the consumer can have an additional benefit created by the brand’s image. As a consequence, the product’s image offers a way to influence the consumer’s buying decisions. Brands can also represent a certain prestige and exclusiveness.^[14] As you can easily travel from one place to another using a Skoda - so why should anybody by a Mercedes for the same purpose? It is for the satisfaction of those additional benefits mentioned above. In terms of services the quality is more difficult to evaluate for the consumer before he buys the product. Therefore the purchase of insurances, banking services, airline-tickets and so on to a great extend is a matter of confidence. To build up this essential confidence is a long lasting process causing high costs for a company. Once an enterprise successfully reached that goal it can be noticed that service companies preferentially try to sell standardized offers and extended product packages implying a complete coverage of the consumers needs under the brands name. Service goods are a matter of confidence and therefore the brand policy is of outstanding relevance.^[15]

Significance for companies

Marking of products has the function to separate a company´s own articles from the mass of similar type products and to assign certain characteristics. These characteristics clearly attach the article to the brand and contribute to a higher attractiveness of their own product in comparison to competitors. In few words, branding should assign a unique and sales appealing image to the product.^[16] With the aid of brands’ companies are enabled to create customer loyalty with the aim to establish a long-lasting linkage. Once a link is established a satisfied customer will often buy “his brand” just because it is convenient, even if that means that he has to pay a higher price. Therefore companies must not disappoint the consumers’ expectations in terms of product quality. A long lasting customer loyalty has a stabilizing effect on an enterprise resulting in safer jobs, a higher readiness to invest and more innovations. Brands are an adequate instrument to create a company-image. So a logo represents more than just the products: logos are identifying features, sometimes even cult-objects, which transport an image and tell a story. Well known examples are the 70 years old Lacoste-Crocodile, the 50 years old Playboy-Bunny and the 30 years old Milka cow.^[17]

Today many enterprises select their brands based on global considerations.^[18] It is difficult to obtain trademark protection in multiple countries because of existing trademark rights, bureaucracy or a lack of enforceability. Trademark protection therefore requires a substantial amount of company resources.^[19] A registered trademark provides a certain protection against illegal reproduction and counterfeiting by competitors.

For the owner a popular sign not only represents an idealistic but also a high material value. The build up and cultivation of a brand demands high efforts from the companies. In turn, companies are requiring an adequate protection of their brands against imitators.^[20] Thus brands are the most important assets for many companies reaching up to values of 10 billion Euro and more. According to a ranking list published in a study by Interbrand in BusinessWeek 08/2003 Coca Cola is the brand with the highest value of 70.45 billion US Dollar. The tendency is still increasing because of new innovations. Nokia is listed on 6th position as the most expensive European brand with a value of 29.44 Million US Dollar. Nike ranges on position 35 with a value of 7.724 million US Dollar.^[21] This value is the basis of compensation in case of a violation of trademark rights by competitors. The extensive value of brands becomes apparent in cases of brand-dominated enterprise-acquisition. Brands are a property right to the owner’s free disposal. Because of the internationalisation and the associated fast transfer of innovative technologies a process of homogenisation amongst products has set in. The consumer differentiates the products almost solely by the brand and the linked aspects brand awareness and image.^[22]

1.2 Types of brand

In theory all signs can be considered as protectable brands, which are applicable to act for commercial communication between companies and consumers.^[23]

The various forms of brands are defined by the different kinds how a brand as communication sign affects the human sense organs. Brands act visual, auditory, olfactory, degustive, haptic either in combination or isolated on human sense organs.^[24] Therefore countless characters of brands result. But however to get registered and to achieve protection the brand ability is a precondition.

To acquire judicial protection a brand needs to get registered, for which it has to possess a couple of criteria. Brand ability, autonomy, uniformity and graphic presentability of the brand are conditions for a registration.^[25]

1. Brand independence from the product

Brand and product as well as their packaging are different. A labelling or any other feature/ sign of the good is so long unmarkable, as it constitutes a functional necessary component of the product. The independence of the brand in comparison to the pro-duct is a mandatory result of the brands identifying function.

2. Uniformity of the brand

The uniformity of a brand represents the recognisability of the brand as an unity.

A brand should preferably be transparent at a glance or ascertainable by one audio effect, otherwise the memorability, which provides the brand with its uniformity would be missing. But also a brand can be assembled by multiple parts so long as the uniformity of a complete overall impression results.

A brand can also be compounded of several parts, if only the uniformity of a complete overall impression is generated.

3. Graphical presentability of a brand

Based on Art 2 MarkenRL the graphical presentability is a obligatory requirement of brand ability.^[26] There is a traditional classification of brands in word brands, picture brands and word-picture brands.

§ 3 MarkenG contains an exemplary enumeration of listable types of marks: words including names, figures, letters, numbers, the shape of the product, as well as their presentation.

Besides there have been further types of brands naturalized, which have achieved significance for companies. They should be considered in the following numeration, but which is noway complete.

1.2.1 The brand as a product identifying discriminating criterium

Word-brands

A word-brand consists of a cohesive pronounceable combination of letters; either concrete or abstract words can be used, like Kodak, Nivea, Siemens,…Also entire phrases or slogans can be listed to be protected, e.g. “Just do it”, “Impossible is nothing”, as well as writings like Coca-Cola or Ford.

Picture-brand / logos

A picture-brand solely consists of graphical design, which does not act as a word. Basically figures of all kinds have brand ability, as long as a abstract differentiation function can be attributed, e.g. Mercedes Star or Lacoste-crocodile.

Word-picture brands

This combinated mixture brand consists of word- and picture elements, e.g. Bayer– cross

Letter brand

Letter brands are a combination of letters, which do not form a pronouncable unity, like OMV, IBM

Number brand

Simply consist of numbers, e.g. “4711 “, “012 “

Odour or flavour brand

A flavour brand is a sensory brand which identifies a product olfactory.

Colour brand

Those can be understood as brands, which simply consist of one or more contourless colours, e.g. purple for Milka.

Light brand

This is an innovative creation of a new kind of brands, e.g. the illumination of the Empire State Building.

Motion brands/ multimedia brands

Object of this kind is a motion like a sequence of moved pictures or simulated screen sequence (Cartoon). Also possible are combinations of hearing brands (e.g. jingles) and motion brands (like short spots, or the roaring lion of Metro- Goldsyn-Mayer for movies).^[27]

Furthermore there exist collected brands, composed or combination brands, sound brands, hearing brands – acoustic and auditory brands, three-dimensional brands, form brands (e.g. Michelin manikin, Toblerone chocolate) and touch brands, but which will not be described in detail.

Graduation by brand holders

Collective brands

Incorporated associations are able to register brands, which should serve as identification mark for the products or services of their members and are appropriate to distinguish from those of other companies.^[28]

Agent brands

This is a ‘foreign’ brand which has been registered in favour to an agent or an ambassador, who had not been authorized by the brand holder.

Differentiation by the kind of usage and disposition

Brand label

Brand labels serve to identify moving and corporal subjects, which are purpose of traffic.

Service brands

They signalize certain activities, e.g. American Express, Weight Watchers

Company- / own brands

are used for all goods manufactured and distributed by the brand owner. The own brand can parallel work as the company logo or a part of the company logo.

Defensive brands

are signs of defense, to enable development of the main label.^[29]

Reserve brand

They get registered by the brand holder on purpose to use them afterwards and not as of point of registration.

Accompanying brands

They function as identification for raw materials and accompany those on several different process stages, by being used for the final product (e.g. GORETEX).^[30]

1.2.2 Competence of a brand

A brand is a symbol of quality and service that the consumer attaches to the product. A good brand increases the customers confidence and expectation as to what will be experienced by using a particular product. In a sense, the brand represents an implied contract between the producer and the consumer as to the attributes that can reasonably be expected by purchasing the good – design, durability, taste, attractiveness, after-sales service, functionality, reliability and so on. A brand is often bolstered by a combination of names, logos, slogans, marks and other symbols (see figure 1) and sometimes colours are strongly associated with a brand. An example could be the very strong brand McDonalds represented by the “golden arches” logo, the pictures of the clown Ronald McDonald and by slogans like “I´m lovin´it”.^[31]

illustration not visible in this excerpt

Figure 1: The Components of a brand (Hopkins et al. 2003)

A strong corporate brand is a valuable communication tool and a prime method of differentiating a company and its products in a marketplace.

1.2.3 Brand development

Brand development is contingent upon two kinds of purchases, the initial purchase and the repeat purchase.^[32] For the initial purchase communication is the key. The customer must somehow be made to know about the product. This communication may come through public relations, advertising, direct mail brochures, or through the positioning and appeal of the packaging (colours, ingredients, design). Communications by relevant third parties (friend, testing organizations) may also play an influential role in the initial purchase. For repeat purchases communication plays more of a supporting role. The most important factor in winning repeat business is the experience the consumer had from the initial purchase. One should strive to “oversatisfy” the consumer in that first experience to maximize the chance that the consumer will come back.^[33] The ICC states that the development of a successful brand must meet four requirements:

First the brand must convey distinctive values and deliver on these values. What the brands promises to deliver – taste, saftey, style, prestige, performance or satisfaction, may even be arranged in some hierarchy, which is rearranged in different emphases in different markets (see figure 2). Of course the brand ideally delivers on those promises.

illustration not visible in this excerpt

Figure 2 : Example of Brand –Value Hierarchy ^[34]

Second, the brand must differentiate a specific product from others in the class or industry. This can be easier to accomplish in some industries than others.

Third the brand must be appealing to the customer. While this is similar to the first requirement of conveying and delivering specific experiences, it is focused on ensuring that the promised experience is desirable to the customer.

illustration not visible in this excerpt

Figure 3 : Reasons for purchasing brands (online- survey result)

Fourth, successful brand development means that the brand must have a clear identity. In the clothing industry this can be accomplished by attaching recognizable symbols to seemingly undifferentiated articles of clothes (e.g. the Nike Swoosh).^[35]

1.3 Functions of a brand

Companies are using brands due to the functions they bear not only for the brand owner but for the consumer as well. The science of brand functions describes tasks and effects brands inhere in businesses.

It is the brand which enables the consumer to recognise the advertised product in the supermarket, to be evocative of it and to make associations with it. Further on, the advertising effect facilitates the consumer’s image of constant or improving quality via the brand. This is known as the “warranty feature of a brand“ although the word „warranty“ is not to be taken in a strictly judicial manner. Only the fact that a producer marks his product, does not constitute any warranty claims for the consumer in case of a faulty product. The intention of anyone who wants to establish a brand is the creation and conservation of the buyer’s brand confidence. When this confidence is abused, the brand reputation will get lost or not arise at all.

The American Trademark Association describes the importance of a brand as follows:^[36]

The brand enhances competition :

Without the brand as an agent to differentiate product sources, an important incentive to offer improved quality gets lost.

It determines responsibility:

Discontent consumers can recognise products, which do not fit with the advertised features or the expected quality.

It stimulates innovation:

A company brand is required to secure ongoing product development in a free market because a producer’s new goods have to be recognised and – in case of product success – honoured by the customer.

It reduces costs:

Without a brand, cost saving distribution systems like ‚self-service’-sales for example are blocked.

It saves consumer’s time:

The quick recognition of products saves the consumer’s precious time.

It offers selection:

The brand enables the customer to differentiate products, to choose his preferred branded products and to reject the undesired.

It developes foreign markets:

With brands, companies are able to develop worldwide markets for their products.

1.3.1 Function through Ancestry

This function traditionally deals with the indication of the origin of a certain good from a certain company. Since the amendment of the German trademark protection law (MSchG) in 1977 the idea of the original company identity of this function loses weight. Since then a brand can exist without the associated company and can be – for example by license – assigned to a third party without the knowledge of the customer. Thus a brand does not necessarily refer to a certain company but it induces the suggestion that a product originates from the respectively legitimate company.^[37]

1.3.2 Differentiation-, Individualisation- and Identification function

This function arises from § 3 MarkenG. Brands must be signs which are suitable to differentiate products and services of one company from others. Brands distinguish a company’s commodities on the market and can thereby outline the difference to other company’s commodities; therefore brands are a distinctive product feature in market competition.^[38] A brand individualises a product and makes it distinguishable from others. The customer uses the brand as an information source he needs to locate and identify a product. Further on, a brand can outline a group of similar marked products. The differentiation function is elementary to any brand.^[39]

But this ‚differentiation function’ does not cover all elements of a brand: a company’s products could simply be distinguished from others just by the company’s name. Thus a brand can additionally be used to differentiate diverse products of one company. In some extent this is practised in technical sectors by type designations (BMW316i).

‚Subbrands’ are used to differentiate diverse products of a certain company, which is identified by an umbrella brand. E.g. automobiles with the umbrella brand „VW”: Passat, Golf, Polo.^[40]

1.3.3 Quality-, Warranty- and Trustee function

The customer associates a brand with the image of a certain quality or consistence. Certain countries have strong quality associations with certain lines of products and services; German machinery and cars, fashion products from Italy, perfume from France, American advisors or Swiss watches are usually rated higher than their competition.^[41] This function contains the sustainment of a constantly high quality of products which are marked with a certain brand. This becomes particularly important if the customer can not verify the quality of a product or service before purchasing it. Yet this function is not based upon any specific legislative regulation. No one can claim a constant quality level of a branded product. Of course a company can sell products of lower quality with its brand even if in doing so it abuses the consumer’s confidence. A legal protection of the consumer’s confidence for a certain product quality is not given.^[42]

1.3.4 Communication- and Advertising function

In addition to the differentiation function, the communication function belongs to the fundamental functions of a brand. The manifestations of a brand concerning quality, origin etc. can only be verified after communication with the consumer or the market.^[43] The brand is a communication medium with potential buyers of a product or service. A brand transmits information in a symbolical manner. Thus the brand’s function for the communication with the market is to assure the exclusiveness of a certain symbol.^[44] The brand owner wants to advertise his product and his company – and thereby raise his sales figures - by utilising the consumer’s association of the brand and the branded products and services with attributes like quality, performance, image or lifestyle.^[45]

A monopolisation function results from legal protection of a brand. The right of exclusive use of a brand is a precondition for a company’s investment in the brand. With a strong brand, this exclusive right grants a barrier which can effectively prevent newcomers or potential competitors from market entry.^[46]

1.4 The value of a brand

1.4.1 Protectability

If a sign is able to be protected, it is verified by the Deutsches Patentamt (DPMA) in Munich on criteria like discrimination power, assign necessity, deception risk, annoyance and offensiveness. After registering the right is held firstly for the next ten years, but can be further extended. By the registration at the DPMA a sign develops to a brand and becomes protectable. The range of protection covers equal and similar signs, which are registered for equal or similar goods or services, or are used as identification in business traffic. Therewith the good itself is not automatically protected, unless it is covered by an appropriate patent. The registration only guarantees an exclusive right for the sign and not for the circulating product, that means that competitors are indeed allowed to put the same products on the market, but not to mark them with the registered trademark.

1.4.2 Components of brand value

As stated by Hopkins et al. the overall assessment of brand owners is an aggregation of at least four more specific components of brand strength:^[47]

- Brand weight (dominance): The brand weight is a measure of the brands dominance within its category or market. Those with the greatest weight are likely to be market leaders with significant market shares. However a weight can also be enhanced through innovation, as it is the case for example with Apple in the personal computer market.
- Brand Length (stretch): Brand length refers to the ability to migrate the brand successfully into new markets. Yet this is a valuable attribute in brand development and growth.
- Brand breadth (scope): Brand breadth refers to the scope of the brand in terms of consumers (age groups, gender groups, economic groups) and geographical spread (international, culture). Brands that are high in breadth are likely to have a lower risk profile. For example, “changes in taste, legislation and financial instability” in some markets is not likely to affect all markets because of its broad appeal.
- Brand Depth (loyalty): Finally brand depth reflects the commitment of loyal consumers to the brand (see fig. 4). Depth is based on the development of strong relationships to the brands consumers base. There is a set of shared values between the brand and its consumer constituency. These consumers become an effective communication tool that helps to win new converts to the brand.

illustration not visible in this excerpt

Figure 4 : Brand loyalty and mostly mentioned brands (survey analysis)

1.4.3 Brand vulnerability

Reputation is the corner stone of brand value and like personal reputation it usually is built with considerable effort over a lengthy period of time but can be destroyed overnight. One reason for damaging brand can be Brand Mismanagement. The brand represents a contract with consumers, suppliers and investors and a part of that contract involves expectations of quality and how problems are solved when the quality comes into question. Making decisions on short term profitability that damages the value of a brand will prove costly in the long run.

Changing the brand can be named as a second example. To point that assumption a former example of Coca-Cola the highest ranked brand in the 2002 Interbrand rankings can be mentioned. The competition with Pepsi prompted Coca- Cola several years ago to come out with a sweeter tasting new coke. This attempt to alter the brand was originally considered as a colossal failure, as many loyal Coke customers did not take the new product. When Coca-Cola reversed itself and returned to the classic taste, some say that the overall effect actually strengthened the brand. Customers were made more loyal to the brand, once they had it taken away from them.

Third, and not unfounded, brands with high value are obvious targets for counterfeiters. Successful brands usually demand a higher price in the marketplace, because the consumer has come to realize that a particular brand represents better quality, unique features, style or excellent service. By imitating the brand, the counterfeiter bypasses all

illustration not visible in this excerpt

Figure 5: Reasons for changing the brand due to the existence of counterfeits

1.5 eCommerce: Review of development and usage

Information technology is a key driver in the globalization and growth of the worlds economy.^[49] With the creation of the World Wide Web and Web browsers in the 1990s, the Internet was transformed from a mere communication tool into a certifiable revolutionary technology.

According to Internet World Statistics^[50] the number of web surfers worldwide reached nearly 700 million by 2004 and is expected to approach 1.5 billion by 2007. The Internet penetration in Europe varies within the countries but has been 53 percent in the first quarter of 2005^[51] (see fig. 5) and it is estimated that in Germany 70-75 percent of all adults over the age of 14 will be online in 2010.

This explosive worldwide growth in Internet usage forms the heart of the so-called New Economy. The Internet has been the revolutionary technology of the new Millenium, empowering consumers and business alike with blessings of connectivity. For nearly every New Economy innovation to emerge during the past decade, the Internet has played a starring or at the very least a ’best supporting’ role. The Internet enables consumers and companies to access and share huge amounts of information with just a few mouse clicks.

illustration not visible in this excerpt

Figure 6: Development of hosts worldwide ^[52]

Internet access via mobile phones is also growing in popularity, with mobile terminal access in Europe increasing to 300 million users by 2004, compared to 200 million users using PC-based access^[53] Germany´s every fifth onliner (19 percent) has visited the web mobile, predominantly by cell phone but increasingly by notebook.^[54]

The proportion of Internet Sales to Retail Sales varies across the European markets but is constantly growing. The Internet spending for 2005 gained 22 percent over 2004 spending. Some data released by comScore networks finds total Internet spending, including travel, hit 143.2 billion US Dollar in 2005 and will hit 170 billion in 2007.^[55]

Electronic commerce lets people purchase goods and exchange information on business transactions online. Although the Internet's role as a business channel is a fairly recent phenomenon, its impact, financial and otherwise, has been substantially greater than that of other business channels which have been in existence for several decades. The authors believe that e-commerce gives companies improved efficiency and reliability of business processes through transaction automation. It includes eMarketing and ePurchasing (eProcurement). eMarketing consists of company efforts to communicate about, promote and sell products and services via Internet. The buying side of e-commerce is e-purchasing, consisting of companies purchasing goods, services and information from online suppliers.^[56]

[...]

---

^[1] DIHK (2001)

^[2] w/o author (2003a)

^[3] Giefers (2003), 23

^[4] Von Wahlert, (1994), 1750

^[5] Trade Related Aspects of Intellectual Property), printed in EG 1994 Nr L 336

^[6] Nilson (1996), 57

^[7] www.markenverband.de (14.06.2006)

^[8] Dichtl (1992), 16

^[9] Banks (1999), 66

^[10] McKinsey & Company/Markenverband (2005), 6 (14.06.2006)

^[11] McKinsey & Company/Markenverband (2005), 7 (14.06.2006)

^[12] ibid.

^[13] Dichtl (1992), 21

^[14] Bruhn (2001), 35

^[15] Diller (2001), 937

^[16] Esch (2000), 411

^[17] Huber (2003), 15

^[18] Albaum (2001), 414

^[19] Sattler (2001), 112

^[20] Kucsko, (1995), 63

^[21] W/o author (2003b), 72

^[22] Sattler (2001), 25

^[23] Fezer (2003), 461

^[24] Fezer (1999), MarkenR § 3 MarkenG Rz 12

^[25] Fezer (1999), Markenrecht § 3 MarkenG Rz 210

^[26] Fezer (1999), Markenrecht § 3 MarkenG Rz 295.

^[27] Fezer (1999), Markenrecht § 3 MarkenG Rz 289

^[28] §§ 97 et seqq. MarkenG (Germany)

^[29] Fezer (1999), Markenrecht § 3 MarkenG Rz 172

^[30] Fezer (1999), Markenrecht § 3 MarkenG Rz 26.

^[31] Hopkins et al. (2003), 16

^[32] Dorgan (2001), 8

^[33] Hopkins et al. (2003), 18

^[34] Hopkins et al. (2003), 16

^[35] International chamber of commerce ; Counterfeiting Intellegence Bureau (1997)

^[36] Printed in WRP 1974, 294; quoted fractionally

^[37] Kucsko (1995), 71

^[38] Stauss (1994), 85

^[39] Fezer (2000), 2

^[40] Giefers / May (2003), 17

^[41] Muehlbacher (1995), 161

^[42] Koppensteiner (1997), § 38 Rz 28

^[43] Henning-Bodewig/Kur (1988), 8

^[44] Schanda (1996), 173

^[45] Wahlert (1994), 1750

^[46] Braitmayer (1998), 11

^[47] Hopkins et al. (2003), 32-34

^[48] Hopkins et al. (2003), 36-37

^[49] Gopal et al. (2000)

^[50] http://www.Internetworldstats.com (31.05.2006)

^[51] Statistisches Bundesamt (2005)

^[52] http://www.Internet-manual.de/statistik.htm (31.05.2006)

^[53] Heller (2001), 98

^[54] http://www.computerbase.de (10.07.2006)

^[55] http://www.comscore.com (10.07.2006)

^[56] Kotler et al. (2005), 135