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THE REPUTATIONAL RISKS OF BRANDJACKING

By RL Expert Leesa Soulodre

Product piracy and brand protection have always been an issue in markets where copyright enforcement is lax. Companies in the entertainment, consumer, retail, food and beverage and pharmaceutical industries can attest to that. But it is in China, where brandjacking has now been taken to a new level in the banking sector.

Brandjacking is an activity whereby someone acquires or otherwise assumes the online identity of another entity for the purposes of acquiring that person's or business's brand equity (Wikipedia).

Last week, a Shandong farmer was alleged to have opened a fake outlet of Asian heavyweight, China Construction Bank. It had operated for a month in Shanzai, before one unsuspecting customer was refused a withdrawal of 40,000 RMB. It was staffed by the entrepreneur's 15 year old daughter and her schoolmates.

Despite being identical, this fake bank didn't do  as well as another earlier this year. In its outlet in Nanjing, they swindled 200 million RMB from unsuspecting customers before it was discovered.

This is not the first instance of a fake outlet of a major company. In 2011, US blogger Jessica Angelson noticed a fake Apple store in Kunming. Kunming is an obscure city in the South East of China. It turns out that they had even launched a chain of them.  The fake retail chain's signs looked real. The products looked real. Allegedly, even the staff all thought they worked for Steve Jobs (1)!  

Many big consumer brands have faced issues with "brandjacking" through store replicas across China and other emerging markets. These  include Ikea, Disney, D&G, Nike, Starbucks and McDonald's. Unfortunately, in countries where there is poor local enforcement of copyright law, it makes it difficult to close these stores down. 

The Global Scale of Brand Piracy

By the end of the year, the global counterfeit goods market will exceed USD 1.7 trillion (ICC). That’s over 2 % of the world’s total current economic output.

The cost of lost tax revenue and welfare spending is USD 125 billion in developed countries alone.  This equates to 2.5 million legitimate jobs lost from the global economy as a result of piracy.  It seems that no longer does one country need to invade another. Rather, Piracy and Brandjacking are the new weapons in the arsenal of modern criminal activity and some would argue, modern warfare.  

Cybersquatting and Domain Kiting

In the online context the scale of the Cybersquatting problem is significant. A study released by MarkMonitor, a privately held firm that alerts companies if their brand is being abused online, attempted to quantify the scale of the problem. They found more than 286,000 instances of cybersquatting for the 25 brands it studied—an average of 11,400 instances each in a 30 day period.

Cybersquatting is the practice of registering names, especially well-known company or brand names, as Internet domains, in the hope of reselling them at a profit." (Wikipedia)

MarkMonitor's study also found more than 11,000 cases of domain kiting carried out against the 25 companies in the sample group.The primary target of domain kiting - financial institutions. These accounted for 980 incidents of kiting attacks within MarkMonitor's testing group. Domain kiting makes it almost impossible for big brands to secure their domains putting their reputation at risk to those that want to redirect clients to phishing sites or to defame them.

Domain kiting is the practice of repeatedly registering and deleting a domain name so that the registrant can, in effect, own the domain name without paying for it. Domain kiting, like domain tasting , exploits the five-day add grace period (AGP) in the domain name registration system"(Wikipedia).

Fake banking sites and phishing have long been an issue for the financial markets. However, it is these Chinese counterfeit "store" examples that are a great illustration of just what lengths criminals will take, to hijack a company's reputation, brand and goodwill. 

Reputational Risk Mitigation

There are 3 typical approaches to mitigating "brandjacking" :

1) social and media monitoring of the brand,  

2) pre-emptive registration of trademarks and domain names

3) strong and persistent legal action against those responsible for the infringement. 

Brandjacking, if not effectively managed, puts customers, revenue, credibility and reputations at risk. Moreover, the company can be held hostage to a "brandjackers" demands.

I know of one company that was forced to work with their manufacturer in an emerging market at extortionate prices for years because they had not protected their brand.

Buyer beware. Company beware. Brandjacking, just like piracy, is now big business.

Have you been brandjacked? If so, how and where? Please take the time to comment and share your example and the actions you took to manage your risks on this post. 

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I appreciate that you are reading my post. Here, at LinkedIn, I write about board related issues - corporate strategy, human capital, reputation risk, technology, corporate governance and risk management trends.

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Research Fellow of TIAS - the School for Business and Society, working to deliver predictive reputation risk analytics for financial strategies and complex global supply chains - r3Intell.

Connect: Leesa Soulodre, Managing Partner, RL Expert Group - ls@rlexpert.com

http://www.rlexpert.com

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