From the WTR archive: how Ford’s brand protection team became a profit centre with 300% ROI
In September 2017 WTR sat down with Angela Chen, former brand protection manager, Asia-Pacific, at Ford. In this leadership role, she positioned the department as a revenue generator and, in the first nine months of 2017, returned five times cost. In this reproduced piece, she told us how.
While many practitioners toiling in the brand protection trenches struggle to secure funding and are seen by senior management as a cost centre, Angela Chen, brand protection manager, Asia-Pacific, at Ford, explains that her team’s focus on hard recovery has led to a fundamental shift in this perception. Now, “Ford’s leadership is convinced that brand protection is a great revenue generator”. Here, she reveals how this was achieved.
To quantify the financial payback of brand protection you need to know objectively how big the financial threat posed by illicit trade is and then ascertain how effective enforcement efforts against it have been. A seizure of 125,000 products is one thing if it is known that there are 125,000 counterfeits in circulation – less impressive if the number of fakes is closer to 125 million.
While some practitioners regard true return on investment (ROI) as impossible to confirm, Chen’s team calculates it through a combination of soft and hard recovery calculations – with the latter focus specifically resulting in her department being regarded internally as a profit, rather than cost, centre.
In terms of soft recovery, the underlying philosophy is that, by removing access to infringing goods or confiscating such products, losses can be avoided and legitimate goods sold in their place. Central to the equation is the substitution figure used to calculate the benefit of the seizure. A seizure of 10 counterfeit products will not necessarily equate to the sale of 10 full-price products.
Therefore, a company needs to decide what value it places on particular seized goods. It also needs to identify what actually constitutes a counterfeit part. For instance, Chen observes: “What if the seizure is of empty boxes or labels, or semi-finished products? The approach will vary by company but at Ford we count printed boxes with logos and incomplete parts as a complete product. This is because they are produced with a single purpose – to be fitted onto counterfeit products.”
While soft recovery allows a monetary value to be assigned to seizures, which is useful for internal reporting, it does not lead to an identifiable revenue stream on the balance sheet. At Ford the prime focus is therefore on hard recovery. One tactic for generating revenue is to combine criminal and civil actions against Chinese infringers. Chen maintains that “it is a brand’s right to bring up civil litigation”, adding that criminal actions also provide a monetary opportunity. “In criminal cases, where Ford is the only victim and the case is between the state and the counterfeiter, we do sometimes get approached by defendants as they want to obtain a reduced sentence or probation. They will come to you and ask for forgiveness and offer monetary compensation. They can then go to the judge to ask for probation and offer to raise the monetary fine to be received by the court. We have had cases where a big counterfeiting boss is caught and looking at years of jail time and is willing to trade this for any amount you suggest. To him it just means selling one of his apartments.”
Becoming a profit centre
Chen stresses that Ford will never negotiate with counterfeiters involved in the sale of items that might compromise consumer safety (eg, brake pads or air bags), stressing “we will do everything in our power to make sure they do a full jail term”. However, the team’s openness to financial compensation arising from other counterfeit activities has led to tangible revenue streams for the company.
Crucially, compensation may be recovered from a company’s own suppliers if they overstep the line in original equipment manufacturer (OEM) industries. In the OEM model scenario, for example, Ford will invest in tooling lines and then place orders with the supplier to produce particular Ford-branded parts. Usually, there would be a Ford production line and the supplier would have a second production line for its own products, which are identical and can be sold as an alternative to the Ford-branded product. “You can ask for a Ford brake pad or the owner may mention that Ford is an OEM and suggest another brake pad, which is identical, the only real difference being the packaging. This is fine, the customer can choose between our branded products or choose the other brake pad.”
However, this scenario can be exploited by unscrupulous partners. “It can be profitable for production partners to produce excessive amounts on the Ford order. For example, we place an order for 10,000 products and they produce an extra 2,000. They then become the suppliers of unauthorised sales. This is a huge problem and a lot of famous supplier brands do this. You can’t raid them as they are genuine products, but this can hurt the business more than counterfeits as they take our market share.”
Where this activity is detected, the team will sit down with suppliers and negotiate a settlement, creating a revenue recovery opportunity. “Our eyes are not only on the dollar,” insists Chen. “This is behaviour that has to stop as it undercuts our market share and confuses the customer. But we do negotiate with suppliers for hard recovery. We ask how many parts have been sold and calculate the gross market loss that resulted. Of course, they will often deny that the part was produced by them or say that it is a counterfeit so it can be a difficult negotiation – it can take as long as 18 months.”
Such an approach requires brand protection professionals to develop negotiation skills and be able to generate buy-in from business development colleagues, for whom the supplier relationship is critical. Chen notes: “Negotiation skills across the table are really important – you need to work internally with purchasing, production, technical and commercial teams to be on same page and sit in front of suppliers.” If achieved, this sort of policing can result in another identifiable revenue stream.
All told, the combination of different revenue recovery efforts can fundamentally transform the business perception of the brand protection function. Rather than a drain on resources, it can be the source of reportable revenues. For Chen, the monies that Ford derives from civil and criminal hard recovery has allowed the team to position itself as a profit centre: “We have had a great year so far – we have achieved hard recovery of five times our costs to date [September 2017]. Last year we achieved three times cost. That includes salaries, travel, expense, databases – everything.”
Although this approach may not be available to all brands in all industries, where it can be utilised, it creates a powerful argument for the support of brand protection activities. After all, money talks.