Depreciating Assets Online

The Internet may be destroying your most valuable asset ' whether you know it or not.

Day in, day out, your reputation and brand image may be deteriorating, simply by being part of the Net's price-cutting bazaar. This depreciation occurs when online resellers aggressively promote discounts on branded products ' without the brand owner's consent or awareness. It's a problem for your company because brand image may have no meaning in a world dominated by advertisements touting the lowest prices or discount merchandise.

Sometimes even authorized dealers cut rates to try to take advantage of low online overhead to increase sales. Brand depreciation can also occur when consumers resell their goods at one of the many electronic flea markets that the Net makes possible, and that have become common.

Online damage certainly isn't limited to legitimate sales of your brand and its product line. Low-quality knockoffs can do just as much harm to your brand, but are difficult to control. For instance, unhappy customers will blame the manufacturer for a bad product bought online. It's a fact of e-commerce life that the anonymity of the lowest-price online seller makes pre-purchase inspection and after-sale complaints difficult.

But, one might ask, if a manufacturer profits only on the first sale of a product, then how can online discounting hurt it? After all, price-cutting usually boosts sales volume ' everyone wins, because consumers can buy for less and businesses sell more. Right?

Not always. The problem is that these rules and assumptions don't apply to the many manufacturers that choose not to compete on price. For them, marketing consists of building a brand, rather than a bargain. Those firms promote the quality of their products, or the expertise of their service after the sale. So, for quality-sensitive firms, Internet rock-bottom pricing promotions detract from the expensive image built and bought with ads over many years. More generally, the popularity of online price-comparison sites challenges whether brand marketing and upscale image still work.

On the other hand, customers willing to pay a premium for service or an aura may not get the same satisfaction from shopping themselves from their spare bedroom in their pajamas. An expensive collectible may just not be as attractive when sold from a figurative open roadside truck by an online liquidator.

Use Protections Already in Place

Fortunately, well-established “brick-and-mortar” sales laws let branded-goods sellers legally protect their online image. Also, practical procedures developed for online copyright protection can also help firms police their own image. Most important, manufacturers can announce clear rules for their customers' resales. It is certainly legal to unilaterally cut off sales to a discounter who doesn't honor the manufacturer's Internet sales policies. This type of policy mirrors real-world rules. For example, many firms have strict rules about size and color of their logos ' down to the computer color separations. Others strictly enforce territories because, for example, freedom from competition among dealers of the same product allows investment in service facilities and personnel, or in training to create a knowledgeable sales force.

Power, and Protection, in Brand Diversity

To keep high- and low-price sales, manufacturers often create different brands for similar products, at different price points. This type of market segmentation tries to preserve sales without cheapening brand image. For example, the term fighting brand evolved in the beer industry. A full-line manufacturer can offer a less-expensive product to meet price competition, as well as the premium, high-margin product without cheapening its image. Perhaps the best way to address potential problems is with online sales policies that clearly warn distributors that they will be cut off if they offer discounts (whether online or off). Similar penalties might occur if advertising does not meet the manufacturer's brand-image standards.

Such policies have their practical limits, of course: A manufacturer may not want to cut off a high-volume customer who has large Internet sales. Legally, agreements on resale price have long been prohibited. Instead, the manufacturer can only suggest a retail price ' the common MSRP (manufacturer's suggested retail price). And customers may simply not sign such a policy; some refuse as a matter of principle. Others just ignore the demand, to avoid paying a lawyer to review it.

Instead, a firm can simply announce its online sales policy. Firms that fail to comply will lose the right to sell the product. But be aware that sometimes, customers will call your bluff, and force a decision between actual lost sales and the theoretical integrity of the brand. Then, the manufacturer will be faced with a decision: To lose some sales by cutting off the noncompliant distributor, or to tolerate an exception that may undermine with all resellers the stated noncompliance policy. This could lead to negotiation between the manufacturer and the offending customer after the manufacturer serves a cutoff notice. The manufacturer can then determine whether negotiations are worthwhile. At any rate, manufacturers and other brand owners should prepare for the possibility of negotiating to keep a customer by having counsel or a counsel-approved negotiation procedure in place.

Still More Protection

Other tactics don't even require a formal written policy. e-Bay's guidelines, for example, allow intellectual property owners to protect themselves against abuse. See http://pages.ebay.com/help/confidence/vero-rights-owner.html, and http://pages.ebay.com/help/community/vero-aboutme.html.

As a matter of U.S. copyright law, however, a manufacturer can't stop someone who has purchased something from reselling it, the so-called right of first sale. Although it remains unclear how that law applies to digital copyrights, a manufacturer clearly can block use of its trademark to promote a resale. Of course, most firms (particularly those that sell to collectors) wouldn't want a reputation for blocking individual customers' resales. Yet, few would be concerned about challenging those who do so as an online business – particularly if those sales compete with full-price sales by authorized resellers. Others hire brand-monitoring services to automatically scour the Web for unauthorized uses of their marks and copyrights ' indeed, an e-commerce activity itself, and a viable area into which e-firms may want to expand. Expansion into this underserved market, however, is no easy task and should not be embarked upon on a whim; it is a separate business undertaking that requires the same kind of careful research, business plan and implementation that any successful business used in order to establish itself and to survive. Service firms have long used monitoring services in the real world. But while manufacturers themselves can periodically check search engines for uses of their product, the level of diligence and search skills required may make outsourcing more effective.

Building a premium brand takes time, money and effort ' online and in the real, brick-and-mortar world. The allure of additional online sales doesn't justify cannibalizing that work for low-price volume, no matter how low the overhead.

The Internet may be destroying your most valuable asset ' whether you know it or not.

Day in, day out, your reputation and brand image may be deteriorating, simply by being part of the Net's price-cutting bazaar. This depreciation occurs when online resellers aggressively promote discounts on branded products ' without the brand owner's consent or awareness. It's a problem for your company because brand image may have no meaning in a world dominated by advertisements touting the lowest prices or discount merchandise.

Sometimes even authorized dealers cut rates to try to take advantage of low online overhead to increase sales. Brand depreciation can also occur when consumers resell their goods at one of the many electronic flea markets that the Net makes possible, and that have become common.

Online damage certainly isn't limited to legitimate sales of your brand and its product line. Low-quality knockoffs can do just as much harm to your brand, but are difficult to control. For instance, unhappy customers will blame the manufacturer for a bad product bought online. It's a fact of e-commerce life that the anonymity of the lowest-price online seller makes pre-purchase inspection and after-sale complaints difficult.

But, one might ask, if a manufacturer profits only on the first sale of a product, then how can online discounting hurt it? After all, price-cutting usually boosts sales volume ' everyone wins, because consumers can buy for less and businesses sell more. Right?

Not always. The problem is that these rules and assumptions don't apply to the many manufacturers that choose not to compete on price. For them, marketing consists of building a brand, rather than a bargain. Those firms promote the quality of their products, or the expertise of their service after the sale. So, for quality-sensitive firms, Internet rock-bottom pricing promotions detract from the expensive image built and bought with ads over many years. More generally, the popularity of online price-comparison sites challenges whether brand marketing and upscale image still work.

On the other hand, customers willing to pay a premium for service or an aura may not get the same satisfaction from shopping themselves from their spare bedroom in their pajamas. An expensive collectible may just not be as attractive when sold from a figurative open roadside truck by an online liquidator.

Use Protections Already in Place

Fortunately, well-established “brick-and-mortar” sales laws let branded-goods sellers legally protect their online image. Also, practical procedures developed for online copyright protection can also help firms police their own image. Most important, manufacturers can announce clear rules for their customers' resales. It is certainly legal to unilaterally cut off sales to a discounter who doesn't honor the manufacturer's Internet sales policies. This type of policy mirrors real-world rules. For example, many firms have strict rules about size and color of their logos ' down to the computer color separations. Others strictly enforce territories because, for example, freedom from competition among dealers of the same product allows investment in service facilities and personnel, or in training to create a knowledgeable sales force.

Power, and Protection, in Brand Diversity

To keep high- and low-price sales, manufacturers often create different brands for similar products, at different price points. This type of market segmentation tries to preserve sales without cheapening brand image. For example, the term fighting brand evolved in the beer industry. A full-line manufacturer can offer a less-expensive product to meet price competition, as well as the premium, high-margin product without cheapening its image. Perhaps the best way to address potential problems is with online sales policies that clearly warn distributors that they will be cut off if they offer discounts (whether online or off). Similar penalties might occur if advertising does not meet the manufacturer's brand-image standards.

Such policies have their practical limits, of course: A manufacturer may not want to cut off a high-volume customer who has large Internet sales. Legally, agreements on resale price have long been prohibited. Instead, the manufacturer can only suggest a retail price ' the common MSRP (manufacturer's suggested retail price). And customers may simply not sign such a policy; some refuse as a matter of principle. Others just ignore the demand, to avoid paying a lawyer to review it.

Instead, a firm can simply announce its online sales policy. Firms that fail to comply will lose the right to sell the product. But be aware that sometimes, customers will call your bluff, and force a decision between actual lost sales and the theoretical integrity of the brand. Then, the manufacturer will be faced with a decision: To lose some sales by cutting off the noncompliant distributor, or to tolerate an exception that may undermine with all resellers the stated noncompliance policy. This could lead to negotiation between the manufacturer and the offending customer after the manufacturer serves a cutoff notice. The manufacturer can then determine whether negotiations are worthwhile. At any rate, manufacturers and other brand owners should prepare for the possibility of negotiating to keep a customer by having counsel or a counsel-approved negotiation procedure in place.

Still More Protection

Other tactics don't even require a formal written policy. e-Bay's guidelines, for example, allow intellectual property owners to protect themselves against abuse. See http://pages.ebay.com/help/confidence/vero-rights-owner.html, and http://pages.ebay.com/help/community/vero-aboutme.html.

As a matter of U.S. copyright law, however, a manufacturer can't stop someone who has purchased something from reselling it, the so-called right of first sale. Although it remains unclear how that law applies to digital copyrights, a manufacturer clearly can block use of its trademark to promote a resale. Of course, most firms (particularly those that sell to collectors) wouldn't want a reputation for blocking individual customers' resales. Yet, few would be concerned about challenging those who do so as an online business – particularly if those sales compete with full-price sales by authorized resellers. Others hire brand-monitoring services to automatically scour the Web for unauthorized uses of their marks and copyrights ' indeed, an e-commerce activity itself, and a viable area into which e-firms may want to expand. Expansion into this underserved market, however, is no easy task and should not be embarked upon on a whim; it is a separate business undertaking that requires the same kind of careful research, business plan and implementation that any successful business used in order to establish itself and to survive. Service firms have long used monitoring services in the real world. But while manufacturers themselves can periodically check search engines for uses of their product, the level of diligence and search skills required may make outsourcing more effective.

Building a premium brand takes time, money and effort ' online and in the real, brick-and-mortar world. The allure of additional online sales doesn't justify cannibalizing that work for low-price volume, no matter how low the overhead.