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The evolution of generic brands in industrial markets: the challenges to owners of brand equity
Industrial Marketing Management 31 (2002) 385 – 392
The evolution of generic brands in industrial markets: the challenges to owners of brand equity John Lowa, Keith Bloisb,* a
Sortex Ltd and Royal National Institute for the Deaf, UK Templeton College, University of Oxford, Oxford OX1 5NY, UK
b
Received 1 September 1999; received in revised form 1 March 2000; accepted 1 April 2000
Abstract The paper suggests that generic brands can develop in industrial markets as easily as they can in consumer goods markets. It briefly examines the issue of branding in industrial markets and then describes the problems that firms can face if their brand name becomes used in a generic manner. It suggests actions that such firms can take as responses to this situation. D 2002 Elsevier Science Inc. All rights reserved. Keywords: Brands; Industrial; Competition; Value
1. Introduction The issue of branding in industrial markets has received little attention relative to that accorded to it in consumer markets. It is therefore not surprising that the problems that arise in industrial markets when a brand name becomes used as a generic term are seldom discussed. However, they can be as significant for industrial firms as for a consumer goods firm as the case of Sortex illustrates.
2. Sortex Sortex1 is a small (1998 turnover £14.3 million) British company, which was incorporated in 1947, and today is a leading supplier of optical sorting machinery primarily for use in food processing. This is a low-volume, high-margin, capital goods business that is highly dependent on international markets. Sortex has built up a large installed base in literally every corner of the world and, even though many new competitors have entered the market over the past 15 – 20 years, none has established such a strong name.
* Corresponding author. Tel.: +44-1865-422700; fax: +44-1854422500. E-mail address: [email protected] (K. Blois). 1 Where a registered company or brand name is referred to, it will be in italics. Thus, Hoover will be used when referring to the Hoover Company and ‘hoover’ when referring to the generic use of the word.
The Sortex name has become very well established and has been applied to Sortex’s products with numbers used to differentiate between its products and product ranges. A 1997 survey showed that 81% of customers or potential customers interviewed were aware of Sortex while the next best known manufacturer was only recognized by 45% of customers or potential customers. However, not only is the name Sortex well known, but it has also become a generic term associated with the process of ‘‘optically sorting foodstuffs’’ — especially sorting rice. Indeed it has been known for rice processors to mark bulk sacks of rice as ‘sortexed’ as long as an optically sorting machine has been used. Furthermore, second-hand optically sorting equipment is commonly referred to as ‘sortex’ machinery regardless of the manufacturer. As a result, customers are often confused with regard to the name of the original manufacturer of a specific optical piece of sorting equipment and have been known to say, ‘‘I have a sortex machine, but I do not know which manufacturer supplied it.’’ Food retailers, commodity traders or others in the food chain, will often insist that their quality standards can only be met by the use of Sortex equipment and make this a contractual requirement. Indeed various publications provide lists of prevailing world prices for rice, and these prices are higher for ‘sortexed’ rice. For example, the July 1998 price of ‘PB 5%’ Thai rice was US$295 per ton compared to US$310 for ‘PB sortexed 5%’ Thai rice.
0019-8501/02/$ – see front matter D 2002 Elsevier Science Inc. All rights reserved. PII: S 0 0 1 9 - 8 5 0 1 ( 0 0 ) 0 0 1 3 1 - 0
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Table 1 Examples of the components of brand value Components
Tangible
Intangible
Product Distribution services Support services Company
Number of defects; useable product life Lead times; number of late deliveries Times and number of staff available Profitability; market share
Perceived reliability Ease of ordering; responsiveness in emergencies Perceived service quality; rapport between service provider and customer Reputation; country of origin
Source: Based on Ref. [1].
Unfortunately, for Sortex, it has become acceptable to classify rice sorted with an optical sorting system from any supplier as ‘sortexed.’ Furthermore, confusion as to the original manufacturer of installed equipment results in poor performance and inadequate reliability being attributed to Sortex even in cases where it is not their machine. Indeed from time to time, firms operating competitors’ equipment will telephone Sortex asking for technical support following a breakdown! 3. The case for branding industrial2 goods The case for branding in general is well established and supported by a considerable volume of research. However, the greater part of it has been concerned with ‘consumer’ goods and, in comparison, relatively little has been written or researched about issues associated with ‘industrial’ brands. Indeed some writers have suggested that to industrial marketers ‘‘the word brand connotes a gimmicky tactic for a less serious consumer product’’ [1]. This view is, perhaps unintentionally, supported by the suggestion [2] that, from the customers’ point of view, branding offers three intangible but significant advantages: 1. A brand is a summary of all the values associated with it. 2. A brand makes customers confident in their choices. 3. It makes customers feel more satisfied with their purchase. It has also been argued [1] that the issue of brands must be viewed from the customer’s perspective, and it has been asserted that brand value is comprised of four components each of which involves tangible and intangible elements (see Table 1). That is, that a brand name conveys to customers that these components have certain values.3 Of course, brand value is difficult to analyze in a precise manner and in reality these four components ‘‘blur together’’ [1]. In addition, a distinction is also made 2 To avoid being repetitive, in the remainder of this paper, the word ‘industrial’ is omitted, but where an issue refers only to a consumer product, this will be indicated. 3 It is important in the euphoria of discussions about the benefits of brands to always remember that a brand may have a negative connotation. For example, Skoda, at least up to the time that it was bought by Volkswagen, had a very negative image.
between ‘‘basic brands,’’ ‘‘augmented brands,’’ and ‘‘potential brands.’’ Basic brands, it is argued, depend primarily upon the product component with the other three components remaining relatively less distinct. With augmented brands both distribution and support services gain significance. Finally, potential brands feature all four components in a balanced manner. It has also been claimed [2] that there are nine specific benefits that an industrial company will derive from having a strong brand image for its products: 1. 2. 3. 4. 5. 6. 7. 8. 9.
Premium prices can be obtained. The product will be demanded. Competitive products will be rejected. Communications will be more rapidly accepted. The brand can be built on. Customer satisfaction will be improved. Power in the distribution network will be increased. Licensing opportunities could be opened up. The company will be worth more when it is sold.
It is not only claimed that owning a strong brand brings benefits to a company, but that there are serious penalties for those companies that do not develop strong brands [2]. Yet, these nine benefits are broad generalizations and the applicability of each of them is contingent upon specific circumstances within which a product is being marketed. For example, the assertion that the third benefit of strong branding is that ‘‘competitive products will be rejected’’ implicitly assumes that there is only one strong brand in the market and/or the cost of purchasing the competing brands is substantially higher. This is because if, as is the case in many consumer markets, there is more than one strong brand, then competitive products will only be rejected in favor of a specific brand when that brand is the ‘‘strongest’’ and not just ‘‘strong.’’ In addition, a customer will only switch brands when the difference between the cost of purchasing the new brand and the established brand is less than the difference in the value that the customer perceives between the two brands.
4. The value of brands Determining what value to place on a brand name has been a problem for many years and has led to many disputes
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about the value of those companies which own brands. There is evidence that investment analysts recognize that a strong brand name is an asset and this presumably affects their valuation of a company. Indeed at least half of a sample of investment analysts [5] rated a series of brand measures as being useful information and 66% of the sample believed that companies should publish more information on brand values. However, there are still many debates about how a brand should be valued. Indeed there are several consultancies (e.g. Interbrand) whose major activity is to provide methodologies to enable companies to evaluate their own and other companies’ brands. A report [6], which used Interbrand’s methodology, sought to assess the value of brands using a combination of financially reported data and a mixture of quantifiable and intangible assessments of the company’s activities. However, the report openly admits that the value placed on a brand is dependent upon the criteria used to judge it and that there is no commonly agreed set of criteria for this purpose. Definitions of brand value, such as: ‘‘A brand’s value equals the net present value of its future cashflows, which are determined by future sales volumes and prices and by the value of the option to create brand extensions’’ [7], illustrate the difficulties. Certainly, it seems that ‘‘(f)urther research is needed to shed light on the way customers in particular industries actually value different tangible and intangible attributes’’ [1]. Managers do express, through comments such as ‘‘Our brand names draw the distinction between the standard item for a particular business and the differentiated, and superior, product’’ [3], a firm belief in the value of a brand name. Indeed many industrial firms indicate that they believe that ‘‘brand names enhance company success and marketing success, are a major asset to the company, and produce many other important benefits’’ [4]. Nevertheless, how this value is evaluated is still a matter of dispute.
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One of the recognized problems with successful brand names is that they can become used as generic terms. That is they enter into everyday language and are used to describe a product or a process without necessarily being associated with the brand owner. In consumer markets, there are many examples of this with brand names such as Hoover, Thermos, Sellotape and many others all being used as a synonym for or instead of the name of the original product category. For example the word ‘hoover’ is firmly established in everyday usage with people asking in shops to see an ‘Electrolux hoover’ and the verb ‘to hoover up’ almost totally displacing the term ‘to vacuum up.’4
This type of situation has occurred even when the company whose name has become used in this way and/ or reasonably large competitors have sought to resist such development. Such attempts range from the serious and costly through to the relatively trivial. An example of a serious attempt that was only partially successful was Coca Cola’s move to stop ‘‘Coke’’ being used as a generic term. Interestingly, in so far as their defense of their brand name was successful, it was in part due to the strength of another brand, namely McDonalds. For Coca Cola’s insistence that McDonalds told customers who asked for ‘‘a coke’’ that they would not get ‘‘a Coke’’ attracted considerable press attention and made an impact on large numbers of customers, because of McDonalds’ own success as a brand. However, it remains the case that many pubs, restaurants, etc. continue to supply a non-Coke when asked for ‘‘a Coke.’’ An example of a relatively trivial attempt of a competitor attempting to slow the development of a generic brand name was Electrolux’s action. This company encouraged its employees and their families to use the verb ‘‘to vacuum’’ rather than ‘‘to hoover’’ with the use of the word ‘hoover,’ other than to describe the competitor Hoover, almost being a disciplinary offence! There are also examples of generic brands in industrial markets — though here, the brand name may not enter into everyday language but only into the language of a specific industrial situation. However, the essence of the situation is still that the brand name becomes used as a word to describe a product, process or service marketed by any supplier in the industry. Brand names such as Caterpillar, Styrofoam and Silastic are all examples of generic brand names applied to industrial goods that have entered into everyday language.5 Indeed, although the Oxford English Dictionary does in the case of each of these three brand names state the term is ‘‘a proprietary name’’ it also gives examples of them being used without an initial capital letter — thus indicating that they are also used in a generic manner. In comparison, although Sortex has, as indicated above, become a generic brand name, it is only known to people familiar with a specific sector of the food processing industry. There is no clear understanding of why a particular brand name becomes used as a generic term. It is often suggested that in most cases, a generic brand name is that brand name, which first established a clear and positive (remembering that there can be brand names with negative associations) brand, identity during the development of the product market. However, there has been no published research that would confirm this assertion. A second question that requires examination is why generic names develop in the case of some products and not others. Why for example is
4 Surprisingly, the Microsoft Word 95 Spell-Check accepts ‘Hoover’ as a correct spelling, but rejects ‘hoover’ even though the Oxford English Dictionary accepts it.
5 ‘‘Caterpillar’’ is of course the name of an animal and was first applied to track-laying vehicles by the allied troops when they saw the first tanks in World War I.
5. The evolution of generic brands
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there not a generic brand name associated with domestic refrigerators? Again, there is no published research that suggests an answer. What is clear, however, is that where a brand name becomes used as a generic term many of those benefits listed above are no longer pertinent. This applies both to the benefits to customers and to the producer whose brand name it is. However, the effects on the benefits to the producer are the greatest. From the producer’s point of view, there is a risk that all of the nine benefits listed by Hague and Jackson are either diminished or destroyed because the competing brands may benefit from a halo effect associated with, say, Caterpillar’s best points. Thus, it is not only difficult to ‘build on’ a brand where its name has become a generic brand name but it is also risky. For whether the meaning of ‘build on’ is to add value to the brand or to extend the range of products marketed under the brand name, it will be difficult for the producer to ensure that such enhancements are only associated with its products rather than all of the industry’s products. The risk, from the customer’s point of view, is that the three advantages that Hague and Jackson suggest brands bring to the customer may be lost. There is also the risk that the generic use of a brand name such as ‘caterpillar’ will result in the values that the customers associate with Caterpillar being diluted to a more general average set of values for the industry as a whole. Customers may then question why they have paid a price premium to obtain a Caterpillar if the competitors’ products are perceived as possessing the same attributes.
6. The costs incurred when a brand becomes a generic brand As was indicated above, a strong brand name can be of great value to a company. However, unless the company continues to invest into it, the brand’s distinctiveness will deteriorate. More seriously where the brand name starts to be used in a generic fashion not only will brand equity be lost, but additional costs will be incurred (see Table 2), and these are discussed below. A strong brand name is usually established as a result of the expenditure of a considerable amount of time and effort plus a sizable monetary investment. Where a brand name becomes used as a generic term this can mean that the expected return on such investment will not be achieved because the name will now fail to differentiate the company’s products against its competitors. This then destroys the essence of a brand name for ‘‘(a) name becomes a brand when consumers associate it with a set of tangible and intangible benefits that they obtain from the product or service. As this association grows stronger, consumer’s loyalty and willingness to pay a price premium increases. Hence, equity is in the brand name. A brand without equity is not a brand’’ [8].
Table 2 Costs and benefits associated with development of a brand and its subsequent erosion to generic status Stage
Costs incurred
Benefits obtained
Development of brand
Brand building costs
Maintenance of brand distinctiveness
Brand building costs; monitoring usage of brand name; litigation Loss of brand equity; unjustified bad publicity; requests for help from competitors’ customers
Product distinctiveness; possibly a price premium Product distinctiveness; possibly a price premium None
Erosion of brand name to generic status
This view is clearly demonstrated by a spokesman for Intel when justifying Intel’s legal action against the use of the term ‘MMX’ by Cyrix and AMD (see Insert 1). Moreover, the brand name owner may incur additional costs (as distinct from loss of benefits) when its brand name is used as a generic term. The most obvious is the risk of being unfairly associated with the failure of a competitor’s product. Thus, the statement: ‘‘The xerox has let us down again!’’ could mean that a Xerox or some other manufacturer’s photocopier has failed. In the latter case, there is a risk that Xerox is unfairly getting bad publicity. Indeed there seems to be some asymmetry in such situations as problems of poor product reliability and performance tend to be focused onto the generic brand name rather than on the manufacturer whose product is faulty. Thus, Caterpillar might get the blame associated with the failure of a competitors’ product. On the other hand, success stories seem to benefit the industry as a whole. Other costs incurred when a brand name is used in a generic manner include demands from owners of competitors’ equipment for technical advice and assistance, as well as spares. An instruction, perhaps especially in overseas markets where language problems may exacerbate the issue, to ‘‘get the xerox fixed’’ may lead to an approach to Xerox for help even where a competitor’s product is involved. In the case of products for which a second-hand market exists (as is the case for Sortex), this danger can be increased. Such equipment, which may be sold without adequate documentation or even clear marking on the equipment itself, might have been described as ‘‘a sortex’’ even though it is not ‘‘a Sortex.’’ Such misuse of the name can lead to a steady flow of requests for: advice, spares, technical assistance, etc. A response to these requests is required even if it is no more than a courteous reply indicating that the enquirer is under a misunderstanding regarding the company’s responsibilities. Failure to answer may lead to the company gaining a reputation for unhelpfulness and inefficiency while a civil response may provide an opportunity for future useful contacts. Unfortunately, the range of people who may use a brand name in a generic manner is very wide and typically
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Insert 1. Intel and the generic use of MMX
In March 1997, Intel filed suit against AMD (Advanced Micro Devices) and Cyrix for infringement of its pending trademark MMX. The suit alleged that AMD and Cyrix were appropriating the name, possibly confusing consumers and improperly leveraging Intel ’s investment in its multimedia technology product. That the suit was merely over trademark rights to the term MMX and not over the technology was indicated by the fact that AMD had the right, under a licensing agreement, to produce microprocessors with MMX technology. Intel sought preliminary and permanent injunctions, along with unspecified damages and fees. A similar suit was also filed in Germany, at the time the only country where the name was registered and Intel also applied to trademark MMX in Canada. Cyrix and AMD contended that Intel was attempting to trademark a generic, industry term for multimedia extensions. Industry observers were not convinced, however, and many agreed with Intel’s claim that: ‘‘Their (i.e. AMD’s and Cyrex’s) clear intent is to leverage our investment in that brand equity associated with MMX. If we start letting people invade and turn our brands into generic names, then we’re headed down a slippery slope where we lose a lot of value (for) our shareholders.’’ However, by the end of April, following a similar settlement earlier in the month between Intel and Cyrix, a deal was announced between Intel and AMD, which allowed AMD to use MMX to promote its chips. A vice president of AMD said in a statement. ‘‘Our agreement with Intel secures for AMD and its customers the ability, on a world wide basis and in all channels of distribution, to continue promoting the MMX capabilities of the AMDK6 processor, including the use of the term in the AMD-K6 processor logo.’’ He also said the settlement meant that any confusion in the marketplace that might have occurred had the litigation resulted in a protracted legal battle would now be avoided. includes: the direct customers; the customers’ customers; trade associations; and journalists. Such a list presents a formidable challenge to a firm that is anxious about the development of or the actual generic use of its brand name. Thus, it is inevitably time-consuming and costly for a company to monitor the situation with the intent of trying to rectify any poor publicity and/or inappropriate use of its brand name. In any case, even if a firm identifies that, say,
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its competitors’ customers are using its brand name in a generic manner action, it may be very difficult to take action, which will dissuade them from continuing to do so without incurring very considerable costs. Of course, in cases of infringements of the use of a brand name, legal action can be taken. However, there are obvious practical difficulties and risks associated with such an action. First, the legal costs can be considerable and, as the Intel example (Insert 1) shows, may require legal actions in several countries. Second, unless action is taken against those who use the brand name in an inappropriate manner at the earliest possible time, then the legal defense of the brand name can become substantially more complicated as Formica discovered (Insert 2). Third, particularly where a company is large or dominates a market such actions, even if legally justified, can both bring adverse publicity to the company and also draw attention to the existence of competitors. Indeed challenging small competitors may enhance their credibility for, if the industry leader sees them as a threat, they must be good! Indeed a respected industry commentator, while agreeing that MMX was not a generic term, still questioned Intel’s wisdom in pursuing Cyrix and AMD for labeling their product MMX stating: ‘‘I think that sometimes Intel get so focussed on the legal issues that they lose focus on the bigger picture, which is — why highlight the fact that your competitor has developed a new technology?’’ [9].
Insert 2. A legal threat to Formica’s brand name
As the range of products included in the Formica brand product line increased, Formica decided to build on earlier measures to protect the Formica brand name. However, on 31 May 1978, the Denver regional office of the Federal Trade Commission filed a petition with the Trademark Trial and Appeals Board to cancel the registration of the Formica trademark. The petition alleged that the trademark, which appeared on a variety of plastic laminates and other products manufactured by Formica, had become the generic or descriptive name for all decorative plastic laminates. The Formica managed to convince the Trademark Trial and Appeals Board that the FTC was incorrect. However, as a consequence of this threat to their brand name, Formica took new steps to protect the Formica brand. These included, as well as advertising directed at customers, aggressive advertising campaigns targeting journalists with the straightforward message that Formica is a trademarked brand, not a generic name for high-pressure laminate, countertops or furniture finishes.
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7. What to do? When considering what action to take if a brand becomes a generic term, it has to be recognized that in many cases, in industrial markets, the firm did not make a definite decision to develop a brand. This was not the intent and the evolution of the brand name might be described as ‘‘an accident’’! Indeed quite often the company’s name became the brand name through the use made of it by the customers and not because the company planned such a development. In such cases, the company has not spent much, if any, effort on creating a brand name. What it has done is develop and market a good product. Therefore, any benefits that have been received through the accidental creation of a brand name might be regarded as ‘‘windfall gains.’’ Perhaps, therefore, in thinking about the costs associated with becoming a generic brand these can be regarded as the opposite of a windfall gain and should be fatalistically accepted as such! However, an estimate of the identifiable costs (e.g. number of letters dealt with, number of phone calls received, etc.), which are being incurred because of the brand name’s generic use should be made and should be incorporated into the process of determining what action to take. There seem to be three options open to a company if it finds that its brand name is being used generically. First, establish that it is the only company allowed to use the registered name and take steps to defend that position. Second, do nothing. Third, change the name of the product and develop a new brad name distinct from that of the generic brand. For convenience, these options will be labeled: ‘fight,’ ‘accept,’ and ‘change.’ Yet, as will be seen from the discussion of each of these options, a firm’s decision as to which of these options to follow will be strongly influenced by whether or not the company name and the brand name are the same — as is the case with Sortex. Indeed where they are identical then the change option is almost certainly not feasible. 7.1. Fight Inevitably, as the Intel example illustrated, the firm fighting will incur considerable financially costs, not infrequently bad publicity, and sometimes, perversely, even provide beneficial publicity for those companies being attacked! Furthermore, where it is necessary to fight in several countries, the costs can be daunting, for using the legal system in some countries often appears to bring with it major problems. For example, in the case of Thailand, it has been said that: ‘‘Litigation in Thailand can be very costly’’ [10], indeed so costly that this is one of the reasons why in Thailand ‘‘there are relatively few Supreme Court precedents in international commercial disputes’’ [10]. Therefore, before embarking on such a procedure, some assessment must be made of both the likely costs and the probability of winning. In general, to
‘fight’ is going to be very expensive and maybe unlikely (even if legal victories are achieved) to provide much benefit. Thus, any company seeking to defend its brand name in Southeast Asia has to recognize that not all of the various legal systems that exist in that region are, to put politely, sympathetic to the concept of intellectual property, trade marks, copyright, etc. It follows that the probability of achieving a legal victory in some countries in this region is low. Furthermore, even if a firm is successful in obtaining an injunction restraining others from using its name, actually achieving any action can in some legal jurisdictions seem to be a matter of chasing the ‘‘Will o’ the whisp.’’ Indeed even within a country like Great Britain, it can sometimes be costly to get an injunction fully implemented. Even where there appears to be a point of leverage, the true impact of a legal victory may be very little. Thus, even if Sortex was able to insist that at auction, the term ‘sortexed’ should only be used for rice, which had been through a Sortex machine (and not just rice, which had been subject to optical checking), the auctioneer would still have to rely on the honesty of his suppliers’ statements as to which type of machines they had used. It is particularly important for a company when trying to assess the costs vs. the probability of achieving any effective restraint on the use of its brand name to factor into its calculations an allowance for management time. Briefing lawyers and the necessity in some foreign jurisdictions of senior mangers attending court can absorb substantial amounts of management time. However, regardless of its size, a company like Sortex has to consider ‘fight’ as a more serious response than, say, did Dow Corning when its brand name Silastic began to be used generically. This because Sortex was the company name and thus negative publicity about Sortex was potentially damaging to the company as a whole and not just a part of it. 7.2. Accept Should the ‘fight’ route not look attractive (and even for large companies this is frequently the case), then ‘acceptance’ should be considered. Indeed it is arguably the only alternative open in those cases where brand name and company name are the same. ‘Acceptance’ does not of course simply mean passivity. At the very least, a company following this policy should have carefully prepared draft statements available for issuing to the media in a variety of foreseeable circumstances. For example, if a competitor’s product suffers a disastrous failure and the media refer to the product by the generic brand name, then the existence of a draft press release could be invaluable in preparing a speedy response. Other ways in which ‘acceptance’ can be less than passive is by replying with some information about the real brand to all those communications that are received as a result of the use of the generic term about competitors’ products.
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Table 3 Identifying and responding to the generic branding threat Identifying the problem
Action
Check actual and potential customers’ usage of the brand name in communications with you.
If it appears that the brand name is being used in a manner which does not strongly associate the product with your company then require sales staff to emphasize your brand’s uniqueness and develop a communications program to support this activity. If the brand name is even beginning to be used as a generic term write to the journalist involved stressing the name’s legal status. Also write to all journals targeting similar audiences. If there is any evidence of inappropriate use of your brand name instruct lawyers to write to the competitor immediately.
Monitor articles in newspapers and trade press for use of the brand name. (This is now relatively easy with on-line databases such as ProQuest and Reuters.) Monitor competitors’ publicity material.
If it appears that your brand name is being used generically
Action
If monitoring customers, media and competitors indicates generic use of your brand name by members of each of these categories, then the situation is serious. If the survey indicates acceptance of your brand name as a generic term.
Undertake a survey to establish the extent of the acceptance of your brand name as a generic term. For example, test what ‘‘sortexed’’ means to managers involved in the rice market. Consider the: fight; accept; change, alternatives discussed in Section 7.
7.3. Change
plus new promotional and advertising material, new packing, documentation, etc. Because of this, it may only be appropriate to implement it as a policy when other factors require changes to be made. For example, if for some other reason, the container needs to be redesigned, this would be an ideal moment to rename the product.
The policy of ‘change’ — that is changing the name associated with company’s product to something distinct from the now generic name — is obviously really only open to companies where the brand and the company name are separate. The reason being that most companies find the prospect of changing their company names too daunting a task. Two cases where companies have changed the name of their products are Silastic produced by Dow Corning and Flowpak produced by Rose Forgrove. Silastic is now known as RTV 732 within the industrial market. The case of Rose Forgrove is more complicated because the brand name Flowpak was easily converted into ‘flow pack’ (a term that cannot legally be protected as it is simply two English words), and it is interesting that at one stage, the company stopped using the term Flowpack, but following a take-over, this name was reinstated. It must be assumed that both companies had evidence that the distinctiveness of their products was being substantially eroded by the development of the generic name. Perhaps for example, Dow Corning had evidence that distributors’ staff when asked for a container of Silastic were at least as likely to sell a competitor’s product as the Dow Corning version. Yet, in neither case, because their brand names and their company names were quite different, did the companies have the problem that Sortex faced. Therefore, for example, once Dow Corning had recognized that Silastic was being used as a generic term, it could try to retrieve its product from the association with the name Silastic without having any impact on its company name.6 ‘Change’ is of course costly as it requires, if the desired impact is to be made, a special public relations campaign 6 In fact, they seem only to have responded to this development within the industrial market where they changed the name to TRV 732. However, in the health care industry market where the name has also become a generic term, they have taken no action.
8. Conclusions The threat of a brand name becoming used in a generic fashion is always present and so a company must take steps to try to avoid its occurrence. This involves identifying the problem and then determining what action to take. As Table 3 indicates, it is necessary regularly to monitor the use of a brand name so that action can be taken as soon as there is any evidence of the name starting to be used generically. However, it is apparent that, sometimes, evidence that this is occurring is not noted or that the generic use of the name develops a momentum that cannot be stopped. Where this occurs, then the alternatives considered in Section 7 above need to be evaluated. Reaching the appropriate decision regarding a company’s response to the use of its brand name in a generic manner is difficult. Inevitably, a number of assumptions and ‘guesstimates’ will have to be made. Even a large firm, which might have the resources to carry out a thorough assessment of the costs associated with each policy and the likelihood of their being successful, will still have to reach a decision on the basis of a high degree of uncertainty. For a small firm with limited resources, the decision will necessarily be based almost entirely on managerial judgement for the cost of even the simple market survey proposed in Table 3 may be too great for it to be undertaken. Again, even a large firm may question the wisdom of defending a brand name, once it has become a generic term, because to do so may incur the expenditure of large amounts of time and money with relatively little probability of successfully re-establishing
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the integrity of the brand’s name. For a small firm, the costs will almost certainly be too great. In spite of this, it would seem wise to reach a conscious decision. Then, at least, all staff will know the context within which they are operating and know what the company policy is when confronted with any of the many issues that can impinge on a company whose brand name is now being use as a generic term.
[5] Institute of Practitioners in Advertising. The Brand Finance Report (London). [6] Badenhausen K. Brands: the management factor. Finance World 1995;22:50 – 69 (August). [7] Desmet D, et al. The end of voodoo brand management? McKinsey Q 1998;2:106 – 17. [8] Court D, Freeling A, Leiter M, Parsons A. If Nike can ‘just do it’ why can’t we? McKinsey Q 1997;3:24 – 35. [9] Anderton P. Intel battles with Cyrix and AMD over MMX moniker. Comput Can 1997;23(7):5 – 6. [10] Seline C. The business guide to Thailand. Singapore: Butterworth Heinemann Asia, 1998.
References [1] Mudambi SM, Doyle P, Wong V. An exploration of branding in industrial markets. Ind Mark Manage 1997;26:433 – 46. [2] Hague P, Jackson P. The power of industrial brands. Maidenhead: McGraw-Hill, 1994. [3] Textile Outlook International. Face to Face: Alan Pedder of ICI Fibres. May 1987, pp. 35 – 45. [4] Shipley D, Howard P. Brand-naming industrial products. Ind Mark Manage 1993;22(1):59 – 66.
Dr. John Low was the Technical Director of Sortex Ltd and is currently the Research Director, Royal National Institute for the Deaf. Dr. Keith Blois in Industrial Marketing, Templeton College and Deputy Director, the Said Business School, both within the University of Oxford.
The evolution of generic brands in industrial markets: the challenges to owners of brand equity John Lowa, Keith Bloisb,* a
Sortex Ltd and Royal National Institute for the Deaf, UK Templeton College, University of Oxford, Oxford OX1 5NY, UK
b
Received 1 September 1999; received in revised form 1 March 2000; accepted 1 April 2000
Abstract The paper suggests that generic brands can develop in industrial markets as easily as they can in consumer goods markets. It briefly examines the issue of branding in industrial markets and then describes the problems that firms can face if their brand name becomes used in a generic manner. It suggests actions that such firms can take as responses to this situation. D 2002 Elsevier Science Inc. All rights reserved. Keywords: Brands; Industrial; Competition; Value
1. Introduction The issue of branding in industrial markets has received little attention relative to that accorded to it in consumer markets. It is therefore not surprising that the problems that arise in industrial markets when a brand name becomes used as a generic term are seldom discussed. However, they can be as significant for industrial firms as for a consumer goods firm as the case of Sortex illustrates.
2. Sortex Sortex1 is a small (1998 turnover £14.3 million) British company, which was incorporated in 1947, and today is a leading supplier of optical sorting machinery primarily for use in food processing. This is a low-volume, high-margin, capital goods business that is highly dependent on international markets. Sortex has built up a large installed base in literally every corner of the world and, even though many new competitors have entered the market over the past 15 – 20 years, none has established such a strong name.
* Corresponding author. Tel.: +44-1865-422700; fax: +44-1854422500. E-mail address: [email protected] (K. Blois). 1 Where a registered company or brand name is referred to, it will be in italics. Thus, Hoover will be used when referring to the Hoover Company and ‘hoover’ when referring to the generic use of the word.
The Sortex name has become very well established and has been applied to Sortex’s products with numbers used to differentiate between its products and product ranges. A 1997 survey showed that 81% of customers or potential customers interviewed were aware of Sortex while the next best known manufacturer was only recognized by 45% of customers or potential customers. However, not only is the name Sortex well known, but it has also become a generic term associated with the process of ‘‘optically sorting foodstuffs’’ — especially sorting rice. Indeed it has been known for rice processors to mark bulk sacks of rice as ‘sortexed’ as long as an optically sorting machine has been used. Furthermore, second-hand optically sorting equipment is commonly referred to as ‘sortex’ machinery regardless of the manufacturer. As a result, customers are often confused with regard to the name of the original manufacturer of a specific optical piece of sorting equipment and have been known to say, ‘‘I have a sortex machine, but I do not know which manufacturer supplied it.’’ Food retailers, commodity traders or others in the food chain, will often insist that their quality standards can only be met by the use of Sortex equipment and make this a contractual requirement. Indeed various publications provide lists of prevailing world prices for rice, and these prices are higher for ‘sortexed’ rice. For example, the July 1998 price of ‘PB 5%’ Thai rice was US$295 per ton compared to US$310 for ‘PB sortexed 5%’ Thai rice.
0019-8501/02/$ – see front matter D 2002 Elsevier Science Inc. All rights reserved. PII: S 0 0 1 9 - 8 5 0 1 ( 0 0 ) 0 0 1 3 1 - 0
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Table 1 Examples of the components of brand value Components
Tangible
Intangible
Product Distribution services Support services Company
Number of defects; useable product life Lead times; number of late deliveries Times and number of staff available Profitability; market share
Perceived reliability Ease of ordering; responsiveness in emergencies Perceived service quality; rapport between service provider and customer Reputation; country of origin
Source: Based on Ref. [1].
Unfortunately, for Sortex, it has become acceptable to classify rice sorted with an optical sorting system from any supplier as ‘sortexed.’ Furthermore, confusion as to the original manufacturer of installed equipment results in poor performance and inadequate reliability being attributed to Sortex even in cases where it is not their machine. Indeed from time to time, firms operating competitors’ equipment will telephone Sortex asking for technical support following a breakdown! 3. The case for branding industrial2 goods The case for branding in general is well established and supported by a considerable volume of research. However, the greater part of it has been concerned with ‘consumer’ goods and, in comparison, relatively little has been written or researched about issues associated with ‘industrial’ brands. Indeed some writers have suggested that to industrial marketers ‘‘the word brand connotes a gimmicky tactic for a less serious consumer product’’ [1]. This view is, perhaps unintentionally, supported by the suggestion [2] that, from the customers’ point of view, branding offers three intangible but significant advantages: 1. A brand is a summary of all the values associated with it. 2. A brand makes customers confident in their choices. 3. It makes customers feel more satisfied with their purchase. It has also been argued [1] that the issue of brands must be viewed from the customer’s perspective, and it has been asserted that brand value is comprised of four components each of which involves tangible and intangible elements (see Table 1). That is, that a brand name conveys to customers that these components have certain values.3 Of course, brand value is difficult to analyze in a precise manner and in reality these four components ‘‘blur together’’ [1]. In addition, a distinction is also made 2 To avoid being repetitive, in the remainder of this paper, the word ‘industrial’ is omitted, but where an issue refers only to a consumer product, this will be indicated. 3 It is important in the euphoria of discussions about the benefits of brands to always remember that a brand may have a negative connotation. For example, Skoda, at least up to the time that it was bought by Volkswagen, had a very negative image.
between ‘‘basic brands,’’ ‘‘augmented brands,’’ and ‘‘potential brands.’’ Basic brands, it is argued, depend primarily upon the product component with the other three components remaining relatively less distinct. With augmented brands both distribution and support services gain significance. Finally, potential brands feature all four components in a balanced manner. It has also been claimed [2] that there are nine specific benefits that an industrial company will derive from having a strong brand image for its products: 1. 2. 3. 4. 5. 6. 7. 8. 9.
Premium prices can be obtained. The product will be demanded. Competitive products will be rejected. Communications will be more rapidly accepted. The brand can be built on. Customer satisfaction will be improved. Power in the distribution network will be increased. Licensing opportunities could be opened up. The company will be worth more when it is sold.
It is not only claimed that owning a strong brand brings benefits to a company, but that there are serious penalties for those companies that do not develop strong brands [2]. Yet, these nine benefits are broad generalizations and the applicability of each of them is contingent upon specific circumstances within which a product is being marketed. For example, the assertion that the third benefit of strong branding is that ‘‘competitive products will be rejected’’ implicitly assumes that there is only one strong brand in the market and/or the cost of purchasing the competing brands is substantially higher. This is because if, as is the case in many consumer markets, there is more than one strong brand, then competitive products will only be rejected in favor of a specific brand when that brand is the ‘‘strongest’’ and not just ‘‘strong.’’ In addition, a customer will only switch brands when the difference between the cost of purchasing the new brand and the established brand is less than the difference in the value that the customer perceives between the two brands.
4. The value of brands Determining what value to place on a brand name has been a problem for many years and has led to many disputes
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about the value of those companies which own brands. There is evidence that investment analysts recognize that a strong brand name is an asset and this presumably affects their valuation of a company. Indeed at least half of a sample of investment analysts [5] rated a series of brand measures as being useful information and 66% of the sample believed that companies should publish more information on brand values. However, there are still many debates about how a brand should be valued. Indeed there are several consultancies (e.g. Interbrand) whose major activity is to provide methodologies to enable companies to evaluate their own and other companies’ brands. A report [6], which used Interbrand’s methodology, sought to assess the value of brands using a combination of financially reported data and a mixture of quantifiable and intangible assessments of the company’s activities. However, the report openly admits that the value placed on a brand is dependent upon the criteria used to judge it and that there is no commonly agreed set of criteria for this purpose. Definitions of brand value, such as: ‘‘A brand’s value equals the net present value of its future cashflows, which are determined by future sales volumes and prices and by the value of the option to create brand extensions’’ [7], illustrate the difficulties. Certainly, it seems that ‘‘(f)urther research is needed to shed light on the way customers in particular industries actually value different tangible and intangible attributes’’ [1]. Managers do express, through comments such as ‘‘Our brand names draw the distinction between the standard item for a particular business and the differentiated, and superior, product’’ [3], a firm belief in the value of a brand name. Indeed many industrial firms indicate that they believe that ‘‘brand names enhance company success and marketing success, are a major asset to the company, and produce many other important benefits’’ [4]. Nevertheless, how this value is evaluated is still a matter of dispute.
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One of the recognized problems with successful brand names is that they can become used as generic terms. That is they enter into everyday language and are used to describe a product or a process without necessarily being associated with the brand owner. In consumer markets, there are many examples of this with brand names such as Hoover, Thermos, Sellotape and many others all being used as a synonym for or instead of the name of the original product category. For example the word ‘hoover’ is firmly established in everyday usage with people asking in shops to see an ‘Electrolux hoover’ and the verb ‘to hoover up’ almost totally displacing the term ‘to vacuum up.’4
This type of situation has occurred even when the company whose name has become used in this way and/ or reasonably large competitors have sought to resist such development. Such attempts range from the serious and costly through to the relatively trivial. An example of a serious attempt that was only partially successful was Coca Cola’s move to stop ‘‘Coke’’ being used as a generic term. Interestingly, in so far as their defense of their brand name was successful, it was in part due to the strength of another brand, namely McDonalds. For Coca Cola’s insistence that McDonalds told customers who asked for ‘‘a coke’’ that they would not get ‘‘a Coke’’ attracted considerable press attention and made an impact on large numbers of customers, because of McDonalds’ own success as a brand. However, it remains the case that many pubs, restaurants, etc. continue to supply a non-Coke when asked for ‘‘a Coke.’’ An example of a relatively trivial attempt of a competitor attempting to slow the development of a generic brand name was Electrolux’s action. This company encouraged its employees and their families to use the verb ‘‘to vacuum’’ rather than ‘‘to hoover’’ with the use of the word ‘hoover,’ other than to describe the competitor Hoover, almost being a disciplinary offence! There are also examples of generic brands in industrial markets — though here, the brand name may not enter into everyday language but only into the language of a specific industrial situation. However, the essence of the situation is still that the brand name becomes used as a word to describe a product, process or service marketed by any supplier in the industry. Brand names such as Caterpillar, Styrofoam and Silastic are all examples of generic brand names applied to industrial goods that have entered into everyday language.5 Indeed, although the Oxford English Dictionary does in the case of each of these three brand names state the term is ‘‘a proprietary name’’ it also gives examples of them being used without an initial capital letter — thus indicating that they are also used in a generic manner. In comparison, although Sortex has, as indicated above, become a generic brand name, it is only known to people familiar with a specific sector of the food processing industry. There is no clear understanding of why a particular brand name becomes used as a generic term. It is often suggested that in most cases, a generic brand name is that brand name, which first established a clear and positive (remembering that there can be brand names with negative associations) brand, identity during the development of the product market. However, there has been no published research that would confirm this assertion. A second question that requires examination is why generic names develop in the case of some products and not others. Why for example is
4 Surprisingly, the Microsoft Word 95 Spell-Check accepts ‘Hoover’ as a correct spelling, but rejects ‘hoover’ even though the Oxford English Dictionary accepts it.
5 ‘‘Caterpillar’’ is of course the name of an animal and was first applied to track-laying vehicles by the allied troops when they saw the first tanks in World War I.
5. The evolution of generic brands
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there not a generic brand name associated with domestic refrigerators? Again, there is no published research that suggests an answer. What is clear, however, is that where a brand name becomes used as a generic term many of those benefits listed above are no longer pertinent. This applies both to the benefits to customers and to the producer whose brand name it is. However, the effects on the benefits to the producer are the greatest. From the producer’s point of view, there is a risk that all of the nine benefits listed by Hague and Jackson are either diminished or destroyed because the competing brands may benefit from a halo effect associated with, say, Caterpillar’s best points. Thus, it is not only difficult to ‘build on’ a brand where its name has become a generic brand name but it is also risky. For whether the meaning of ‘build on’ is to add value to the brand or to extend the range of products marketed under the brand name, it will be difficult for the producer to ensure that such enhancements are only associated with its products rather than all of the industry’s products. The risk, from the customer’s point of view, is that the three advantages that Hague and Jackson suggest brands bring to the customer may be lost. There is also the risk that the generic use of a brand name such as ‘caterpillar’ will result in the values that the customers associate with Caterpillar being diluted to a more general average set of values for the industry as a whole. Customers may then question why they have paid a price premium to obtain a Caterpillar if the competitors’ products are perceived as possessing the same attributes.
6. The costs incurred when a brand becomes a generic brand As was indicated above, a strong brand name can be of great value to a company. However, unless the company continues to invest into it, the brand’s distinctiveness will deteriorate. More seriously where the brand name starts to be used in a generic fashion not only will brand equity be lost, but additional costs will be incurred (see Table 2), and these are discussed below. A strong brand name is usually established as a result of the expenditure of a considerable amount of time and effort plus a sizable monetary investment. Where a brand name becomes used as a generic term this can mean that the expected return on such investment will not be achieved because the name will now fail to differentiate the company’s products against its competitors. This then destroys the essence of a brand name for ‘‘(a) name becomes a brand when consumers associate it with a set of tangible and intangible benefits that they obtain from the product or service. As this association grows stronger, consumer’s loyalty and willingness to pay a price premium increases. Hence, equity is in the brand name. A brand without equity is not a brand’’ [8].
Table 2 Costs and benefits associated with development of a brand and its subsequent erosion to generic status Stage
Costs incurred
Benefits obtained
Development of brand
Brand building costs
Maintenance of brand distinctiveness
Brand building costs; monitoring usage of brand name; litigation Loss of brand equity; unjustified bad publicity; requests for help from competitors’ customers
Product distinctiveness; possibly a price premium Product distinctiveness; possibly a price premium None
Erosion of brand name to generic status
This view is clearly demonstrated by a spokesman for Intel when justifying Intel’s legal action against the use of the term ‘MMX’ by Cyrix and AMD (see Insert 1). Moreover, the brand name owner may incur additional costs (as distinct from loss of benefits) when its brand name is used as a generic term. The most obvious is the risk of being unfairly associated with the failure of a competitor’s product. Thus, the statement: ‘‘The xerox has let us down again!’’ could mean that a Xerox or some other manufacturer’s photocopier has failed. In the latter case, there is a risk that Xerox is unfairly getting bad publicity. Indeed there seems to be some asymmetry in such situations as problems of poor product reliability and performance tend to be focused onto the generic brand name rather than on the manufacturer whose product is faulty. Thus, Caterpillar might get the blame associated with the failure of a competitors’ product. On the other hand, success stories seem to benefit the industry as a whole. Other costs incurred when a brand name is used in a generic manner include demands from owners of competitors’ equipment for technical advice and assistance, as well as spares. An instruction, perhaps especially in overseas markets where language problems may exacerbate the issue, to ‘‘get the xerox fixed’’ may lead to an approach to Xerox for help even where a competitor’s product is involved. In the case of products for which a second-hand market exists (as is the case for Sortex), this danger can be increased. Such equipment, which may be sold without adequate documentation or even clear marking on the equipment itself, might have been described as ‘‘a sortex’’ even though it is not ‘‘a Sortex.’’ Such misuse of the name can lead to a steady flow of requests for: advice, spares, technical assistance, etc. A response to these requests is required even if it is no more than a courteous reply indicating that the enquirer is under a misunderstanding regarding the company’s responsibilities. Failure to answer may lead to the company gaining a reputation for unhelpfulness and inefficiency while a civil response may provide an opportunity for future useful contacts. Unfortunately, the range of people who may use a brand name in a generic manner is very wide and typically
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Insert 1. Intel and the generic use of MMX
In March 1997, Intel filed suit against AMD (Advanced Micro Devices) and Cyrix for infringement of its pending trademark MMX. The suit alleged that AMD and Cyrix were appropriating the name, possibly confusing consumers and improperly leveraging Intel ’s investment in its multimedia technology product. That the suit was merely over trademark rights to the term MMX and not over the technology was indicated by the fact that AMD had the right, under a licensing agreement, to produce microprocessors with MMX technology. Intel sought preliminary and permanent injunctions, along with unspecified damages and fees. A similar suit was also filed in Germany, at the time the only country where the name was registered and Intel also applied to trademark MMX in Canada. Cyrix and AMD contended that Intel was attempting to trademark a generic, industry term for multimedia extensions. Industry observers were not convinced, however, and many agreed with Intel’s claim that: ‘‘Their (i.e. AMD’s and Cyrex’s) clear intent is to leverage our investment in that brand equity associated with MMX. If we start letting people invade and turn our brands into generic names, then we’re headed down a slippery slope where we lose a lot of value (for) our shareholders.’’ However, by the end of April, following a similar settlement earlier in the month between Intel and Cyrix, a deal was announced between Intel and AMD, which allowed AMD to use MMX to promote its chips. A vice president of AMD said in a statement. ‘‘Our agreement with Intel secures for AMD and its customers the ability, on a world wide basis and in all channels of distribution, to continue promoting the MMX capabilities of the AMDK6 processor, including the use of the term in the AMD-K6 processor logo.’’ He also said the settlement meant that any confusion in the marketplace that might have occurred had the litigation resulted in a protracted legal battle would now be avoided. includes: the direct customers; the customers’ customers; trade associations; and journalists. Such a list presents a formidable challenge to a firm that is anxious about the development of or the actual generic use of its brand name. Thus, it is inevitably time-consuming and costly for a company to monitor the situation with the intent of trying to rectify any poor publicity and/or inappropriate use of its brand name. In any case, even if a firm identifies that, say,
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its competitors’ customers are using its brand name in a generic manner action, it may be very difficult to take action, which will dissuade them from continuing to do so without incurring very considerable costs. Of course, in cases of infringements of the use of a brand name, legal action can be taken. However, there are obvious practical difficulties and risks associated with such an action. First, the legal costs can be considerable and, as the Intel example (Insert 1) shows, may require legal actions in several countries. Second, unless action is taken against those who use the brand name in an inappropriate manner at the earliest possible time, then the legal defense of the brand name can become substantially more complicated as Formica discovered (Insert 2). Third, particularly where a company is large or dominates a market such actions, even if legally justified, can both bring adverse publicity to the company and also draw attention to the existence of competitors. Indeed challenging small competitors may enhance their credibility for, if the industry leader sees them as a threat, they must be good! Indeed a respected industry commentator, while agreeing that MMX was not a generic term, still questioned Intel’s wisdom in pursuing Cyrix and AMD for labeling their product MMX stating: ‘‘I think that sometimes Intel get so focussed on the legal issues that they lose focus on the bigger picture, which is — why highlight the fact that your competitor has developed a new technology?’’ [9].
Insert 2. A legal threat to Formica’s brand name
As the range of products included in the Formica brand product line increased, Formica decided to build on earlier measures to protect the Formica brand name. However, on 31 May 1978, the Denver regional office of the Federal Trade Commission filed a petition with the Trademark Trial and Appeals Board to cancel the registration of the Formica trademark. The petition alleged that the trademark, which appeared on a variety of plastic laminates and other products manufactured by Formica, had become the generic or descriptive name for all decorative plastic laminates. The Formica managed to convince the Trademark Trial and Appeals Board that the FTC was incorrect. However, as a consequence of this threat to their brand name, Formica took new steps to protect the Formica brand. These included, as well as advertising directed at customers, aggressive advertising campaigns targeting journalists with the straightforward message that Formica is a trademarked brand, not a generic name for high-pressure laminate, countertops or furniture finishes.
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7. What to do? When considering what action to take if a brand becomes a generic term, it has to be recognized that in many cases, in industrial markets, the firm did not make a definite decision to develop a brand. This was not the intent and the evolution of the brand name might be described as ‘‘an accident’’! Indeed quite often the company’s name became the brand name through the use made of it by the customers and not because the company planned such a development. In such cases, the company has not spent much, if any, effort on creating a brand name. What it has done is develop and market a good product. Therefore, any benefits that have been received through the accidental creation of a brand name might be regarded as ‘‘windfall gains.’’ Perhaps, therefore, in thinking about the costs associated with becoming a generic brand these can be regarded as the opposite of a windfall gain and should be fatalistically accepted as such! However, an estimate of the identifiable costs (e.g. number of letters dealt with, number of phone calls received, etc.), which are being incurred because of the brand name’s generic use should be made and should be incorporated into the process of determining what action to take. There seem to be three options open to a company if it finds that its brand name is being used generically. First, establish that it is the only company allowed to use the registered name and take steps to defend that position. Second, do nothing. Third, change the name of the product and develop a new brad name distinct from that of the generic brand. For convenience, these options will be labeled: ‘fight,’ ‘accept,’ and ‘change.’ Yet, as will be seen from the discussion of each of these options, a firm’s decision as to which of these options to follow will be strongly influenced by whether or not the company name and the brand name are the same — as is the case with Sortex. Indeed where they are identical then the change option is almost certainly not feasible. 7.1. Fight Inevitably, as the Intel example illustrated, the firm fighting will incur considerable financially costs, not infrequently bad publicity, and sometimes, perversely, even provide beneficial publicity for those companies being attacked! Furthermore, where it is necessary to fight in several countries, the costs can be daunting, for using the legal system in some countries often appears to bring with it major problems. For example, in the case of Thailand, it has been said that: ‘‘Litigation in Thailand can be very costly’’ [10], indeed so costly that this is one of the reasons why in Thailand ‘‘there are relatively few Supreme Court precedents in international commercial disputes’’ [10]. Therefore, before embarking on such a procedure, some assessment must be made of both the likely costs and the probability of winning. In general, to
‘fight’ is going to be very expensive and maybe unlikely (even if legal victories are achieved) to provide much benefit. Thus, any company seeking to defend its brand name in Southeast Asia has to recognize that not all of the various legal systems that exist in that region are, to put politely, sympathetic to the concept of intellectual property, trade marks, copyright, etc. It follows that the probability of achieving a legal victory in some countries in this region is low. Furthermore, even if a firm is successful in obtaining an injunction restraining others from using its name, actually achieving any action can in some legal jurisdictions seem to be a matter of chasing the ‘‘Will o’ the whisp.’’ Indeed even within a country like Great Britain, it can sometimes be costly to get an injunction fully implemented. Even where there appears to be a point of leverage, the true impact of a legal victory may be very little. Thus, even if Sortex was able to insist that at auction, the term ‘sortexed’ should only be used for rice, which had been through a Sortex machine (and not just rice, which had been subject to optical checking), the auctioneer would still have to rely on the honesty of his suppliers’ statements as to which type of machines they had used. It is particularly important for a company when trying to assess the costs vs. the probability of achieving any effective restraint on the use of its brand name to factor into its calculations an allowance for management time. Briefing lawyers and the necessity in some foreign jurisdictions of senior mangers attending court can absorb substantial amounts of management time. However, regardless of its size, a company like Sortex has to consider ‘fight’ as a more serious response than, say, did Dow Corning when its brand name Silastic began to be used generically. This because Sortex was the company name and thus negative publicity about Sortex was potentially damaging to the company as a whole and not just a part of it. 7.2. Accept Should the ‘fight’ route not look attractive (and even for large companies this is frequently the case), then ‘acceptance’ should be considered. Indeed it is arguably the only alternative open in those cases where brand name and company name are the same. ‘Acceptance’ does not of course simply mean passivity. At the very least, a company following this policy should have carefully prepared draft statements available for issuing to the media in a variety of foreseeable circumstances. For example, if a competitor’s product suffers a disastrous failure and the media refer to the product by the generic brand name, then the existence of a draft press release could be invaluable in preparing a speedy response. Other ways in which ‘acceptance’ can be less than passive is by replying with some information about the real brand to all those communications that are received as a result of the use of the generic term about competitors’ products.
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Table 3 Identifying and responding to the generic branding threat Identifying the problem
Action
Check actual and potential customers’ usage of the brand name in communications with you.
If it appears that the brand name is being used in a manner which does not strongly associate the product with your company then require sales staff to emphasize your brand’s uniqueness and develop a communications program to support this activity. If the brand name is even beginning to be used as a generic term write to the journalist involved stressing the name’s legal status. Also write to all journals targeting similar audiences. If there is any evidence of inappropriate use of your brand name instruct lawyers to write to the competitor immediately.
Monitor articles in newspapers and trade press for use of the brand name. (This is now relatively easy with on-line databases such as ProQuest and Reuters.) Monitor competitors’ publicity material.
If it appears that your brand name is being used generically
Action
If monitoring customers, media and competitors indicates generic use of your brand name by members of each of these categories, then the situation is serious. If the survey indicates acceptance of your brand name as a generic term.
Undertake a survey to establish the extent of the acceptance of your brand name as a generic term. For example, test what ‘‘sortexed’’ means to managers involved in the rice market. Consider the: fight; accept; change, alternatives discussed in Section 7.
7.3. Change
plus new promotional and advertising material, new packing, documentation, etc. Because of this, it may only be appropriate to implement it as a policy when other factors require changes to be made. For example, if for some other reason, the container needs to be redesigned, this would be an ideal moment to rename the product.
The policy of ‘change’ — that is changing the name associated with company’s product to something distinct from the now generic name — is obviously really only open to companies where the brand and the company name are separate. The reason being that most companies find the prospect of changing their company names too daunting a task. Two cases where companies have changed the name of their products are Silastic produced by Dow Corning and Flowpak produced by Rose Forgrove. Silastic is now known as RTV 732 within the industrial market. The case of Rose Forgrove is more complicated because the brand name Flowpak was easily converted into ‘flow pack’ (a term that cannot legally be protected as it is simply two English words), and it is interesting that at one stage, the company stopped using the term Flowpack, but following a take-over, this name was reinstated. It must be assumed that both companies had evidence that the distinctiveness of their products was being substantially eroded by the development of the generic name. Perhaps for example, Dow Corning had evidence that distributors’ staff when asked for a container of Silastic were at least as likely to sell a competitor’s product as the Dow Corning version. Yet, in neither case, because their brand names and their company names were quite different, did the companies have the problem that Sortex faced. Therefore, for example, once Dow Corning had recognized that Silastic was being used as a generic term, it could try to retrieve its product from the association with the name Silastic without having any impact on its company name.6 ‘Change’ is of course costly as it requires, if the desired impact is to be made, a special public relations campaign 6 In fact, they seem only to have responded to this development within the industrial market where they changed the name to TRV 732. However, in the health care industry market where the name has also become a generic term, they have taken no action.
8. Conclusions The threat of a brand name becoming used in a generic fashion is always present and so a company must take steps to try to avoid its occurrence. This involves identifying the problem and then determining what action to take. As Table 3 indicates, it is necessary regularly to monitor the use of a brand name so that action can be taken as soon as there is any evidence of the name starting to be used generically. However, it is apparent that, sometimes, evidence that this is occurring is not noted or that the generic use of the name develops a momentum that cannot be stopped. Where this occurs, then the alternatives considered in Section 7 above need to be evaluated. Reaching the appropriate decision regarding a company’s response to the use of its brand name in a generic manner is difficult. Inevitably, a number of assumptions and ‘guesstimates’ will have to be made. Even a large firm, which might have the resources to carry out a thorough assessment of the costs associated with each policy and the likelihood of their being successful, will still have to reach a decision on the basis of a high degree of uncertainty. For a small firm with limited resources, the decision will necessarily be based almost entirely on managerial judgement for the cost of even the simple market survey proposed in Table 3 may be too great for it to be undertaken. Again, even a large firm may question the wisdom of defending a brand name, once it has become a generic term, because to do so may incur the expenditure of large amounts of time and money with relatively little probability of successfully re-establishing
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the integrity of the brand’s name. For a small firm, the costs will almost certainly be too great. In spite of this, it would seem wise to reach a conscious decision. Then, at least, all staff will know the context within which they are operating and know what the company policy is when confronted with any of the many issues that can impinge on a company whose brand name is now being use as a generic term.
[5] Institute of Practitioners in Advertising. The Brand Finance Report (London). [6] Badenhausen K. Brands: the management factor. Finance World 1995;22:50 – 69 (August). [7] Desmet D, et al. The end of voodoo brand management? McKinsey Q 1998;2:106 – 17. [8] Court D, Freeling A, Leiter M, Parsons A. If Nike can ‘just do it’ why can’t we? McKinsey Q 1997;3:24 – 35. [9] Anderton P. Intel battles with Cyrix and AMD over MMX moniker. Comput Can 1997;23(7):5 – 6. [10] Seline C. The business guide to Thailand. Singapore: Butterworth Heinemann Asia, 1998.
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Dr. John Low was the Technical Director of Sortex Ltd and is currently the Research Director, Royal National Institute for the Deaf. Dr. Keith Blois in Industrial Marketing, Templeton College and Deputy Director, the Said Business School, both within the University of Oxford.