Take some time and read our newest Cannabis article titled “Building Cannabis IP Includes Both Your Brand and Your Technology” in Green/Entrepreneur Magazine.
Building your trademark and copyright intellectual rights through branding will allow you to retain exclusive use of your logo, trade names or marketing content, so that no one else can make use of them, giving you the opportunity to achieve the rewards of investment in your brands through marketing efforts.
Doug Bania spoke at USD School of Law to a trademark litigation class. The advanced trademark class provides students with the skills necessary to become successful trademark litigators. Doug spoke about how attorneys work with damages experts and the Internet and social media analytic tools used by experts to gather facts.
In a world defined by climate change, social inequality, and large-scale conflict, and as idealistic Millennials come of age, companies that can turn a profit while fulfilling a higher mission are on the rise. These so-called “mission-driven companies”—think TOMS helping one person in need for every pair of shoes purchased or Everlane using only ethical, transparent manufacturing processes—capitalize on consumers becoming more informed about the products they consume and how they are sourced.
We recently undertook an intellectual property (IP) valuation for a mission-driven direct-marketing cosmetics company touting the “safety” of their products. The less-than-five-year-old company’s financials showed them beating out competitors on revenue growth and gross profits and they were set to become profitable in two years’ time as they branched out into e-commerce and retail sales. In the IP valuation we sought to assign a dollar amount to the company’s brand which included the trademarks and marketing assets that used the brand name (“brand assets”).
Research Reveals Low Brand Awareness among Likely Customers
Our first finding in the valuation process was friction between the market for the company’s products and its distribution strategy, which relied on consultant sales rather than more traditional personal care product channels. According to our market research, the outlook for safe, healthy, and organic products remained highly favorable with growth in organic cosmetics forecast at 13% over the next five years; tellingly, however, the company’s most relevant competitor with a network distribution strategy had experienced declining sales, earnings, and valuationsin recent years.
While brand awareness and intent to purchase was high among stakeholders (consultants, monthly members, and casual customers), 0% of control group respondents—heavy cosmetics users with a majority indicating safe and natural ingredients as a priority—had unaided awareness of the company’s brand when asked the open-ended question of what brands come to mind for safe and natural ingredients.And when supplied with a list, only less than 20% of participants indicated awareness of the company’s brand.
Brand Score & Apportionment Reveal Disproportionate Role of Consultants in Financial Performance
Using our proprietary Brand Score Tool, in which we assign scores to factors such as licensing, pricing, and differentiation, the company came out with a brand score of 2.0, which is relatively low for a consumer products company.
With our Profit Apportionment Model we seek to determine how certain brand assets contribute to a company’s overall financial performance. Using our model, we found that of the company’s key assets, the consultant network was the one contributing most to financial performance. The brand assets, while somewhat effective in the direct channel, were not pulling their weight in e-commerce and retail channels.
Our Profit Apportionment Model included a cash flow forecast for each distribution channel and each asset. By totaling the charges and assigning discount rates based on the risk level of each asset, we determined the value of each IP asset used by the company. We also conducted a brand valuation using a Relief from Royalty model, which calculates the market cost to license the brand assets. This method yielded a slightly lower valuation but the context of licensing the brand assets was less relevant to this company, so we focused our value opinion on the Profit Apportionment Model result.
When it’s Not Enough to Deliver on the Promise of the Mission
Sustainability, corporate social responsibility (CSR), and values-based behaviors can be important drivers of stakeholder perception. Essentially, a company promising to act in a sustainable or values-based manner is making a promise to its stakeholders that it will back its statements with actions. When a company’s statements and actions are aligned with its stakeholders’ values, and the company delivers on its promises, its brand is perceived more favorably. As more companies embrace missions based on sustainability, CSR, and values-based promises they have the opportunity to prove that their actions are aligned with their promises and build stronger brands.
In the case of our mission-driven brand valuation client, the company delivered on its promise, as reflected by high repurchase rates, however; the low brand name recognition showed the promise was not yet connected to its brand. Therefore, the brand was not yet driving financial performance as much as it could.
Over time, increased brand equity impacts the bottom line by helping a company sell more products, sell them at a higher price, or save money with decreased need to advertise. Although a direct sales model can be incredibly effective for generating revenue, without frequent and consistent use of the brand assets by the consultant network, critical opportunities to garner brand equity are missed.
Regardless of distribution channel, when brand assets are properly leveraged, delivering on the mission translates into brand equity; and when brand equity is properly leveraged, brand valuation captures the resulting return on investment.