Theft Of Identity

Introduction

Retail brands and the theft of identity

Gary Davies

The author Gary Davies is Professor of Retailing at Manchester Business School, a post sponsored by Post Office Counters, Manchester, UK. Abstract The marketing of own brands is a feature of modern multiple retailing. Retailers can create brand image by advertising their own products or creating brand equity in their own stores and transferring such imagery to their physical products. The costs of branding to the retailer are approximately an order of magnitude lower than that to the manufacturers of brands sold via those same retailers. Despite their inherent advantage in managing brands, retailers have often chosen to ape the presentation of established brands. Affronted brand owners can sue under British law for “passing off”, but the protection offered appears limited to the idea of protecting the shopper from confusion, rather than the brand owner from unfair competition. Empirical evidence is presented as to how a “lookalike” brand can acquire the image of the established brand, leading to the challenge of a theft of identity. Whether changes to British law and the different legal situation in other countries takes account of this phenomenon is questioned.

International Journal of Retail & Distribution Management Volume 26 · Number 4 · 1998 · pp. 140–146 © MCB University Press · ISSN 0959-0552

The growth in sales and market share of products whose names are owned by retailers rather than by their suppliers has been one of the most important phenomena in both distribution channel theory and practice. The naming of a product can be just a convenient way of identifying it or it can be part of the “branding” of the product. The distinction between a name and a brand name is difficult to define but the main benefits to the owner of something that can be regarded as a brand are an insulation from price competition and the existence of a consumer franchise, in other words of loyal buyers (Davies, 1992a). Unbranded items tend to be sold on price, as commodities, and this has been the market position of many retailer named products. Inherently this is the only practical difference between products sold under retailer and supplier designated labels. There are, however, many examples of retailer named products selling at a premium over manufacturer brands. For example Marks & Spencer food products sell at a premium, so large that a shopping basket there costs 35 per cent more than one in Tesco or Asda (AGB, 1996). Nor are suppliers to retailers averse to marketing their own named products at price points below those of retailers’ premium ownlabels, as in the case currently of Coca-Cola Schweppes Beverages with their Cresta Lemonade brand. For companies such as Benetton or Body Shop, it is difficult to identify whether the brand is a retail or product brand name. Many clothing retailers including Next, Gap and Kookai are probably better regarded as retailer brands because they do not own the factories producing their products. But the same could be said of sports brands suppliers such as Nike and Reebok who do not own much in the way of retail businesses or production facilities. Rather than try to distinguish between retailer owned brands and supplier owned brands, as if they are somehow inherently different, it would be more rigorous, correct and less confusing if the only distinctions made by practitioners and academics alike were merely between brands The fieldwork on the image of shampoo brands was conducted by Panayiotis Agapiou as part of his work for an MBA dissertation at Manchester Business School in 1995.

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Volume 26 · Number 4 · 1998 · 140–146

and non-brands. From the customer’s perspective it matters little who owns the brand. Do shoppers know or even care that the hi-fi brand name Goodmans is now owned by Comet, the electrical retailer, or that the Schreiber furniture brand is owned and sold exclusively by retailer MFI? What matters to the shopper are the values associated with the name itself and not necessarily what kind of company owns the name. The growth in sales of retailer named products has been linked to the growth in retailer concentration (Davies, 1991; Economist, 1995). As retailers become larger, and particularly when they centralise their purchasing, they create the economy of scale needed to interest a supplier in making a product exclusively for themselves and to justify the cost of packaging and other unique features of their own product. The decision facing the retailer on how to position the product, as a (premium) brand or as a lower price (commodity) line will be guided by the retailer’s overall strategy. Where the store name is itself a brand name based on a quality appeal, it will be easier to position the ownbrand as a premium product under the same name. The Harrods name for example could be used on a premium product but the Aldi name less so. Where the store name represents a cost cutting/price fighting image, it will be more difficult for the retailer to use the same name credibly on both premium product and shopfront. Hence MFI’s purchase and use of the Schreiber and Hygena brand names for their own brand furniture.

repositioning was not successful. It would appear that retailers do not have to, indeed may be ill-advised to, use media advertising to try to create or position a (service) brand. Once the brand has been created, it can be applied to physical products sold in the stores. Alternatively the retailer may still choose to brand its physical products using the same techniques as the manufacturer. In one study covering ten years of advertising by British grocery retailers, advertising to sales ratios ranged from 0.1 to 0.8 per cent (Davies, 1990). Interestingly, the most cost-effective campaign in the study, from Sainsbury, concentrated on their own brands rather than on their stores, while the least effective advertising, from Asda, was mainly concerned with promoting the Asda price offer. Sainsbury were using advertising much in the same way as any manufacturer to create an image for its products, while Asda were using television advertising to promote product and price. Sainsbury’s average expenditure was about 0.15 per cent of sales. Given that their own brand accounted for about half of all sales, this represents an advertising to sales ratio for the Sainsbury product brand of 0.3 per cent (assuming that all the advertising was designed to promote product rather than retailer), a figure that should be compared with the much higher figures for many manufacturer-brands (see Table I). Advertising to sales ratios for manufacturers may be even higher than those implied by Table I, in that the category sales values would include sales of own-label and unbranded products. Advertising costs for a manufacturer are about one to two orders of magnitude higher than for a retailer who can both spread its costs over a wide range of

Retailer branding A retailer can brand a product in the same way as a manufacturer, by the use of advertising, packaging and other forms of marketing communication. Because the retailer is also a service business with a physical presence in front of the shopper it has other ways open to it of branding. Shostack (1977) distinguished between services and product marketing, emphasising the use of tangibles in the marketing of intangible services and intangibles (adverts) in the marketing of tangible products. Davies and Liu (1995) identified that two tangibles, staff and store design, are used successfully in repositioning retail businesses. The use of advertising in

Table I Advertising/sales ratios

Product category

1993

1994

Beer (total) Carbonated soft drinks Coffee Cereals Margarine Biscuits Washing liquids and powders Indigestion remedies Shampoos

0.85 1.28 5.92 9.04 4.67 0.63 11.56 12.92 14.4

0.65 1.18 4.3 9.27 5.94 0.77 13.37 21.14 19.15

Source: Advertising Statistics Yearbooks 1995/6, Advertising Association, London. 141

Retail brands and the theft of identity

International Journal of Retail & Distribution Management

Gary Davies

Volume 26 · Number 4 · 1998 · 140–146

products and use other ways of building brand equity. Added to the advertising expenditures of the manufacturer are other marketing costs. For a company such as Procter & Gamble, marketing costs total 25 per cent of turnover (Mitchell, 1977). A retailer’s “marketing” costs will include staff training and store design. The cost to sales ratio of both of these is difficult to estimate. For example, Marks & Spencer’s image appears to depend substantially on its staff (Davies, 1992b) but what percentage of their staff costs should be considered to be “marketing” costs? Given that retailers need some staff to be in business at all, the additional cost of having better staff and maintaining their training is unlikely to exceed 20 per cent of staff costs, approximately equal to 1 per cent of turnover in the case of this one retailer. Similarly, retailers need premises from which to trade and the extra cost of an enhanced design (compared to a functional one) varies from sector to sector. But taking a figure of £100 per square metre as a figure for enhanced design costs and assuming such design lasts seven years produces an additional cost to a retailer such as Marks & Spencer equivalent to 0.2 per cent of annual sales. The total marketing costs of a retailer to create and sustain brand image could be some 1 to 2 per cent of sales, less than 10 per cent of those of a manufacturer to brand their offerings. Even allowing for the difference in value added between manufacturer and retailer these cost differences are substantial and favour the retailer in establishing a brand image.

imitation and the problem of suing a major retail customer. In Britain a manufacturer can rely on a variety of legal protection including patent, trade mark, copyright and registered design in defending its brand equity. In the case of the imitation of a manufacturer’s brand image the tort of “passing off ” is the most relevant legal perspective. Passing off is “a representation that a person’s goods or business are connected with the goods or business of someone else” and “an implied representation made by the use of a name, mark or some other indicia distinctive of someone else’s business or goods” (Drysdale and Silverleaf, 1995). The tort of passing off is based on case law, not statute. What is taken as unacceptable practice is then defined by successive judgments made in courts sitting under British law. Where one company produces a near perfect copy of the packaging of another, the issue is clear cut. Where the name and packaging are similar, such as in the use of similar names, identical packaging shape, similar colourings, and similar design elements, the issue is less clear. Case law relevant to passing off dates from 1580 (Drysdale and Silverleaf, 1995). Some judgments appear to make it clear that imitation of product presentation could be evidence of passing off. Drysdale and Silverleaf quote from one judgment in 1915, Lord Park, Spalding v. Gamage, “the more common case is where the representation as implied in the use or imitation of a mark, trade name or get-up with which the goods of another are associated in the minds of the public”. The term “get-up” is key. It is defined as “a capricious addition to the article itself – the colour or shape it may be, of the wrapper or anything of that kind”. In a judgment by Lord Scarman in 1981 quoted by Drysdale and Silverleaf (1995) further clarification of the term is given:

The theft of identity Shoppers recognise that retailers are not normally also manufacturers. The majority believe that retailer brands are made for them by the manufacturers who also produce traditional brands (PLMA ,1984). Retailers often do little to discourage this perception even to the extent of copying the physical appearance of a manufacturer’s product when developing their own. The issue of retailer “copycat” products has become a major concern (Rafiq and Collins, 1996). In the past manufacturers would think little of litigating against a retailer or indeed another manufacturer who copied their product. Two problems confront manufacturers today, a lack of clarity in the law relevant to product

Other descriptive material such as slogans or visual images . . . can lead the market to associate with a plaintiff ’s product.

Three elements need to exist to sustain a case for passing off, damage (e.g. loss of sales), goodwill (the appropriation of the reputation of the plaintiff’s product) and deception (intent to deceive the purchaser) (Howard, 1994). If a retailer’s own-brand imitates an established supplier’s brand, then it risks an action for passing off on all three key points.

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Getting the agreement of the courts is nevertheless no easy matter. In one judgment the plaintiff, the manufacturer of Tetrion ready mixed filler, sued a manufacturer of a similar product, sold in an identically shaped tub with near identical diagrams demonstrating how the product was to be used. If the court can be shown that a case for passing off exists, the business position is frozen as at the time prior to the alleged infringement. In other words the alleged offending product has to be withdrawn or at least relaunched in a new form pending the outcome of the eventual hearing. In this case the defendants appealed against the decision that a case existed. In the Court of Appeal evidence was heard of market research outside one store selling both products. Respondents were asked whether they had purchased ready mixed filler. If they said yes they were asked which brand. A number were found who had purchased the lookalike product but who said they had purchased Tetrion. To a marketing person such evidence would have been taken as proof that the lookalike was deliberately intended to misrepresent itself to the consumer. The use of similar get-up could not be accidental. The judges took a different view. Placed side by side the two products were in their view incapable of being confused. They had for example different names and the names were clearly marked. The judges concluded that there was not a serious case to be tried (Fleet Street Reports, 1980). The significance of their decision is that for passing off to be even considered as an issue, the get-up of the alleged offending product has to be very similar to that of the established line. Such judgment tends to run contrary to the evidence as to how consumers make judgements about the products they purchase. Evidence suggests that shoppers rely heavily on extrinsic cues, in other words a product’s get-up, in evaluating products (Richardson et al., 1994). The quickest and easiest way for a retailer brand to establish an image for quality is to ape the get-up of an established brand, in other words to steal the identity of the supplier’s brand. To do so it is not necessary to copy the established product’s presentation, merely to ensure that the cue pattern the shopper perceives when glancing along a supermarket shelf is similar enough to evoke the imagery created by the imitated product.

In 1994 modifications were made to the legislation governing trade marks. It became easier for a company to protect its packaging design but changes in the law did not go as far as brand manufacturers wanted. One concern for the then Conservative government was whether the customer needed protection against the retailer’s imitation of established brands. Such concern highlights an interesting point, whether passing off is a tort concerned with consumer protection or unfair competition. Henderson (1997) points out that in other European countries, whose legal systems differ from those in Britain, competition law offers the brand owner protection from imitative products. Even in countries such as Australia and New Zealand where the system is British law, specific legislation on competition law has been enacted that gives better protection than in Britain itself. Manufacturers have pressed for similar legislation in the UK but the view taken in 1994 by government was that the consumer benefited from retailers’ abilities to imitate established brand lines at lower prices and that this was the dominant issue.

Empirical evidence If a different view is taken, that manufacturers deserve protection from imitative brands, how close should the imitation be before an offence can be judged to exist? Some standardisation of “get-up” and presentation is inherent in product marketing. Beer is sold in cans of the same size and shape. Different manufacturers of pet food have used the same background colours in their labelling to indicate different “flavours”, green for rabbit, golden yellow for chicken. Bread is made in shapes denoting its style, farmhouse, cobs, sandwich tin etc. Two different empirical approaches have been used to assess the level of confusion among shoppers when faced with lookalike products in addition to that mentioned earlier. In one the respondent is exposed to brief glimpses of competing lines and the minimum time needed to discriminate correctly between them is measured (Kapferer, 1995). In another respondents were asked in a questionnaire study whether they experienced any confusion (Rafiq and Collins, 1996). Both approaches focused on the issue of confusion to shoppers rather than on the theft of identity from the

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manufacturer. Both found that confusion can exist. However neither study examined the problem from the perspective of unfair competition, particularly whether lookalike brands can appropriate the identity of the leading brands with which they compete. To test the proposition that it is possible to appropriate the identity of a brand without near duplication of the product get-up, a survey was conducted among users of hair shampoo. Two well known brands, Timotei from Unilever and Vidal Sassoons’ Wash and Go were compared with Sainsbury’s “Frequent Use” and Tesco’s “2 in 1”. The presentation of Frequent Use and Timotei were similar. The presentation of Wash and Go and 2 in 1 were similar. Similarities were mainly in the shape of each pair of bottles and in the choice of packaging colours. Neither similarity in the author’s opinion would have been deemed close enough to provide grounds for a successful action for passing off, as the presentation was not “confusing”. However, and again in the author’s opinion, both retailer products owed much to the original manufacturer’s versions in their choice of packaging shapes, colours and artwork. They were clearly derivatives rather than original creations. Adult respondents outside the two supermarkets were approached at random and were shown the containers of two products, one from each pair. The sample represents therefore a convenience sample of shoppers who would have been exposed to the issue under examination. They were asked the question, “If product _________ came to life as a cartoon character, what do you think its personality would be like?” Such a question was aimed at identifying the symbolic associations of each “brand” (Friedman, 1986; Szaly and Deese, 1978). Responses from 50 individuals were recorded and analysed for each pair. Similar responses were grouped into semantic clusters by the author for the purpose of presentation using judgement of the similarity of the words used by respondents or where the words used appeared to represent differences in construct (see Table II), and to allow comparison across the four brands (see Table III). Quite clearly the personality of Timotei and Frequent Use were very similar and very different from Wash and Go and 2 in 1 which in turn were also very similar.

As far as is known to the author, neither Sainsbury nor Tesco had advertised their products. Both suppliers had spent heavily in promotion and their image profiles reflected the content of their television advertising. It appears more than likely that the image of the retailer’s own brands derived from those of their supplier’s brands. The message to the customer could be “here is our version at a cheaper price” or, more damaging, “here is our version made for us by the same supplier and at a cheaper price”. British law at present is unable to provide protection against such “theft of identity”.

Discussion and conclusion The cost to a retailer of branding is inherently lower than the cost to its suppliers. A retailer need not invest in media advertising to create a brand image as its image as a service brand is created within its own stores by tangibles such as staff and design. The costs involved here are likely to be lower than by using media advertising. Even if the retailer chooses to build its brand through media advertising of its own named products, because it can spread the cost across a wide range of products, its branding costs are again likely to be relatively low. Even if the retailer opts for both routes to create brand image its costs are likely to be an order of magnitude lower relative to those of a supplier. A retailer is then in an advantageous position to create and market its own brands. It needs no further advantage. The position of the supplier is weakened further if the retailer chooses to ape the get-up of the supplier’s brand. Being seen as a copier

Table II Semantic clusters deduced from response data

Semantic cluster

Consumer responses

Natural Gentle Relaxed Quiet Conservative Active

River, natural, healthy, green, “free bird” Gentle, soft, easy going, calm, mild, light Relaxed, peaceful Quiet, shy, lonely, boring Conservative, classic Active, sporty, dynamic, energetic, adventurous, athletic Sociable Young Cheap Happy, alive, smiling Curious

Sociable Young Cheap Happy Curious

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Table III Frequency of meaning responses

Semantic Cluster Natural Gentle Relaxed Quiet Conservative Active Sociable Young Cheap Happy Curious Total

No. of responses Sainsbury’s Frequent Timotei Use 15 25 9 12 9 0 0 0 0 2 0 72

9 18 3 17 7 0 0 0 0 0 0 54

Wash & Go

Tesco’s 2 in 1

0 2 0 0 0 45 6 6 0 21 2 82

2 4 0 2 0 30 3 6 3 12 0 62

of another’s initiatives may ultimately harm the retailers’ image or, alternatively, unless suppliers can convince the public that copying is to be discouraged, the retailer who adopts this approach may be seen as acting in the interests of the shopper. There was a perceived reluctance in Government to tighten the law on trade marks when this was revised in 1994 as much as suppliers had hoped, and this resistance could well have been due to a belief that retailer-brands selling at a discount against supplier brands are somehow in the consumer’s interest. The issue of consumer interest is central to the tort of passing off. Some sources view passing off as part of consumer protection law, ensuring that the public are not deceived. Others see it as part of competition law, to ensure fair competition in the marketplace. There is a conflict of interest between the two perspectives and one that needs to be resolved. More generally suppliers need to ensure that public opinion does not swing totally behind the retailer. A perception that heavily advertised (supplier) brands represent poor value by comparison with retailer brands could well exist, and, if so, this needs addressing. The application of the tort of passing off by the courts appears to be out of step with the ease with which brand image can be misappropriated. Identical packaging and get-up are not needed to produce confusion between similar products. Imitation may be the most sincere kind of flattery but it can be the most

Percentage of responses Sainsbury’s Wash Frequent & Timotei Use Go 20.83 34.72 12.5 16.67 12.5 0 0 0 0 2.78 0 100

16.67 33.33 5.56 31.48 12.96 0 0 0 0 0 0 100

0 2.44 0 0 0 54.88 7.32 7.32 0 25.61 2.44 100

damaging commercially. Courts need to be able to consider the theft of identity as well as the theft of design, formulation and name. Finally there is a moral issue to be addressed. Some retailers are already considering whether their long-term interests are best served by imitating suppliers’ brands. If the public becomes conscious of the concept of theft of identity (suppliers are not averse to sensitising them) then retailers who are currently promoting the cost advantage of their lookalikes may find that their customers may wonder about the values of the retailer and other possible mis-representations that may exist. Social values are about where a society draws a line in the sand on issues as grey as passing off, indicating that one thing is acceptable and another not. There may be a financial benefit to the customer due to the retailers’ theft of identities that manufacturers have expensively built, but is this a justification for that action? As the power of retailers has grown, legislation to ensure fair competition between retailer and supplier may not have changed enough. In other countries, similar issues exist to those in Britain but often more stringent legislation on competition exists, law that should be considered more generally.

References AGB (1996), Consumer panel data. Davies, G. (1990), Advertising in Retailing, Longman, Harlow. Davies, G. (1991), “Marketing to retailers”, Journal of Long Range Planning, Vol. 23 No. 6, pp. 101-8.

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Tesco’s 2 in 1 3.23 6.45 0 3.23 0 48.39 4.84 9.68 4.84 19.35 0 100

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Gary Davies

Volume 26 · Number 4 · 1998 · 140–146

Davies, G. (1992a), “The two ways in which retailers can be brands”, International Journal of Retail & Distribution Management, Vol. 20 No. 2, pp. 24-34.

Kapferer, J.M. (1995), “Brand confusion empirical study of a legal concept”, Psychology and Marketing, Vol.12 No. 6, pp. 351-568.

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PLMA (1984), Store Brands vs National Brands: The American Consumer Speaks Out, Private Label Manufacturers Association, New York, NY. Rafiq, M. and Collins, R. (1996), “Lookalikes and customer confusion in the grocery sector: an exploratory study”, The International Review of Retail, Distribution and Consumer Research, Vol. 6 No. 4, pp. 329-50. Richardson, P.S., Dick, A.S. and Jain, A.K. (1994), “Extrinsic and intrinsic cue efforts on perceptions of store brand quality”, Journal of Marketing, Vol. 58, October, pp. 28-36.

Henderson, S. (1997), “Unfair competition: some approaches to change, British brands”, British Brands Group Newsletter, Summer, pp. 7-8.

Shostack, G.L. (1977), “Breaking free from product marketing”, Journal of Marketing, Vol. 41, April, pp. 73-80.

Howard, J. (1994), “False marketing, recent developments in passing off”, Managerial Law, Vol. 36 Nos. 3/4, pp. 1-40.

Szaly, L. and Deese, J. (1978), Subjective Meaning and Culture: An Assessment through Word Associations, Lawrence Erlbaum, Hillsdale, NJ.

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