Loss prevention executives have been asked by senior leaders to “do more with less” for over a decade. “That phrase goes back more than 15 years—and nothing has changed,” Hedgie Bartol, business development manager for retail at Axis Communications, told LP Magazine in a recent interview. “There is this demand to reduce shrink, but no one wants to spend more to do it. But you can’t get blood out of a turnip.”
Leveraging technology is certainly one way to respond, he suggested, especially the creative integration of store and security technology for business benefit. But another way out from under some of this pressure would be if senior management were to view loss prevention activities differently. If they were to see the value that asset protection provides beyond those observed in shrink calculations.
How can you get there? One possible way to nudge top management toward a more holistic view of LP’s value is to concentrate on the link between loss prevention and brand reputation.
In a 2019 survey by Aon Risk Solutions, 2,672 C-suite executives said “damage to reputation/brand” was the number two risk they worry about. The only thing leaders worry more about is the economy taking a nosedive, the survey showed. By comparison, “theft” ranked number 52 out of 69 risks. With brand reputation so important to senior leaders, it should be a priority for LP.
Why Is Brand Equity Now so Important?
It’s simple: A company’s brand and reputation—as a percentage of its market value—has grown and continues to grow. And, unlike other many threats, risk to the company brand and reputation is difficult to insure against. Also, because they’re fragile. It may only take a few days to wipe out favorable impressions that it took years for a company to cultivate, even if a company doesn’t deserve the hit, notes a study by Perpetuity Research & Consultancy International (PCRI). Companies can provide evidence that a threat or event was exaggerated, but if the wheels are already in motion any amount of proof probably won’t be enough to stop the downward spiral. When it comes to something as tenuous as a company’s good name, rumors rule as much as reality.
The link between security and reputation protection is plain. Indeed, most of what loss prevention departments ordinarily do already serve this goal. Keeping the company out of the headlines by preventing theft, violence, and lawsuits is central to protecting its good name.
While it makes intuitive sense that LP and brand reputation go hand in hand, it may help in making the case to senior leaders to take a deeper dive into how asset protection intersects with brand reputation, an issue examined in the PCRI study. Some key considerations:
Counterfeit Goods. Because they are of generally inferior quality, they damage brands in the opinion of those that buy counterfeit versions unwittingly, notes the PCRI report. Purchases of fake goods also cut into sales and are unfair competition to legitimate retailers. When consumers knowingly buy fake goods, it threatens retailers’ exclusivity and “results in branded goods becoming visible in inappropriate retail settings.”
A recent case in point is a lawsuit filed in May 2019 by retailer GNC. The suit, filed in Pennsylvania federal court, alleges that an unauthorized, New York-based Amazon store is damaging the company’s reputation by selling knockoffs of its products or second-hand goods without GNC’s customer service or quality controls.
Unfortunately, there is every indication that the problem is getting worse. The US Customs and Border Protection announced that a record number of counterfeit and pirated products were seized in 2017. A total of 34,143 shipments of goods that violated intellectual property rights were seized, an increase of 8 percent over the total number of counterfeit shipments seized during 2016. The total estimated retail value for the genuine versions of those goods was $1.2 billion. “The illegal importation and distribution of counterfeit goods not only threatens the economy, but also presents significant health and safety hazards to consumers and funds international criminal organizations involved in forced labor, drug trafficking, and other illicit activities,” said Thomas Homan, deputy director of Immigration and Customs Enforcement, in an announcement on the figures.
Theft. It puts a dent in the bottom line, but it becomes more troubling if it’s allowed to continue and leads to an impression of financial irresponsibility. Theft also commonly leads to reduced on-shelf availability, noted the PCRI report.
Intellectual property rights (IPR) theft and piracy is the product segment experiencing the biggest growth. Customs officials say growth in IPR violations is being fueled by the spread of technology that enables low-cost duplication of copyrighted products, “as well as by the rise in organized crime groups that smuggle and distribute counterfeit merchandise for profit.”
Illicit Grey Trading. When products are diverted for sale in markets in which they were not intended through unregulated channels, companies can lose out by not getting full-market value for their goods. Illicit grey-traded goods can also harm brand equity, says the PCRI study.
In addition to the three primary threats listed above, specific businesses face unique reputation risks. For example, product contamination is a threat to brand owners that sell food and drink. And companies that do extensive business in emerging markets face risk from forming business relationships with unscrupulous companies whose actions can soil its reputation.
How Can You Protect Brand Equity?
On a corporate scale, retail organizations need to incorporate reputation management into risk management activities to establish the necessary framework and ensure the necessary personnel are dedicated to meeting the challenge. The corporatewide effort should focus on developing a “a brand protection culture within the organization.” This will “ensure best use of available technology, instill brand protection processes in the organization, and ensure that the business remains in an improvement loop so that strategy and tactics are continually refined and developed,” concluded the PRCI report.
For LP leaders, the importance of reputation suggests the need to:
- Speak about potential losses from theft and security incidents in terms of reputation (as well as dollars),
- Deploy specific security countermeasures to fight threats to company reputations, such as counterfeiting,
- Work closely with the brand protection unit,
- Identify elements that go into building your company’s reputation and then identify security incidents that can do the greatest damage to it, and
- Develop a list of specific ways that asset protection and LP can support the company’s brand-protection efforts.
What Goes into a Company’s Reputation?
To examine how security events can do damage to the company brand, asset protection departments need to examine threats with respect to the elements that go into developing a company’s good name. Business studies, including “Strategic Reputation Risk Management” (J. Larkin), typically describe five primary business areas from which a company typically develops its reputation—along with specific attributes that companies can possess to boost it.
- Products and services—high quality, innovation, value for money, stands behind them
- Workplace environment—well-managed, good place to work, good employees
- Social responsibility—supports good careers, environmentally conscious, treats people well
- Vision and leadership—opportunistic, excellent leadership, clear vision
- Financial performance—outperforms rivals, profitable, low risk, growth projected
Examining asset protection activities and security threats with the above issues in mind might help LP to stay aligned with brand protection—and what company leaders worry about most.