Brand Equity and IP Considerations for your F&B Company in China
China’s counterfeit food & beverage business is booming. In January, global news sources reported that for years around 50 family-run factories had been producing fake condiments, producing revenues of up to RMB 100 million (US$14.5 million) per year. Not only were these factories using industrial and recycled ingredients, they were packaging potentially toxic mixtures in brand named packaging, including Knorr and Nestle.
It has also been estimated that over five percent of the Chinese wine market is counterfeit, whether that be ‘bathtub booze’ concocted from a random mix of industrial ingredients, or cheap wine repackaged in luxury branded bottles. Instances like this can severely affect your brand’s image in the market and reduce your brand’s equity significantly. Because products with a strong brand equity are much more difficult to imitate and challenge in the marketplace, it is imperative that companies take all possible measures to protect brand equity.
Below are two key tips in how to build a brand that resonates with consumers.
Know your competitive advantage
A proactive, consumer-led approach must be taken to achieve competitive advantage by differentiation. It is important to determine and understand your brand’s ‘most special point of difference’, ie. A unique selling point, making this the focus of all branding activity. Further, resources should not be wasted exploiting competitors’ weaknesses; instead, make their offer less relevant by emphasizing the strengths of your brand.
Often brands get distracted trying to defeat competition and lose sight of what the consumers really want. If your brand diverges from the needs of consumers, it is likely that your brand equity will decrease, meaning you will be more vulnerable to competition.
Further, branding across all touch-points (6Ps: proposition, product, pack, price, place, promotion) must be single-minded. The focus of all marketing mix activities should consider your product’s key occasion, as well as your primary and secondary target markets. The equity of a strong brand offering will be much greater than that of brands with a number of different messages. Hence, developing a cohesive, multi-channel brand message is an important method for protecting brand equity and defeating counterfeits and imitators.
China operates on a first to file system for trademarks, which are awarded to the first party who obtains registration. This allows a party to use the trademark from the day of an application until it is exclusively registered. However, it also allows any other party to use the trademark up until it is fully registered. If a trademark is not filed in China, in some cases, companies may come across ‘trademark squatters’, which are domestic Chinese companies who look out for successful foreign brands, and file the trademark before the foreign company. They do this in order to sell the trademark back to them when they arrive, often entailing a lengthy and expensive negotiation process, or even to take advantage of the brand for their own benefit.
A good example of this is Castel Frere wines who entered the Chinese market in 1999, but failed to file the correct IP protection for their Chinese brand, Ka Si Te (卡斯特). A year later, local wine distributor Panati’s registration of the trademark was granted. In January of this year, Castel lost the latest battle for the trademark in a dispute that has lasted almost two decades. Consequently, Castel have taken the costly measure to rebrand themselves to Ka Si Dai Le (卡思黛乐) in the Chinese market.
It is evident that China’s IP legal environment is a challenging ordeal for even the largest of foreign investors. Registering trademarks in China is of utmost importance, especially for entities who have invested a lot of time, effort and funds to build up the reputation of their brand. IP is more relevant today than ever, especially for F&B, where certain brands depend on trust of consumers and geographic indications as their main selling points.
As packaging plays such a vital role in both branding and consumers’ purchasing decisions in the F&B sector, many copies have emerged in the Chinese market.
Packaging can be protected in China under various types of IP: the Trademark Law, the Patent Law, the Copyright Law, and the Anti-unfair Competition Law. Though technical features of packaging could be protected as utility models or invention patents, packaging is more commonly protected by design patents. Design patents protect aspects such as visual features which are designed to be distinct from other brands, and are able to be reproduced via industrial application. A combination of features such as shape, color, and pattern also constitute this.
Copyright is also a valid option, as its scope of protection is broad. Copyright is able to protect original shapes, ornamental works of applied or fine art, images of products, brochures and catalogues, website content, labels, and all other manner of marketing material. Though works are covered by copyright upon creation, voluntary registration can provide strong proof of ownership in the case of dispute in China.
It’s even more critical to protect your packaging IP when considering consumer perceptions around counterfeit or knock off products. Research conducted by the Silk Initiative shows that Chinese imitations are growing in popularity, and may actually provide a better, more localized food product that is more suited to Chinese palettes. Some Chinese companies therefore can take advantage of this scenario by adapting their packaging from well known, established brands with a wealth of existing equity, but delivering a better experience on product.
Typical theft of trade secrets involve renegade employees leaking secrets to competitors. A way to safeguard against this is to import product ingredients in different combinations or batches to be combined as the final product in China, much as the way Coca-Cola or KFC is produced. In addition to this, measures such as signing confidentiality agreements, non-disclosure agreements, and clear marking of trade secret documentation can further prevent losses from leakage of trade secrets.
Many foreign F&B companies fear their trade secrets will be divulged when registering products with the China Food and Drug Administration. However, although a list of ingredients is required to be supplied, exact formulas or amounts do not have to be submitted. As a result, some companies carefully select trustworthy Chinese agents to conduct mandatory product registration on their behalf.
Developing an integrated strategy
It is evident that F&B companies should consider carefully the two aforementioned aspects when operating in China though it also should be noted that a strong brand strategy plan is nothing without the relevant legal protection. This also works the other way round: strong IP protection without competent branding may give local imitations the upper hand when making an impact with consumers.
As such, branding strategy and IP protection should be seen as complimentary methods of brand equity protection rather than alternatives.
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This article was co-authored by Dezan Shira & Associates and the Silk Initiative:
Dezan Shira is a full service practice in China, providing business intelligence, due diligence, legal, tax, IT, HR, payroll, and advisory services throughout the China and Asian region. For assistance with China business issues or investments into China, please contact them at firstname.lastname@example.org or visit www.dezshira.com.
The Silk Initiative is a business strategy and marketing mix innovation consultancy specializing in the food and beverage space. They provide a range of brand strategy, consumer insight, business intelligence and creative execution strategies to clients ranging from global food and beverage giants to SMEs. Need help making sense of the complexities of the China and Asia market? Contact them at email@example.com or visit www.thesilkinitiative.com.
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