Trust is central to any brand; the consumer trusts that the brand owner will deliver the products and services in the way the consumer expects. Fraud, counterfeiting, copycat products and other similar activities can cause significant damage by undermining this consumer trust, even if the activity is carried out by an unrelated party.

Understanding the impact of these activities on brands and reputation is an important step in developing strategies to prevent, limit and mitigate damage. Brand and reputational damages can also be quantified to inform the process and assist in the recovery, whether through litigation or other means.

The International Chamber of Commerce estimates sales of fake merchandise to be between 5% and 7% of world merchandise trade. The impact of this can go beyond an immediate loss of revenue and damage the brand owner's long-term ability to compete. If unchecked, consumers may well be put off from buying the genuine product due to the loss of exclusivity. This can take a long time to repair with significant cost implications, as Burberry is finding. The loss of trust impacts the company's ability to launch new products, enter new markets, negotiate new contracts and maintain its margins.

There is a scale of activity ranging from fraud and counterfeit at one end, to copycat, look-alike, parallel importing and own-label at the other. When assessing damage, or potential damage, circumstances dictate the extent of harm the brand owner is exposed to. For instance, where activity occurs that consumers believe the brand owner should have been able to prevent-such as the release on to the market of counterfeits, rather than fraud perpetrated on the company-the brand owner is very exposed and consumers are unlikely to have much sympathy. Activity such as this prompts consumers to reconsider their trusted brand perceptions, questioning the brand's responsibility and thoroughness, which in turn questions the brand's product and service quality. This in turn is likely to test consumers' loyalty to the detriment of the brand's value and company's reputation.

Quantifying the damage
Calculating the extent of damage to the business and brand-both historical and future-is a useful exercise to undertake to assess what activities should be fought and how, especially where resources are limited. Quantifying damage to the brand and its reputation is also carried out as part of the dispute and litigation process.

There are a number of ways to assess damage to the value of a brand. The methodologies follow the standard approaches to quantification and adhere to international guidelines, such as those published by accounting bodies and the International Organization for Standardization. The starting point is normally based on three main approaches (before taking into account the effect of the damage caused by fraud or similar activity).

• The income approach calculates the net present value of discounted income attributable to the brand. This is done through an in-depth analysis of the market the brand operates in, the company's growth prospects and the brand's profit stream. A methodology such as relief-from-royalty can be employed which determines the royalty payments the brand owner is relieved from paying due to their ownership of the brand.
• The market approach compares the brand in question to similar brands that have been sold or which transactional information is available for. These values are adjusted for parity with the brand and consensus taken of the most applicable value using, amongst other factors, turnover and profit ratios.
• The cost approach analyses both the amount invested in creating the brand and the estimated cost of having to replace the asset. This approach is perhaps more relevant for immature brands but can serve as a useful reference point.

In practice, a combination of methodologies are used which results in a rounded, heavily benchmarked and open valuation.

Benefits of damage assessment
This process is then repeated, factoring in the commercial impact of the fraud or similar activity and the impact is measured as the difference between the two bases. This has many benefits, not least because the brand owner is then aware of the extent of the damage or potential damage being inflicted on the asset, and what is driving that damage. This can be used to calculate losses for claims involving lost profits or lost opportunity. Carrying out such an assessment prior to litigation helps inform potential strategies and sets the dispute in context, as well as assisting potentially in establishing liability.

The valuation process identifies how loss has been sustained and where. It articulates elements such as the impact on price premium, profit margin, marketing expenditure in countering the activity, consumer and trade attitudes towards the brand by market, territory and segment, and identifies clearly the actual and potential damage inflicted. This information can be used in negotiations, for information litigation strategy and for the claim and case itself.

Quantifying the impact of loss of trust on a brand and company's reputation as a result of fraud and counterfeiting is a necessary process to go through in order to put in place counter measures. It should inform plans for remedial steps or for a prevention strategy that limits exposure to it recurring. If used effectively, consumer trust should remain intact and brand and reputational value will be maintained. Given the high values of brands, perhaps 80% of their business value, this is well worth it.