Online-only start-ups may not know how heavily they rely on IP — and funding an IP strategy may not be top of their priority list. Find out why this needs to change to build brand value and ensure long-term success.
2019 was the year of the retail ‘unicorn’— start-ups with valuations of at least USD 1bn. The ability to achieve such a value is, at least in part, due to the relative ease of setting up an online business and huge cost savings from avoiding the traditional high street model. This approach has led to the rise of vast swathes of new Direct-to-Consumer (D2C) brands with novel ideas and retail strategies.
However, as with any approach, there are drawbacks. Since products can be copied far more easily than experiences — something that generally can’t be provided digitally — brands that lack a physical presence are heavily reliant on their IP assets and are easier prey for copycats and fakes. Start-ups that choose to focus their funds purely on advertising, production and logistics forget IP protection at their peril. The threat is real — just look at the recent example of Allbirds, the environmentally-friendly shoe manufacturer, against Amazon.
Loyalty is hard to find, trust is easy to lose
The challenges posed by legitimate competitors and counterfeiters alike are compounded by the fact that a more enigmatic presence limits consumer awareness — consumers often don’t know who is behind a digital brand. It takes time and a concerted effort to build the emotional connection that creates brand loyalty, and proactive strategic measures to protect it.
Furthermore, a dependence on social media ‘word of mouth’ means that while brand loyalty is hard to achieve, reputational damage is inflicted with ease. As Kearnon O’Molony, co-founder of lingerie start-up Cuup said, “Brands that build awareness and loyalty over the long term have a better shot at survival”.
This will be music to the ears of those concerned that the ROIs of retail unicorns may be as intangible as the mythical creatures themselves. Brand value and goodwill always need to be attached to something tangible — this is where IP protection comes in.
The magic formula
Many digital brands use unique approaches to inspire loyalty and their creativity deserves IP protection.
Brands like Allbirds, Casper (mattresses) and Heist Studios (hosiery) have remained authentic by identifying and solving consumer pain points, then controlling the selling environment. They have built loyal followings through a programme of clear and engaging brand content, conveyed by a combination of aspirational imagery and consumer interaction. However, since ideas themselves can’t be protected, there’s a high risk of copying and piggy-backing.
Subscription services like Harry’s (razors), Birchbox (beauty) and Stitch Fix (clothing) make easy money on guaranteed, regular repeat purchases (over a quarter of British consumers receive regular deliveries of ‘non-essentials’) while providing customers with regular reminders of the brand and its values with every delivery. The risk with these specialist offerings is that the company is built on the success of just one ‘hero product’.
Another way in which digital brands increase awareness and demand is by restricting supply through ‘exclusive drops’, favoured by the likes of Off White and Glamour. The downside of this approach is that if consumers can’t get the genuine goods, they’ll be easily tempted elsewhere, either to counterfeit or competitor sites.
If the branding or product can be easily copied and isn’t protected with trade marks, patents and/or registered designs, these brands could be easily damaged. Without adequate protection and policing of their IP rights, any exclusivity will be lost very quickly.
The value of IP
Although legal disputes are obviously best avoided, if you aren’t prepared to fight to protect your brand, you might as well not bother creating one in the first place.
If your brand has no permanent bricks and mortar presence, your IP makes up a significantly large proportion of your asset value. This value needs identifying, protecting and maintaining if the investments you’ve attracted are to be justified.