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A Million-pound Mistake?

A Million-pound Mistake?

Tesco made a big mistake when it launched its innovative loyalty card scheme under a name it could not own. The company tried in vain to register Clubcard as a trademark.

Unless a business has intellectual property protecting its innovation, such as a trademark, patent, copyright, design, or trade secret, competitors are free to copy its differentiation strategy immediately.

The brand name is a prime way to protect innovations. In Tesco’s case the name was the ONLY protection that could safeguard its differentiation strategy.

The fact that it opted for a name it couldn’t own meant that competitors were also able to introduce loyalty card schemes using the Clubcard name.

Loyalty cards were totally unknown in the late 1990s when Tesco launched Clubcard. So, consumers had to be educated to understand what they were..

Tesco reportedly spent a million pounds on marketing the concept of loyalty cards and made the Clubcard name famous as a result.

But because it chose Clubcard as its name, the competition was able to use the same name to benefit from all the advertising and marketing that Tesco had done. The name had become a shortcut to explain the concept of loyalty programs.

What a wasted opportunity to uniquely stand out and differentiate the Tesco business.

Someone asked me recently, what would have been a better name.

A better name would have been TESCOCARD. Rather than introducing a new name that wasn’t ownable Tesco could have simply added the word ‘card’ at the end of its own name.

Competitors would not have been able to call their loyalty cards TESCOCARD because the name Tesco uniquely belongs to Tesco.

As it was, the agency supporting Tesco advised it to use Clubcard. Clearly the agency didn’t understand the IP aspect of names, and the importance of using distinctive, ownable ones.

The case illustrates how even at the highest levels basic IP mistakes are being made in the branding industry.

Until designers, marketers and brand consultants are trained in the IP aspects of branding IP mistakes will continue to be made in the industry, and business owners will suffer the consequences without even realising it.

That’s why I think it’s important to raise the standards of the industry by making Brand IP training available, not just for branding professionals, but also for commercial lawyers and founders so they understand how IP impacts business design and branding.

If Tesco had named its loyalty card TESCOCARD imagine what might have happened once Sainsburys or another competitor decided to also launch a loyalty card.

They wouldn’t have been able to use TESCOCARD as a shortcut to explain loyalty card schemes. If they’d tried to say “our card is similar to the TESCOCARD” that would have opened them up to a trademark infringement dispute. Tesco might have sued them for riding off their coattails.

But even disregarding trademark infringement, would Sainsbury’s or other competitors WANT to highlight a competitor in this way?

Informing your customers that you’re introducing a card just like the TESCOCARD promotes Tesco. Some of your customers might just go find out more about Tesco’s loyalty card scheme…

That wouldn’t be a clever move.

Using a distinctive name would have enabled Tesco to reap the benefit of its advertising spend and profit much more from its marketing spend.

Competitors would have had to educate their customers about what loyalty cards were and why people would want them. That would have involved substantial time and money.

While they geared up to introduce their own loyalty card schemes, Tesco would have reaped the full benefit of its advertising spend and been the ONLY brand offering loyalty cards. During the time it took for the competition to catch up Tesco would have had the field to itself.

When you use a unique name, you get a chance to differentiate your business and stand out long enough to get an advantage from your innovation.

Using strong names is essential because when you uniquely offer the market something it likes the business that’s generated comes to you.

IP rights don’t protect your differentiation forever. Even patents expire. But that doesn’t mean they’re not important to have. Just because they don’t prevent competitors from eventually copying you doesn’t mean they’re not valuable in the meantime.

The fact is business is a bloody competitive environment.

Until competitors catch up with you, IP rights give you a chance to be uniquely associated in consumers’ minds with your innovation – loyalty cards, in Tesco’s case. Even an advantage of just 6 months to a year can be enough to get a long term advantage.

When you’re the ONLY one offering a benefit, and you’re first in the market without competitors getting in your way, you stand a chance to become uniquely associated in consumers’ minds with what you offer.

Another advantage is that you get to stay one step ahead of the competition because you better understand consumers’ wants and needs after you launch. By tweaking and improving the offering you might sustain your first mover advantage.

Chances are, the competition becomes irrelevant if you become the consumer’s preferred brand, so it won’t matter that competitors catch up and offer the same innovation as you introduced.

The entire objective of branding is to uniquely stand out.

You want to be associated in consumers’ minds in desirable ways. So, it’s essential to use IP to get whatever advantage you can get when you’re making branding decisions.

Clubcard is an example of what happens when you don’t consider the brand protection dimension of branding.

Often designers and marketers I come across, justify not learning about IP by saying they work with lawyers. But unless you work very closely with specialist brand lawyers involving them in ALL the decisions you make during branding, you need to understand IP yourself.

IP principles are part and parcel of business design. If you support businesses with their brand, whether by helping them to create new ones, or to protect or manage their existing brand, then learning about IP would differentiate you from the rest of the pack in the branding industry.

What people mean when they say they work with lawyers is that they involve a lawyer to search the trademark registers to check that a proposed name or design doesn’t infringe on an existing brand’s rights. I’m sure the agency Tesco used also worked with lawyers…

All that happens when you work with lawyers, is that you avoid the possibility of being sued. If you’ve already chosen the name or branding, I doubt you’re looking to be educated in the basics of IP at that point or wanting to start over and choose a different name or designs…

If you support businesses with their brand, whether by helping them to create new ones, or to protect or manage their existing brand, then it’s important to learn about brand protection because IP is one of the 3 disciplines that impact business design and branding.

To get a holistic perspective of branding and avoid scenarios like Clubcard from happening to a brand you oversee, consider enrolling on my Brand Tuned programIt’s a step-by-step on demand program teaching designers, marketers, commercial lawyers, brand managers and founders how to manage competition, create effective barriers to entry, and choose names and other brand elements to uniquely stand out.

Register to receive the Azrights newsletter so you get to find out about the exclusive time limited special offer we have coming up for newsletter subscribers to access the comprehensive training in brand IP.