Brand and Business Value At Risk: The Valuation Impact of ‘Lookalike’ Brands

Businesses go to great lengths and expense to develop, build and seek protection for their logos, trade names and other trade marks, preventing others from using the same or confusingly similar marks on their own product. However, this has not stopped the ever-growing phenomenon of own-brand ‘lookalikes’, pursued by some of the largest supermarket companies such as Aldi and Lidl over the past few decades.

This shrewd commercial marketing tactic enables their products to benefit from ‘basking in the glory’ of a market’s original brands which possess widespread reputation, brand equity and price premium whilst avoiding considerable marketing, research and development costs.

The use of lookalikes are a shortcut for communicating key product characteristics, such as flavour and quality in an attempt to reinforce the notion that they are suitable brand alternatives – i.e. a lower cost “equivalent”.

In the case of consumer products, lookalikes are defined as:

“products that significantly resemble the overall appearance of well-known brands by combining the distinctive visual features that are inherent to the original product” (Falkowski et al., 2015).

Taking inspiration from competitor brands is nothing new, in fact it is very rare to find a completely unique product. However, a line is typically crossed when competitors use under hand tactics to hint at branded versions of the product through strong packaging ‘cues’. Over the past decades Lidl and Aldi have developed as the primary culprits in this activity in the UK, unashamedly developing ‘lookalike’ brands as core to their business strategy.

So why do organisations go to such great lengths and take such risks to emulate established brands on their own-label product? Simply put, to take unfair advantage of the awareness, familiarity and brand equity of leading brands that has often taken many years to establish through significant R&D, marketing and advertising budgets, causing consumers to form a link in their mind to the original product.

The impact of lookalikes on consumer decision making was brought into sharp focus in 2013 through a report commissioned by Which? The study found that 20% of 2,244 people surveyed had reported having bought a lookalike product by mistake, having thought it was a manufacturer brand. It is likely however in 2023 that few consumers are actually confused into thinking they are purchasing the  original product. The main benefit for the likes of Aldi and Lidl is their ability to indicate to consumers that the lookalikes have equivalent product characteristics such as taste, flavour, quality, etc., in order to drive incremental sales and economic value at the expense of original brands.

Through a committed use of humour in marketing activities, including social media, lookalike offending supermarkets have managed to persuade the market that lookalikes should be accepted as harmless fun and the norm in the UK.

However, this could not be further from the truth. Parasitic copying is a big nuisance for brand owners who fall prey to it. It can mislead shoppers, weaken brand distinctiveness and reduce shelf stand-out.

Scope of the Report

The new report from our VRG UK member firm, Valuation Consulting, discusses the likely direct and indirect business impact of lookalike products on ‘original’ brands and their manufacturer in the UK market for consumer goods.

Specifically, VC has undertaken a brand and business valuation of a ‘genuine’ high-profile UK brand operating in the non-alcoholic drinks category (with sales of over £60m in 2022) in order to estimate the likely ‘brand value’ and ‘branded business value’ at risk from potential lookalikes, for which the brand is extremely vulnerable (as a well-known category leading brand). We have used this valuation analysis as a basis to extrapolate the findings across the wider category of consumer goods in this report.

The analysis sets out to identify the downside financial risk to the value of the brand in scope, named ‘Brand X’ for the purposes of this study. Moreover, we identify and discuss other non-direct financial impacts on original brand manufacturers and possible redress actions open to them, such as ‘loss of royalty earnings’ and other forms of damages for intellectual property infringement.

We recognise the issue of lookalikes is nuanced and very complicated. We understand that often manufacturers of original brands that are falling victim to lookalikes, may also have valuable commercial relationships with retailers engaging in the practice. Such arrangements obviously have commercial and financial benefits, albeit fraught with complications by “sleeping with the enemy”. Therein lies an obvious conundrum in terms of the cost vs benefit of taking action against lookalikes, or more specifically against the offending supermarkets.

Through the use of a ‘genuine’ brand, we attempt to highlight the likely scale of financial and brand value impact of lookalikes, with the hope that manufacturers consider the full extent of the potential harm suffered when developing and evaluating strategies for tackling the issue.

Original Brand Owners Cannot Ignore Lookalikes

The scale and impact is too large to ignore.

As a class, the multi-£bn scale is overwhelming. The model is driving the growth of discount supermarkets in the UK and consumers will increasingly be in these settings, and influenced by lookalikes as cost-of-living continues to bite. But focusing on the impact of a lookalike on a single brand is very significant:

• 18% reduction brand value over the period
• 14% reduction in company value over the period

Inaction is the enemy – brands must act swiftly.

It is crucial for manufacturers to consider the full extent of the potential harm suffered when developing and evaluating strategies and budgets for tackling the issue. Doing nothing risks affected brands sleepwalking into long-range harm to their brands, and once consumers have moved to the lookalike equivalent, it’s expensive and time-consuming to get them back – if you can get them back at all. Brands must plan ahead, so that they can act quickly:

1. Ensure adequate tracking market research on their brands and new entries in discount supermarkets.
2. Have a budget provision available for immediate action on lookalike enforcement

It is not unreasonable for brands to believe they can retain a relationship with an important retail channel whilst protecting the IP of your brands.

They must not underestimate your bargaining position with lookalike supermarkets as they need branded products there too