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Protecting the marketing mix through intellectual property rights

Introduction
The Intellectual Property Office is part of the Department for Innovation, Universities and Skills. It is the official government body responsible for granting intellectual property rights in the UK. The Intellectual Property Office supports innovation by granting intellectual property rights. This is property that originates in the mind as an idea, such as a design of a car, a piece of computer software or the words and music of a pop song. Businesses take steps to protect their physical property, such as equipment, raw materials and buildings, but it is just as important that they protect their intellectual property. Consider the development of a product such as a mobile phone. The manufacturer needs physical resources such as offices, factories and machines - but what really makes the difference between different phones? The value in many products is not the physical materials for example, the metals and plastics that are used. Mobile phones are shaped by ideas: improved technology leading to, for example, faster communications, music and digital photography, cool designs and world-class brands. Think of the value in an iPod or a downloadable song. Intellectual property is often more valuable than warehouses and office blocks. This may be described as a knowledge economy. There are several ways in which the Intellectual Property Office can help a business to protect its intellectual property (IP). Patents provide exclusive rights to exploit an invention for a limited period usually 20 years. Designs protect the appearance of a product and can be registered for legal protection. Trade marks such as brand names and logos can be registered and protected. Copyright is an automatic entitlement to stop others copying any kind of written or recorded material. A company like Apple uses these safeguards to patent its inventions and register its designs. These protections can be applied across the world. For example: it has registered its brand names as trade marks, such as iPod, Macintosh and iMac. This prevents competitors directly copying these brand names its distinctive logo (the apple with a bite taken out of the side) is registered as a trade mark products sold through iTunes are also protected under copyright. The writers of each song usually own these rights. To see how important IP protection is in practice, this case study looks at how one technology company, Forensic Pathways, has used these legal safeguards for a new development. In the UK there are now over 70 million mobile phones in use. The vast majority are used legitimately, but mobile phones are also used by criminals and terrorists. Computer technology can now analyse calls and messages from many different mobiles at once. A computer program that could plot, map and analyse that data so that criminal networks could be identified would be valuable. How would the developer protect the product before reaching the market?
CURRICULUM TOPICS Marketing mix Innovation Business expansion Intangible assets

GLOSSARY Intellectual property rights: The rights of the owner to protect their ideas. Knowledge economy: The use of knowledge technologies (such as knowledge engineering and knowledge management) to produce economic benefits. Patents: A legal right that establishes for the holder of the patent the right to be the sole user or producer of a new process or product. Designs: The appearance of a product. Trade marks: Unique logo or symbol displayed on a company's products. Copyright: Legal protection for authors, composers and artists from having their work copied or reproduced without their permission.

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Forensic Pathways is a highly innovative company based in Staffordshire that provides products and services for the police and security services. It specialises in investigative tools for crime, security and fraud. The company exploited rapidly-advancing computer technology to develop a new product, the Forensic Phone Analyser. This allows police and security services to search for phone numbers, SMS text messages, contacts and images, across all the data available, not just case by case. Marketing planning showed that the product could secure substantial sales so the company invested time and money developing the product. If a competitor developed an equivalent product based directly on Forensic Pathways software, all Forensic Pathways work would be undermined. The company would incur the development costs but not have the opportunity to recover those costs by being first to market. To prevent this happening, it took steps to protect its intellectual property rights from the beginning of the development process.

GLOSSARY Marketing mix: A series of variable factors (product/price/ place/promotion) used by an organisation to meet customer needs. Target market: The specific part of the population to whom a product offering is aimed and all marketing communication is tailored. Brands: Name, symbol or design used to identify a specific product and to differentiate it from its competitors.

The marketing mix

Marketing is about projecting the right product at the right price in the right way to the right customers. This is how value is added. Bringing a product to a market involves balancing several key ingredients. This is called the marketing mix: the 4Ps of product, price, promotion and place. Every offering will need a slightly different mix of these factors, depending on the product itself, the target audience and the market. The logical starting point is always the customer. A product must deliver value to customers in the target market by meeting customer requirements. Forensic Pathways had carried out detailed market research and understood the needs of its target market: the police and security agencies that have the legal right to access mobile phone data. This research enabled Forensic Pathways to identify what features the product would have to meet these customers needs. However, before investing in development, Forensic Pathways needed to check whether such a product already existed. By searching the patent database on the Intellectual Property Offices website, a business can verify that its idea is entirely new. A patent gives protection from copying or imitation by competitors. Price needs to be competitive and offer customers value for money. Forensic Pathways needs to make positive return on its investment and recoup its development costs. The ability to protect intellectual property is crucial here. If a competitor could simply take Forensic Pathways technology and software to develop a similar product, it could price this product much lower because it would not need to recover research costs. In effect, taking out a patent gives a company time to exploit its research in the marketplace. Forensic Pathways uses its specialist knowledge of the market and personal links with key customers to promote its product. By registering the company name and the product name, the Forensic Phone Analyser, as trade marks, it prevented other companies using these names. This provides clarity for customers. Rival businesses cannot offer similar and perhaps inferior products with identical names. Companies use trade names to build and identify their brands. The final P in the marketing mix is place the channels to market. This is the process that enables customers to buy and receive the product. This can include the use of wholesalers and retailers, the work of the sales force and direct marketing techniques. This activity can be compromised if the product is confused with similarly named rival products. This legal protection for product and brand identity is also important when it comes to the sales process itself.

Product
Forensic Pathways has high levels of knowledge in electronics and computer programming. For its new product, Forensic Pathways wanted to do far more than simply extract data from mobile phones. It wanted to be able to alert investigators to patterns in the data. Powerful analytical computer programs could reveal pictures in the data that might spark new lines of enquiry and provide evidence of criminal networks.

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The Forensic Phone Analyser was the first product of its type in a specialised but growing market. While the Analyser was in development, its intellectual property (the specialised combination of technical know-how and computer software) was not at risk. Only a few trusted employees knew the underpinning technology and software. All electronic information on the project was held on secure servers and networks. However, once a product is launched on the market, it 'breaks cover. A competitor might be able to unravel the finished product, working backwards to reveal its design and operating principles. This is known as reverse engineering. The resulting slightly different but essentially copied product might then be fast-tracked into the same market. Forensic Pathways knew the product would add real value but it would only prove profitable if it were protected with the safeguards offered by the Intellectual Property Office.

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GLOSSARY Reverse engineering: The process of discovering the technological principles of a device, object or system through analysis of its structure, function and operation. Capital: Money, buildings, machinery, equipment etc. Profit margin: The percentage of sales value that is profit. Skimming: A pricing strategy where a relatively high price is set for a product or service at first, then lowered over time. First mover advantage: The first company to introduce a new product to market has the opportunity to extract the greatest long term benefit from the product, compared to that which following companies would be able to gain. Niche: An area of a market that has a particular group of customers with specific requirements. Competitive advantage: A strategic element that enables an organisation to compete more effectively than its rivals.

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Price

The first step was to patent the technology. A company can apply to patent a product or a process if it is a clear inventive step...capable of industrial application. A patent stops anyone else copying the invention for up to 20 years. The patent owner can take legal action against anyone imitating or copying the idea during that time and can also license or sell the patent rights. This gives the developer time and opportunity to recover development costs.

The next step was to claim copyright for the software. This provides the same protection as copyright on books and music. Software cannot be copied, stored on a computer or converted to other computer languages without the owners permission.

Forensic Pathways could also make the visual elements of its product a registered design. This prevents a competitor attempting to copy its distinctive features.

The company also registered the name Forensic Phone Analyser, along with its brand and logo as trade marks.

With all these safeguards in place, Forensic Pathways was able to commit capital to the phone analyser development with confidence.

Pricing depends on the market. There are many different pricing strategies that a business can apply. Setting a relatively low price can attract customers but reduce the profit margin. This approach is called market penetration. It is often used in highly competitive mass markets with large volume turnover of goods, for example, tins of beans in a supermarket. However, Forensic Pathways operated in a very different type of market. It was targeting a relatively small customer base police services and security agencies with a new product that had no immediate rivals. This meant the company could choose to set a relatively high price that carries a higher margin. It would allow the company to generate a realistic return on its high development costs. This approach is called market skimming. It is often the chosen strategy for innovative products. Reductions in price can follow later as competitors enter the market. The company would enjoy first mover advantage, achieving penetration of its market niche without major price concessions. This strategy relies on IP protection to give competitive advantage over rivals, based on the products technological capability and the reputation of the Forensic Pathways brand. If other firms steal or imitate these assets, then Forensic Pathways would see slowing sales. Worse, the competition for customers could force the company to push down prices, lowering profit margins and reducing potential for future investment.

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Promotion and place

www.thetimes100.co.uk The most innovative product in the world will still fail if potential customers do not understand the value it brings to them. The most effective method of promoting sales will depend on the type of product and the target market. For a mass-market product, such as a new blockbuster movie, above-the-line promotion such as internet, television and press advertising may be appropriate. This usually has high costs and is less easy to measure the impact, except by specialised market research. The Forensic Phone Analyser is a specialised product in a niche market. It needed a different approach to promotion. The companys main strategy is to use below-the-line promotions to contact potential customers directly. Below-the-line promotion has the advantage of being less expensive and more under the business control: The product was showcased at trade fairs and exhibitions attended by key buyers in the security industry. Emails and mail shots were sent to possible customers. Forensic Pathways also used its relationships with existing customers to introduce the new product by direct mail or telephone sales. With its product and brand identity protected within the UK by intellectual property, Forensic Pathways could confidently promote the Forensic Phone Analyser in this market. However, with over 2.5 billion mobile phones in use worldwide, the company also wanted to target overseas markets. It therefore needed to protect the product worldwide. The World Intellectual Property Office based in Geneva, Switzerland is heading the development of a global system for protecting intellectual property. Businesses can now make a single registration of original designs giving protection across most countries. However, the law enforcing protection varies in effectiveness from country to country. Globally there is a huge trade in counterfeit products and some countries are not strict in enforcing copyright. Forensic Pathways still needs good legal advice to deal with risks. It is possible to challenge any infringements by taking companies to court.

GLOSSARY Above-the-line promotion: Direct expenditure on advertising, such as for a TV commercial. Below-the-line promotion: Use of indirect promotional methods such as public relations and advertorials; promotional activity other than advertising. Balance sheet: A financial document that shows what a business owns (assets) and what it owes (liabilities) at a particular moment in time. Assets: Something that is of worth to an organisation e.g. people, cash, financial claims on others, machinery, buildings.

Conclusion
The balance sheet of most businesses still emphasises the value of physical assets such as buildings, plant and equipment. Yet typically, around 75% of a firms value is in its intellectual property, such as knowledge, copyrights and brands (trade marks). The business writer Charles Handy calls it the 3Is - information, intelligence and ideas. Many businesses are able to exploit their intellectual property but they need to be aware of the risks. Ideas could easily be copied and the whole basis of a new product could be lost. This is why the services of the Intellectual Property Office are so important. The Intellectual Property Office offers innovators and creators protection for their new ideas and products, without which there would be less investment in innovation and brand development. It also enables future generation of new ideas. Although protection of a patent remains in place for around 20 years to prevent direct copying, the knowledge content of patents is made public after 18 months. This stimulates further innovation and competition.

The Times Newspaper Limited and MBA Publishing Ltd 2009. Whilst every effort has been made to ensure accuracy of information, neither the publisher nor the client can be held responsible for errors of omission or commission.

Questions
1. What is intellectual property (IP)? How can a business gain legal protection for its IP? 2. Explain how IP protection can be essential to the marketing mix. 3. Analyse why protecting IP has become so important to firms such as Forensic Pathways.

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4. To what extent do you think IP protection is in the public interest?

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