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BD-BrandProtect Perspective:
Protecting the Integrity of Your Brand from Online Risk Exposure

Quantifying the Costs of Online Infractions

There is ample anecdotal evidence that online infractions threaten brand integrity, damage corporate reputation, result in lost revenue and lead to deteriorating customer loyalty. Yet the repercussions extend far beyond unquantifiable loss. In recent years, numerous research organizations, advocacy groups and media sources have released figures that measure the cost of online breaches in financial terms:

• According to a Gartner Group survey of 5,000 online U.S. adults in August 2006, 46% say that concerns about theft of information, data breaches or Internet-based attacks have affected their purchasing payment, online transaction or e-mail behavior. The research firm estimates the financial cost of this mistrust is approximately $2 billion in 2006.(4)
• Gartner goes on to estimate that phishing attacks alone will cost U.S. businesses and consumers a whopping $2.8 billion this year, with an average “take” of $1,244 per victim. (5)
• According to a Ponemon Institute study, companies experiencing a data breach spent an average of $14 million on recovery costs, including unbudgeted spending for outside legal counsel, mail notification letters, calls to individual customers, increased call center support and discounted product offers. Even more significantly, businesses that experience a data breach lose an average of 2.6% of their total customer base.(6)
• A poll of more than 2,000 North American and European consumers conducted by Opinion Research Corporation found that 59% of consumers would either strongly consider or definitely take their business elsewhere if their personal information was compromised.
• Media coverage of security breaches is also affecting brand integrity. According to Factiva, a Dow Jones and Reuters Company, media coverage of companies that suffered a security breach in 2005 accounted for more than half the stories written about those companies.
• Most significantly, an Emory University study recently confirmed that security breach events directly affect stock performance. When such events are reported, companies lose an average of 0.63% to 2.1% value in stock price – equivalent to a loss in market capitalization of $860 million to $1.65 billion per incident!(7)

The Internet is a largely ungoverned, open system that has proven to offer equal opportunity to both legitimate business concerns and criminal operators. Victims of fraud cut across all social, economic and cultural lines. Even affluent members of society can be victims of fraud, as criminal activity does not discriminate between rich, poor or middle class.

Online infractions don’t just affect customers either. They can also cause mission-critical stress in your call center, damage your brand reputation and put your organization in a defensive mode. They diminish the potential of the Internet for e-commerce and undermine Information Technology investments. They also compromise customer relationship management by misrepresenting legitimate brands, ultimately putting confidential customer data at risk.

The evidence is clear. The open, largely undefended market environment ofthe Internet has given rise to a variety of activities that impair acompany’s ability to optimally leverage its brand over the Internet. Onlineattacks lead to lost traffic, lost revenue and customer dissatisfaction. Theyalso expose organizations to potential legal liability. According to legalexperts, if a company is made aware of scams using its trademarks, anddoes not act to protect consumers, it could be held responsible in court fornegligence.

“Phishers Switch Brand Bait to Coke and McDonald’s”, Advertising Age: Kate Macarthur, December 11, 2006

4 “Trust Has Value in E-Commerce”, eMarketer: Ben Macklin, November 30, 2006
5 “Who or What Is ‘Rock Phish’ and Why Should You Care?”, PC World: Robert McMillan, IDG News Service, December 12, 2006
6 “Secure the Trust of Your Brand: How Security and IT Integrity Influence Corporate Reputation”, A CMO Council Report, September 2006
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