International brands are increasingly using shopping festivals to grow brand value. This was a particular focus for Single Days this year. We see it extending into Double 12 and beyond into future festivals. Deploying new digital technologies to catch the attention of customers is essential. Yet the digital space is complicated with a range of IP, regulatory and legal risks which need to be managed.
This article briefly explores the evolution of shopping festivals and supporting digital technologies. It looks in detail at the common challenges faced by IP and legal teams when deploying new tools such as digital collectables (NFTs), live streaming, key opinions leaders, virtual idols, AR and VR. Managing risks is a key focus to ensure successful delivery of digital marketing strategies.
How are shopping festivals evolving?
No longer just for sales, shopping festivals are increasingly used to build long-term customer loyalty, especially amongst younger shoppers. Cost-conscious consumers during the covid period have cemented this approach. As Chinese consumers are technologically savvy utilising new digital technologies and assets is critical to stand out.
Interest in Web 3 and metaverse is increasing. On lifestyle app Xiaohongshu, posts on digital collectables increased 1,228 percent year on year in 2021. The market size for Virtual Idols is predicted to reach 333.5 billion yuan in 2023. Sales of luxury goods with 3D and AR features saw double-digit year-on-year growth this year, according to Tmall’ s Luxury Pavilion data. A wide range of brands such as Burberry, KFC, and HP are benefiting from advanced digital marketing strategies. More and more brands will start incorporating these approaches into shopping festivals.
How is the technology being deployed?
Platforms are evolving. During Singles Day this year, Alibaba deployed Web 3 and metaverse technologies. Tmall and Taobao launched an extended reality (XR) powered marketplace, where over 70 brands including Hello Kitty and Minions made available almost 700 products on a virtual shopping street where users’ avatars walk the street, can browse and shop in the stores.
Tmall Luxury Pavilion launched a digital collectables platform for 11.11 last year, which saw more than 50 virtual collections from 40 brands. Due to its success it continues to operate. The Pavilion has its own virtual influencer, Timo who hosts exhibitions. Utilising this platform, Burberry gifted consumers a 3D animated token of its deer mascot when individuals bought one of a 1,000 limited-edition physical scarf. Smaller players are active too. Xiaohongshu launched R-Space a platform focusing on hyper-realistic digital clothing try on and gamified collectibles.
It is important to secure the appropriate registered IP. Trade mark filing strategies should be reviewed to ensure they are fit for the virtual world. Copyright recordal should be undertaken for any underlying asset such as artwork, brand images, characters, music. Patent filings can be considered in the case of technology solution development.
However, a robust IP filing strategy is just the beginning. The complex regulatory environment combined with the ability to misuse IP more easily in the digital world, poses the greatest risks. Given the eye-catching nature of digital, any missteps can result in brand damage. Therefore, undermining the brand building efforts that the activity was designed to deliver.
What are the common challenges that need to be addressed?
IP ownership, use and control
New IP and artwork will be created. If ownership issues are not considered at the beginning, they are hard to control later. Depending on the content and commercial strategy, the brand may choose not to own the IP especially where it is costly. Instead, licencing may be preferred. Securing the right usage terms for best brand exposure is critical. If the copyright of the newly created artistic work belongs to the artist, its future use should be strictly limited. Marketing agencies often act as an intermediatory with third-party artists. However, they should not be relied upon to negotiate IP ownership and usage terms.
In the case of digital collectables, end owners also need to be controlled. Terms and conditions should clarify that purchasing the collectable is not the transfer or license of IP rights. T&Cs should prevent owners from abusing the IP rights of the underlying works. Brands should review platform terms and rules to control subsequent owners and avoid privity of contract issues.
Content creation and IP clearance
In many scenarios, brand images and IP may be incorporated with other images, music or another brand’s IP. Thorough IP clearance checks and approvals are needed to ensure brands do not get caught up in accidental infringement of other’s IP. Often surprising elements can be subject to IP protection, such as some famous buildings. Copyright, trade marks and design rights should all be reviewed. Particular care should be taken in the cases where IP use is not under direct control of the brand, for example in digital collectables where the NFT is created and sold by a licensee, livestreaming by KoLs and virtual idols, gamification, AR and VR.
Given the importance of the issue, brands should undertake due diligence on partners as well as conducting its own clearance checks to assess the risk. Whilst warranties and indemnities can be included in contracts, a preventative approach works better. As well as not infringing other’s rights, any content should comply with cultural sensitivities and censorship rules.
Managing multiple partners
Delivery of digital marketing requires working with a diverse range of partners, often where there are no established ways or working. Each partner needs to be managed to ensure brands don’t receive negative exposure for regulatory non-compliance by association. Different scenarios create different risks. Take live streaming as an example, there are several regulations governing the space dictating content rules and duty not to sell IP infringing goods, amongst other controls. Missteps by KoLs can result in significant public demise, for example top livestream influencers Viya and Cherie were fined and banned for tax evasion.
Brands need to consider a strategy to prevent Key Opinion Leaders (KoL) straying into prohibited areas. As well as contractual controls, training and sharing of legally pre-approved content and messaging can be deployed. When it comes to liabilities, brands need to understand the relationship between the KoL, studio, e-commerce platform and any merchandise supplier. This will influence who holds responsibility for different aspects of legal compliance and how each party can be held to account. Given that KoLs can now operate on multiple platforms, this could make arrangements more complicated.
Legal teams play a crucial role in helping the business to understand the current regulatory landscape and restrictions. They can provide advice on how to structure digital marketing activity to avoid challenges. For example, digital collectables should not appear to be associated with cryptocurrencies. This can be achieved by linking digital collectables to physical purchases, events and reward, gifting collectables via lucky draws where there are technical limits which do not permit trading or selling collectables at a low price.
However, Web 3 and metaverse technologies is a new and fast-moving area with significant interest from Government. We have already seen regulations emerge to better control the space and prevent monopolies. Legal functions need to watch for future developments as regulations continue to evolve. Brands will have to change and adapt their approach to keep up.
Even as the Double 12 shopping festival draws to a close, brands will be looking forward to next year’s festivals, planning new products and innovations. IP and legal teams should be playing a central role in guiding the development of digital marketing strategies in a way which minimises the risks to enable successful delivery of the commercial strategy.
Want to know more?
Watch our webinar NFTs in China: Managing Risks in Marketing Campaigns and Licensing.