How it Works - Valmarc

ENGAGING THE MOBILE CONSUMER What is the VALMARC™ System? The VALMARC™ Strategic Brand Protection™ System is designed and available exclusively for the makers of branded products. It is the only single platform, universal solution available today to identify and fight product counterfeiting and gray market diversion and to keep retail oligopolies and technological predators from coming between brands and their customers. The system accomplishes this by uniquely identifying individual products or packages and enabling brands to communicate directly and privately with a consumer — or in some cases a company auditor — who is holding their branded product or package in their hand. The VALMARC™ System comprises three major components: • The VALMARC™ Tag, which is placed on each item or package, includes a unique number encoded into a 2D barcode. The encoded numbers are distinct from every other item and package. • The VALMARC™ Brand Connect™ mobile phone application or app, which a consumer, government inspector or company auditor downloads onto their phone (or is preloaded by the wireless carriers), and which can be used to scan or read the VALMARC™ Tag. • The information system that makes it all work together. This includes back office programs, databases and communications infrastructure to enable the maker of the branded product to communicate directly and securely with a consumer who scans a VALMARC™ Tag. Why do makers of branded products want to use the VALMARC™ System? The VALMARC™ System enables brands to fight back and regain control of the market place for their brand. Over the past 20 years, makers of branded products have lost substantial control of the marketplace for their own brands. • Production has been outsourced to low cost manufacturers in countries which do not respect intellectual property laws. Counterfeits are made in the foreign countries and then sold back into the U.S. and other markets. Hundreds of billions of dollars of counterfeited goods are sold each year. • Makers of branded products have lost control of their channels of product distribution. - Large and powerful retailers often extract unreasonable concessions and threaten reducing shelf space in their stores if brands do not bow to their economic demands. - The Internet has created new unmanaged and uncontrolled channels of distribution which enable distribution of gray market and counterfeited products in the U.S. and other markets. - New mobile phone applications enable a consumer to scan the standard UPC barcode on a product in a retail store and be directed to purchase the product elsewhere, either locally, or right there over the wireless Internet on the consumer's smartphone. • Makers of branded products are losing control of the message for their own brand, and in the process charged high per click fees by technology predators. - On the Internet, leading search engines require brands to outbid competitors for prominent placement of ads and links even when a consumer is trying to research their own brand names. - Similar plans are underway to make brands outbid competitors, and pay technology predators, for mobile phone searches initiated from UPC, barcodes or code scans of their own products. - To advertise on some devices, brands must pay a large fee and surrender considerable creative control of their brand messaging. How does the VALMARC™ System prevent product counterfeiting and diversion? A unique VALMARC™ Tag is placed on each individual product or package at any point during the manufacturing process. The unique number is recorded in the brand’s database, and the item is then tracked and traced through the distribution supply chain. If an item is scanned at a location where it should not be, then the brand knows the product is either diverted or counterfeited. If an item is scanned without a valid VALMARC™ unique number, then the brand knows the product is counterfeited. If duplicate VALMARC™ numbers show up, then the brand knows that only one of the products is authentic. In each case where counterfeiting or diversion is suspected, when the company’s auditor, government inspector or the consumer scans the VALMARC™ Tag, using the VALMARC™ Brand Connect™ App on their smartphone, they will get a response saying “Authenticity cannot be verified.” This will warn the consumer to beware, and therefore reduces the value of the diverted or counterfeited products. How does the VALMARC™ System provide a “private line” of communication between the brand and the consumer? And why can't the brand just use the UPC barcode or another static (non- serialized) 2D barcode like a QR Code to link with the consumer? Right now, a few new applications on the leading smartphones use the UPC barcode, or other static 2D barcodes, to engage with the consumer. The weakness of the UPC barcode is that one single number is used for all products which are the same model. While a brand could use this static code to connect with the consumer, other companies, who have financial interest different than the brand, have already figured out how to use any fixed code to divert the consumer wherever they want. Right now the most popular smartphone apps (e.g. RedLaser and ScanLife) entice the consumer to not buy the product which they are holding in their hand, but to divert them from the store or to order it over the mobile Internet. Secondly, the brand’s best retailers grow weaker as they become just high-priced showrooms for Internet retailers. VALMARC™ Tags, on the other hand, can only be used by the brand using the VALMARC™ Brand Connect™ App, which always links the consumer to the brand, and the brand to the consumer. The number on each item is unique and only the brand, which applied the number, and VALMARC™ Corporation know what the unique number means. Why is product “serialization” important for advertising? Serialization makes sure that when the consumer is scanning a VALMARC™ Tag, they will be connected only to the brand. They cannot be diverted to other locations in conflict with brand objectives. Fixed or non- serialized tags can be quickly interpreted by rogue apps, which can divert consumers away from brands or extract money from the brand in order to complete the connection. Why would the consumer want to scan the VALMARC™ Tag on a branded product? The one thing the consumer wants and can get only from the brand is assurance of the product’s authenticity. No third party can provide this assurance. Beyond this, there are other benefits that consumers can gain from connecting with the brand both before and after the sale, including: product information, coupons, rebates, registration, manuals, spare parts, and other rewards and incentives for brand loyalty. Why can't a brand develop their own VALMARC™-type system to do it themselves? Yes, a brand can duplicate some parts of the VALMARC™ System. Their biggest challenge would be to get their app on the consumer's phones. A typical large retailer carries about 100,000 different items with hundreds and hundreds of brands. Consumers would be reluctant to install multiple scanning apps on their phones for each brand, and then find and start different apps for different products. The VALMARC™ System is a universal system which works for all brands and for all products. Also, creating such a system involves knowledge of technology and processes that greatly differ from the brand's core business. In addition, an individual brand would not have the economies of scale to achieve a competitive cost level. Since the VALMARC™ System delivers and protects all of the consumer market information, there is no advantage to building their own system.

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