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Brand Extension Brand Licensing Derrick Daye

Don’t Blame Brand Licensing

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Here on Branding Strategy Insider, Jack Trout makes a compelling argument for why not to consider licensing as a method of brand extension. Furthermore, he backs it up with multiple examples of established brands with flawed licensing programs that serve to prove his hypothesis. After reading about Pratt & Whitney and Pierre Cardin, what CEO in their right mind would choose to risk the company's crown jewels to a group of third party manufacturers which don’t have a clue about how to build a brand, let alone manage one?  With so much at stake, only those CEOs that are either reckless or desperate would consider licensing. Right?

Maybe the problem isn’t licensing, but its poor or improper execution? After all, why would a company choose to forgo its consumer driven innovation process or marketing principles only when it comes to extending their brands through licensing?  Some of the best and biggest brands around the globe have been actively and successfully licensing.  Disney, P&G, Coke and Harley Davidson each have outstanding licensing programs.  These programs not only enjoy strong royalty income, they enhance their brands' attributes in the process.

The problem definitely isn't licensing.  Rather, it's either the lack of sound brand guardrails in the brand licensing process or a failure to heed to those guardrails.  Jack builds multiple assumptions into his argument that are flawed.  I agree that the promise of royalty revenue can be intoxicating, especially to a public company struggling to meet its forecasted quarterly operating income.  However, this is an indictment of management and not licensing.  Licensing is simply a tactical execution of a brand extension strategy (even if the strategy is no strategy).

In considering brand licensing, the first question that needs to be addressed is where the brand should play.  In other words, what categories should the brand be in?  If a company begins with a sound understanding of their brand's architecture and positioning, they can then develop a robust brand extension strategy.  Knowing where the brand has permission to play enables a company to identify extensions that offer the best overall business opportunity.  Once the company knows where the brand can play, they must determine "how to win."  Should the company extend the brand organically? Or, should they source the category?  If the company chooses not to extend the brand with internal resources, they do so through acquisition or licensing.  Like any brand extension, each licensed category must support the brand's architecture and positioning.  At Newell Rubbermaid, we would draft a category positioning statement aligned with the brand positioning statement for each licensed category.  This ensured each category licensed reinforced the brand's positioning.

If a company chooses to extend their brand without a fundamental understanding of the brand's architecture and positioning, the licensed products will at best have a neutral impact on the brand.  More likely, they will permanently erode the brand's equity.  This consequence would occur irrespective of how the company chooses to extend their brand.  Licensing gets a bad rap for damaging brands when either internal licensing teams or their agencies decide to extend a brand into "adjacent" categories in the pursuit of a quick royalty infusion.  Whether or not a company chooses to use other peoples' resources and money when executing their brand extension strategy, they must always ensure every product brought to market continues to support the brand’s commitment and promise.

Contributed by: Pete Canalichio, Chief Brand Licensing Strategist, The Blake Project

Sponsored ByThe Brand Positioning Workshop

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1 Comment

Craig H on June 01st, 2010 said

I couldn’t agree more! Having been the president of a global luxury brand that was entirely licensed, I can confirm – it IS intoxicating when the royalties are rolling in and the calls won’t stop about signing new categories. Problem is that just making the relationship third party doesn’t mean you no longer have an interest in what happens with the licensees. It just means that it’s a bit harder to find out the info you need to know about how your brand is doing.

I’ve argued before that its BETTER for you to license precisely because it creates an explicit requirement to manage the brand promise rather that the implicit requirement that’s created when you own the division creating the products.

I’m working on building a new brand group now that approaches brands they way you suggest – we’ve internally defined it as a BrandFirst Operating Model (I have to be careful – brand service agencies have TMs for similar terms). In the model, you have to determine what the brand is first, then align operations to deliver the brand promise to the consumers who want it in the most profitable arrangement possible.

Often, it doesn’t make sense to enter a category yourself, and makes much more sense to license it. But you do have to be vigilant in managing the control of your most important asset.

-C

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