Branding Strategy Insider

Brand Licensing Case Study: Cinnabon

In 2001 Cinnabon had no licensing program and no products for sale outside of their mall, airport and kiosk locations across the U.S. and International Markets. Today Cinnabon Licensing has grown to over 70 products with multiple world-class licensing partners like General Mills and Kellogg’s. The program has developed into a best-in-class model for restaurant brands that wish to expand their brand footprint, creating broader brand awareness and incremental revenue flows for the organization. This success and the long-term viability of the Cinnabon program came as the result of careful planning, research and development.   

Choosing the right Cinnabon products was a critical first step for the brand. The Cinnabon Licensing team took several factors into consideration when defining their retail product/licensing program:

Product Lines – Should the retail product line include products sold in the restaurants or products developed exclusively for the retail channel? Are there signature ingredients that can be leveraged in complementary product categories?

Consumer Interest and Acceptance – Cinnabon understood that research findings related to consumer interest and affinity would not only help with product identification, but would prove useful during negotiations with prospective licensees and aid in the retail sales process. Moreover, research gave the brand “permission” to enter certain categories and thus was perceived as a good fit. Finally, consumer taste tests would be integral to ensuring the products met consumer expectations.  Combined with intent to purchase measurements, Cinnabon was able to validate the proposed ROI and provide essential data for forecasting production.

Brand Licensing: The Answer For Sears?

Regular readers of Branding Strategy Insider know we welcome and answer marketing questions of all types. Today's question comes from Ryan, a senior analyst with a private investment fund in New York City, New York. He writes:

"First question: I read today that Sears is thinking about licensing its Kenmore, Craftsman and Die Hard brands. Could you hazard a guess as to (i) the range in licensing fees such brands might generate, and (ii) the prospects that someone of substance would be interested in licensing those brands given their present distribution?"

Ryan, thanks for your question. My thoughts as a brand licensing strategist...

(i) Range of fees would go from $7.5 MM - $45 MM over three years (after commercialization commenced).

(ii) Prospects of someone interested – I think interest could be high based on my assumptions below.  The key is how to not compete with the parent brand. After all, those brands are why people go to Sears.

Kenmore, Craftsman and Die Hard are mid tier brands that have a long history and substantial brand equity.  Moreover, the brands are closely tied to the Sears name.  While there may be some confusion generated in consumers’ minds if these brands were licensed for distribution in other channels, I still believe they would perform well.

Royalty rate: These brands should command somewhere between 5% - 10% depending on the product category, the channel and the region.

A Guide For Licensing In Brands

Disney and Marvel have long been successful in licensing their brands. Is your brand ready to benefit from global brand licensing? You know you are ready for licensing in brands when you have:

A business unit with a minimum of $50 million revenue.

Best in class products that meet pent up consumer demand.

Products sold into the channels and regions in which you intend to sell the licensed product.

The capability of building the licensed brand’s essence into your products.

The ability to invest a minimum of 3% of your net sales generated from the brand licensing program into marketing the product.

An organization capable of following the requirements of the license, i.e. the approval process, testing requirements, audits, royalty reporting and payments.

From here, begin with a well thought out brand licensing strategy.

Sponsored by: The Brand Licensing Workshop

Mr.Trump: Be True To Your Brand And Your Partners

This past Friday, July 29, 2011, USA Today showcased an article on the front page of their business section titled Donald Trump Faces Lawsuit Over Business Deals.  It seems Donald decided that the good work his agency, ALM International, completed when it signed apparel giant Phillips-Van Heusen aka PVH, to license Trump's name for a line of dress shirts and formal neckwear, no longer warranted compensation. 

According to the article, Trump didn’t think ALM should be entitled to their fees that arose from royalties based on automatic renewals on their agreement. "I don't feel that these people did very much, if anything, with respect to this deal," said Trump. Trump even questioned whether ALM was entitled to any compensation because all he signed was an Memo Of Understanding instead of a full agreement. 

I’m sorry. Maybe I misunderstood. I thought brands built their equity and desirability over time based on consistently delivering (at times over delivering) on their promises and that ethical businesses paid suppliers for the work they performed.  To paraphrase Picasso after his fee was questioned on a particular drawing that took no more than 5 minutes, Donald, you hired ALM for their expertise, not their elbow grease.

Anyone who has worked in the field of brand licensing (as we have) knows that there is a substantial ramp up period for the manufacturer to develop the product, get it approved and convince retailers to issue a purchase order.  If the product sells successfully, reorders come in and the program grows.  Since the majority of compensation to the licensing agency comes in the form of royalty payments, it is industry practice that there are automatic renewals.  In this way, the consultant or agency wins when their client wins.

What Is An Optimal Structure To License Brands?

Best-in-class manufacturers, such as Coca-Cola, General Mills and Kellogg's, often license brands such as Disney, the NFL or the Beatles into their company to increase sales, reach a wider consumer base, and in general, improve their business results. To optimize the acquisition of these licensed properties, most of them employ a centralized business structure and approval process.  The structure, which can take on many forms, typically looks something like this:

In this type of structure, each group interacts with the other to optimize the management of their acquired licensed properties, specifically:

• Brand Managers set their business objectives and then develop strategic plans to achieve them.  Part of their plans may involve using licensed properties.  When this occurs, they look to the Marketing Asset Managers to identify the right properties to help them meet their goals.
• Marketing Asset Managers (MAMs) are tasked with determining those licensed properties that will best help the Brand Managers achieve their business objectives.  As part of the strategic planning process, the MAMs will meet with each Brand Manager to understand their objectives and their licensed property needs.  They then compile a list of all the properties requested by the brand managers to determine whether a property has been requested by more than one brand manager and who else may benefit from these assets. From here, the MAMs lay out a plan to leverage the assets to help the brand managers meet their objectives.  The MAMs then brief the Business Affairs Managers on the specific rights or deal terms they need for each licensed property to be acquired.
• The Business Affairs Managers (BAMs) are charged with negotiating all licensing deals. The BAMs are negotiation experts who have a deep knowledge of the licensing industry and the properties currently held by the company or desired to be held.  Once the BAMs understand from the MAMs what terms they must acquire from the licensed property owners, they develop a proforma of the cost to achieve the license. The BAMs then brief a designated Approval Authority on what properties they have been asked to license.

Technology Licensing And Brands

I was talking to a prospective client the other day. We were discussing how product innovation is critical to helping brand owners stay connected with their consumers. One of the best examples of this is to consider what Apple has done with their iPod, iPhone and most recently the iPad.   

Through product innovation Apple has made existing platforms such as the iPod and iPhone significantly more relevant to their consumers ever since the products were originally launched. Moreover, through the introduction of the iPad, Apple has created an entirely new category to help consumers stay connected with the world in a simple, powerful and elegant way.   

My prospective client was considering licensing some patented technology they possessed. When I told him that the best way to find suitable partners for the technology was to understand their partners' brands and the positioning of those brands, he wanted me to explain why I felt that was so important.  

My point to him was that technology can be the key to helping a brand owner more powerfully reinforce their brand position with the consumer.  To keep with the Apple example, the makers of the iPhone made their platform available to the world so that anyone with an idea for an application could gain access to iPhone protocols.  When the iPhone launched in 2007, there were very few Apple developed applications available with the phone.

Brand Licensing Optimization Checklist

Whether your brand licensing practice is decades old or just starting out, optimizing it is critical to the long-term health and vibrancy of your brand.  A fully optimized program ensures that all licensed products reinforce the brand’s positioning, that consumers have access to the licensed products through designated retail channels authorized in each licensees’ contract and that the net sales and royalty revenue growth are balanced across retailers and Stock Keeping Units (SKUs).  Unless a brand licensing program has a systematic approach to measuring its level of optimization, the quality and success of the program can be both unpredictable and harmful to the brand.  The only thing worse than a program conditional on the decision making whims of one retailer is a program that is selling millions of branded products annually in the wrong categories, reinforcing the incorrect brand attributes or eroding brand equity.  So, let me ask you brand managers, marketing directors and CEOs out there, “How optimized is your brand licensing portfolio? “

Determining the level of optimization of a brand licensing program is relatively straight forward if you know what questions to ask.  Outlined below are eight categories to help you determine your program’s degree of optimization so that you can begin to identify gaps.  Before we get to them, let’s dig a little deeper into why brand owners should pay particular attention to this topic.  After all, a program may be growing steadily in net sales and royalty revenue.  It may even be adding terrific licensees and exceeding plan year after year.  With positive indicators like these, brand owners have good reason to believe their licensing program is on the right track.  However, without a detailed understanding of how the program is achieving its sales and royalty growth, companies may be at risk of losing a substantial portion of sales and royalties if their top licensee’s largest program does not get renewed, or if there is a safety recall on the program’s highest selling SKU.  Some savy brand owners realize that diversification is important and have chosen to sign a large number of licensees to avoid dependence on a limited number of licensees or SKUs.  However, programs with a large number of licensees may become administratively overburdened.  If your program has many licensees, when was the last time you had the chance to meet with each of them face to face?  And when you did meet, did you take the time to inquire about the state and health of their overall business? 

Licensing The Beverly Hills Brand

Mayor Jimmy Delshad (pictured above) announced this month that The City of Beverly Hills, California is launching its own line of perfumes as a first step in turning its trademarked shield logo into a brand. Click here for more details.

I think it is an interesting concept for a city to reinforce is most powerful positive associations by launching related products under its name and logo. If done properly, it could help reinforce what the city stands for and what makes it different. While this may not work for the majority of municipalities, I could see it working in a number of instances:

• Woodstock (NY) – tie-die clothing
• Lake Placid (NY) – winter sportswear or ski equipment
• Las Vegas (NV) – traveling shows
• New Orleans (LA) – Cajun foods
• Cambridge (MA) – study guides (similar to CliffsNotes) or college test preparation services
• Nashville (TN) – country music record label (some already exist)
• Kansas City (MO) – barbeque sauce (some already exist)
• Fargo (ND) – ice cream bars
• Scottsdale (AZ) – golf equipment
• Orlando (FL) – national theme park chain
• San Jose (CA) – national computer consulting franchise
• Aspen (CO) – upscale ski clothing
• Sedona (AZ) – New Age products

The trick would be to find products that reinforce the intended positive associations. For instance, while Fargo could license its name to ice cream bars, maybe it wants to leave that honor to International Falls, MN or some other extreme northern municipality. This could be a whole new line of branding – creating municipality brands under which nationally (or globally) distributed products and services are offered.

Can you think of any other municipality/product combinations that are ripe for brand licensing?

Sponsored by: The Brand Licensing Workshop

10 Benefits Of Brand Licensing

There are ten key benefits to licensing your brand. Brand Licensing enables:

1.   Brand Managers to extend their brands with minimal investment.  Through the licensing arrangement, third party manufacturers are responsible for everything from product development to inventory management to store replenishment.  

2.  The brand to obtain supplementary marketing support.  For the right to use the brand in their category, the manufacturer must agree to spend a percentage of their net sales on marketing.  This marketing commitment not only supports the category licensed, but can be significant to the overall brand.

3.  Trademark protection in the category.  For a brand to benefit from trademark protection in a particular category, it must be actively sold in that category.  If the category lies vacant, others may claim rights to use the mark.  Extending a brand into a category via licensing helps brand owners meet the commerce standard.

4.  Increased consumer connections and insights in the categories being licensed.  Extending a brand via licensing offers thousands of incremental opportunities to connect with consumers.  By inserting a survey inside the licensed package or a toll free number on the exterior, a brand owner can gain many additional insights about the brand.

5.  A brand to gain incremental shelf space.  If a brand owner chooses to extend a brand via licensing into a new category, the brand gains tremendous additional exposure in those categories in every retail store the product is sold.  When sold into major chain retailers, the brand can gain thousands of additional feet of brand exposure in each category.

Top 10 Brand Licensing Mistakes

                

I. Distorting reality

Licensors interested in licensing a category to a prospective licensee will ask for sales projections by region and by channel along with a sales plan. In trying to "win" the license, the prospective licensee will often provide the licensor with a "best case scenario" instead of a more realistic case. The licensee often ends up accepting sales targets they may not be able to achieve ultimately resulting in a breach of contract.

II. Miscalculating sales targets

Prospective licensees often try to secure multiple regions or channels. The licensee often has only one opportunity to sell the branded merchandise. If that falls through, the licensee fails to meet their sales and royalty targets and may request royalty relief. When the licensee is not prepared to demonstrate how they are maximizing their rights, not only will they not get the royalty relief, they may also be required to develop a plan on how they will exploit their license. The licensee may lose rights to certain channels or regions if they can not comply.

III. Creating unrealistic expectations

Licensees may not fully understand the true strength of the brand whose license they just acquired. The licensee may overestimate the power of the brand believing the brand alone will result in acquiring new clients or larger programs with existing clients. When new sales fail to happen, the licensee may feel like they got sold a bill of goods. A license works best when a great product is combined with a great brand to solve an unmet consumer need.