Brand owners may find themselves in one of two categories in regards to brand licensing:

First, you may have been considering launching a brand licensing program for several months or even years. However, you may be hesitant as you just don’t know how much royalties your brand could generate and whether you would gain a sufficient return on investment from those royalties to make such a program worthwhile to your organization. 

Second, you may have had an existing brand licensing program for quite some time and have been wondering if it is fully optimized. Perhaps you are wondering if most of your royalty revenue comes from only one or two licensees. If you believe your royalties are spread evenly across your licensees, you may be wondering if most of their sales are coming from one or two retailers. With the downturn in the economy you may be concerned if your licensees are on the brink of going out of business.

In either case, a brand licensing program audit should be considered.

If you find yourself in the first camp trying to determine how much pent up demand exists for your brand in categories that could be licensed, a brand licensing program audit is specifically designed to answer the following questions:

• What kind of royalty revenue can my brand generate?
• How much will it cost for us to get started?
• How long will it take to reach critical mass?
• What will the ROI be?

The Blake Project will work with you to evaluate what new categories your brand is ready to extend into, the range of sales your brand will generate through brand licensing and what the range of royalty revenue you can expect to be brought into your company. We will then evaluate what the cost would be to either launch the program internally or by utilizing a brand licensing agency. From this we will determine what your ROI will be. The audit focuses on how you can use your brand’s strength in the market place to generate royalty revenue for your company while extending the brand into new categories where your consumers and customers expect it to be.

To help you properly evaluate the viability of launching a brand licensing program, together we will:

• Identify the top 5 – 8 categories in which to extend your brand
• Prioritize those categories by potential consumer engagements, royalty revenue and customer interest
• Identify 2 to 3 prospective licensees (manufacturers) for each category
• For each category, define an expected set of licensing deal terms including royalty rate, minimum sales, minimum guaranteed royalties, territory, channels and term
• For each category, estimate the total sales and projected royalty revenue
• Based on the findings, make a recommendation as to the viability of brand licensing as a go-to-market strategy
• Articulate the investment needed and the actions required to launch a brand licensing program
• Summarize and present the findings and recommendations in a PowerPoint presentation

Specific input is critical to this audit. As such we will be interviewing team members and other key stakeholders including retail partners. The input will be designed to answer the following questions:

• What is the strength and equities of the brand?
• What new categories can the brand enter that will leverage its strength and equities?
• What is the market size for each new category and expected growth over the next 5 years?
• What company is the category leader and what is its market share?

The deliverable for this audit is clarity on the ROI of a brand licensing program. The ROI forecast will be calculated by determining the cumulative royalties projected to be generated through the third year of commercialization divided by the total costs to launch the program.

If you are in the second camp wondering if your existing licensing program is optimized, we will work with you to answer the following questions:

• Does the licensed product reinforce its brand’s positioning?
• Do consumers have access to the licensed product through every designated retail channel or region authorized in each licensees’ contract?
• Are the net licensed product sales and royalty revenue growth balanced across retailers and Stock Keeping Units (SKUs)?
• Are the licensees in good financial health and do we have strong processes in place to find qualified replacements?

Our optimization audit is designed to gain clarity on whether you brand licensing program is indeed optimized, and if not, what steps can be taken to alleviate any major gaps.

We will work with you to evaluate what areas are out of balance and by how much. You will gain a good understanding of any hidden risks in your brand licensing program and how much they can impact its viability. We will then evaluate what the cost would be to remedy those risks and how quickly you must take action. From this we will determine what your ROI will be.

Here are the eight areas we will evaluate to determine your brand licensing program’s level of optimization and what is needed to get it on track:

1. Portfolio Balance

a. Is the overall brand licensing portfolio properly balanced?

b. How many licenses does the program have?

c. What percentage of the licenses comprises 80% of the net sales?

2. Category Alignment

a. Is your program licensed in the right categories?

b. Does the brand have permission to be extended into the existing licensed categories? (internal research – brand research)

c. If so, are there category positioning statements written for each category?

3. Licensee Search and Suitability

a. How are you prospecting licensees to ensure you are finding the best suited to support your program?

b. Where do you look for information when prospecting licensees?

c. What parameters are used to shortlist licensees from the universe?

4. Licensee Health

a. What is the overall health of your licensees?

b. When was the last time you checked their audited financial statements?

c. Do they have any current or pending law suits that could seriously impact their business?

5. Category Management

a. How often are reviews conducted with each licensee to ensure they are meeting their objectives? Annually? Quarterly? Monthly?

b. What questions are being asked in the review?

c. Who from the licensee is attending the reviews?

6. Licensee Orientation and Alignment

a. Is there a robust orientation program in place?

b. If so, who attends the orientation and when does it take place?

c. How often do you meet with the licensees individually and collectively?

7. Business Planning

a. Is there an existing business planning process in place?

b. Do you use a licensee summit to review the planning process?

c. How often do you discuss the plan with the licensees?

8. Contract Quality and Accuracy

a. How robust are the contracts you currently have in place?

b. Do they accurately reflect the deal terms and procedures being practiced?

c. When does each of your contracts expire? Is there proper succession planning?

The deliverable of this audit will expose any vulnerabilities of a brand licensing program across the eight areas of evaluation and what actions are required to correct them.

In both audits we educate clients throughout the process so that all program managers are speaking a common language. For instance, we will provide a glossary of brand licensing terms as an easy reference guide. We will make sure members of your team understand how the licensed product and the royalty payment each flow. Finally, we will make sure that everyone has a clear understanding of standard brand licensing deal terms and what are the customary royalty ranges they can be expected for their brand.

A brand licensing program audit should be high on the list of priorities for those with an existing brand licensing program and those considering a program. Contact us for more.

Join us at The Un-Conference: 360° of Brand Strategy for a Changing World
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Branding Strategy Insider helps marketing oriented leaders and professionals like you build strong brands. To that end we're happy to answer your marketing questions. Today we hear from Kate, a business reporter for National Public Radio in Rochester, New York who writes…

"Kodak cameras and related products will be back in the marketplace this year, but they won't be made by Kodak. The photo pioneer stopped making digital cameras about a year ago. Now it is licensing its brand name to another camera maker. Please answer a few brand licensing questions for me."

1. What if any concern should Kodak have in licensing their brand?

As with all brand owners, Kodak should be aware that JK Imaging or any other licensee will have certain rights to the Kodak brand and through their licensing relationship, JK Imaging could adversely impact Kodak brand equity. This could result from the sale of poor quality products, the sale of the Kodak licensed products in an unauthorized channel or region, or from not ensuring the manufacturing facility used by JK Imaging complies with safe international working standards. To mitigate this risk, Kodak should have first vetted JK Imaging through a rigorous due diligence process to ensure JK Imaging can deliver against the Kodak brand promise in all products they manufacture. Second, Kodak should ensure they have a thorough approval and auditing process to affirm that all products sold in the marketplace meet their standards and that all facilities are compliant with government and trade guidelines. By picking a best in class brand licensee, Kodak will continue to reinforce their brand equities as they engage with consumers across all channels and regions where the brand is licensed.

2. What is the implication for the Kodak brand that, despite financial difficulties, was able to license it to JK Imaging LTD?

The fact that Kodak was able to license their brand name on various digital cameras, pocket video cameras and portable projectors says to the marketplace that the Kodak brand is still strong and that consumers have a preference for Kodak branded products. This should bear well for Kodak in the future as they look to license their brand in other categories. Moreover, the continuity of selling Kodak branded products in the licensed categories gives Kodak the ability to take those categories back in-house in the future without having to reintroduce the brand.

Thanks for your question Kate, we wish you much success with your story and Kodak much success with its brand licensing program.

For brand owners interested in the benefits of brand licensing start here.

Have a question related to branding? Just Ask The Blake Project

Sponsored by: The Brand Licensing Workshop

FREE Publications And Resources For Marketers

We regularly answer marketing questions here on Branding Strategy Insider. Today we hear from Rick, a senior marketer in Los Angeles, California who writes…

“I work at a large utilities company where we are exploring the feasibility of licensing our brand. Specifically we are interested in engaging an agency that can develop brand licensing agreements and manage the entire program. We want to be sure that a brand licensing agency will create the value needed to make this worthwhile. Where would be a good place to start?”

Thanks for your question Rick. The first criteria in your search for a brand licensing partner is to be sure the agency understands how to extend into categories that will reinforce the position of your company’s brand. A deep understanding of brand strategy and positioning is critical to help avoid extensions that may damage your brand. Second, be sure the agency knows how to find best-in-class vendors to commercialize products that will deliver against your brand’s promise.

If the agency gets these two things right, the rest will take care of itself. By selecting categories that deliver against the brand position, every licensed product purchased will reinforce that position in the mind of the consumer, thus strengthening their brand loyalty and allegiance. By having best-in-class vendors as licensees, the execution will be top notch which means the program will grow faster and more successfully, delivering value to all stakeholders. 

You should also check that the agency has a rigorous brand licensing process to eliminate the guess work and a robust standardized contract to protect the company and the brand in case anything goes wrong. Moreover, the agency should be expert negotiators who know how to extract the maximum value for the brand owner in terms of royalty rate, minimum guaranteed royalty and net sales.

For this, most agencies require a substantial upfront fee to get the program up and running and then a percentage of royalties collected. The agency manages the collection process on behalf of the brand owner. Some organizations, like ours (The Blake Project), are open to receiving a retainer in lieu of an upfront fee to mitigate the company’s costs and the adverse impact on their cash flow. Unlike most firms, we also develop a plan to transition management of the licensing program to the brand owner when they are ready. When this occurs all future royalties go to the company.

Rick, here’s an example of a successsful brand licensing program.

Have a question related to branding? Just Ask The Blake Project

Sponsored by: The Brand Licensing Workshop

FREE Publications And Resources For Marketers

Today on Branding Strategy Insider, we're taking another question from the BSI Emailbag. Lawrence, a brand marketer in New York, New York writes:

“How do I license a brand name? I have the idea to connect a cartoon name to an alcoholic beverage. MGM is the owner of the rights. What is the best way to start? And what are things to keep in mind when approaching MGM?” 

Thanks for your question Lawrence. Here are some of the things you should do to prepare for licensing the MGM brand name:

1. Determine whether the cartoon character has the permission to extend in to an alcoholic beverage or not. Think of the cartoon character as a brand. Do the consumers of the brand expect to buy alcoholic beverages? If the cartoon character has an adult fan base, then maybe. Conduct research within the core fan base that you can share with MGM.

2. What will be your business plan? What retail channels will you sell them in and at what price? What sort of marketing efforts will you put towards the brand licensing program. As a licensee, you should have answers to these questions ready. Also, have a sense of what sales numbers you will be able to achieve. You will eventually be asked these questions by MGM. 

3. Be ready with a ballpark idea of what royalty rate you will be expected to pay MGM. Research what percentage comparable brands demand. Know your financial structure, i.e. expected MSRP, margins etc.

Lawrence, you'll find more on the basics of brand licensing here. For brand owners interested in the benefits of brand licensing start here.

Have a question related to branding? Just Ask The Blake Project

Sponsored by: The Brand Licensing Workshop

FREE Publications And Resources For Marketers

Brand extension is the way to get the best financial return out of a strong brand. By extending a known and much loved brand into new countries and categories, the brand owner reduces risk and maximizes the return on their investment. But extension is not without risks of its own. These days I can’t help wondering if many brands are extended too far, too fast.

Extension into new product categories poses an interesting challenge for a strong brand. There needs to be a good fit between what the brand stands for and what people look for from the new product category. But the fit between the brand and the category does not need to be based on a direct application of the brand’s functional credentials. The fit can be more conceptual. Sometimes this makes for giant leaps into categories not remotely connected to the brand’s origins.

A recent example that comes to mind is the Dirty Jobs heavy duty cleaning products spawned by the “Dirty Jobs" show on the Discovery Channel cable network. In each program, the show’s host, Mike Rowe, explores a dirty job, and attempts to complete the same task as the people whose job it really is. The fit between the well-known TV show and a line of cleaning products makes good sense. After all, Mike doesn’t just get dirty he has to clean up somehow.

A similar “leap of faith” extension would be Wolverine World Wide’s Cat Footwear, the global footwear licensee of Caterpillar® Inc. There is no real functional connection between giant, yellow, earthmoving equipment and footwear, but the connection is there. From durability to traction the benefits of machines and boots have a lot in common. The conceptual linkage has allowed a small collection of work boots to grow into a wide range of casual footwear selling in more than 150 countries worldwide.

And, perhaps not surprisingly, I note that Mike Rowe has also got in on the Cat act. On the Cat Web site is a page dedicated to Mike Rowe Works, which announces that if Mike ever writes a book on lessons learned from people with dirty jobs, chapter one will be “Don’t skimp on your boots.”  

The fit between these brands seems to make good sense to me, but all too often I can’t help wondering if some brands do not extend too far, too fast. Take for example, Ugg Boots. For a while these fur lined boots from Australia seemed to be the “must have” women’s accessory, but now you can buy pretty much anything from sandals to men’s shoes. Many of the new items seem light years removed from the brand’s origins as a boot made with sheepskin. Nor do they have any apparent connection with surfing – the boots were often worn by surfers to keep their feet warm – and yet it was this sport that helped propel the brand to international fame.

Maybe the connection to celebrities that boosted the brand’s visibility in the early 2000s will be enough to sustain the brand’s standing, but I doubt it. While I may be proved wrong (since fashion is not my forte), Ugg seems destined to go from iconic to diluted in the space of a decade.

So what are your thoughts on brand extension? Do you have any great examples to share? And which brands do you believe have been extended too far? Please share your thoughts.

Contributed to Branding Strategy Insider by: Nigel Hollis, Chief Global Analyst Millward Brown 

Sponsored by: The Brand Licensing Workshop