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Category: Brand Licensing

Brand Licensing

Brand Licensing Strategy Today

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Branding Strategy Insider helps marketing oriented leaders and professionals like you build strong brands. BSI readers know, we regularly answer questions from marketers everywhere. Today we hear from Jennifer, a Reporter in Chicago, Illinois who writes…

I have an assignment for Gourmet Business, an ezine read by gourmet food and housewares retailers, to write about the biggest licenses in 2013. I am hoping you could share some of your brand licensing insight with our readers.

In general, how important are license agreements today?

Hi Jennifer, thanks for your questions. License agreements are getting more and more important as the world economy forces brands to exist in a non-conventional structure. What I mean by this is that the traditional manufacturer of the 1950s and 1960s which built and sold branded products over decades has become less and less commonplace in today’s marketplace. As companies lose profitability in certain categories due to competition, they are choosing to keep their brand presence in that category via licensing to avoid product exits. Motorola licensed their two-way radio business and Rubbermaid licensed their brand for kitchen tools & gadgets – two foundational categories for each brand. Companies like Iconix are buying up brands and licensing them out – they don’t manufacture anything. For companies to survive they must be innovative and licensing offers them such an option.

Can you offer any comparisons between how licensed products drive sales and create brand awareness versus sales and awareness of unlicensed products?

Licensed products borrow the competencies and resources of best in class manufacturers (licensees) to extend brands into categories that they would otherwise not normally be in. This creates additional brand presence on shelf, in advertisements and with consumers – in their homes or on their person. By licensing, companies can use licensees to keep their brand on the shelf and competitions’ off.  While the sales of licensed product are posted to the brand’s licensing partners P&L, they are often reported in the footnotes of 10K and 10Q filings. The royalties (normally calculated as a percentage of sales) hit the brand owner’s P&L. Licensed products are marketed and sold by the licensees, which often are category captains in their industry. This means they have strong teams to promote the licensed products. Unlicensed products rely solely on the manufacturer, or their distributor, to reach the retail shelf. This usually means less resources and, if the product is relatively unknown, the chance of success is greatly diminished.

Has the influence of licensing grown or diminished in recent years?

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Brand Licensing

Brand Licensing Guide

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As brand owners consider entering the global marketing via licensing, there are several points they should take into consideration. Some of the big ones include language, liquidity of their currency versus the dollar are their culture. Each of these can have a significant impact on brand owners’ ability to manage programs effectively.

The following chart helps articulate some of the differences between the US market and emerging markets. Each can have a potential adverse impact on business.

Factors US Market Emerging Market
Culture Homogeneous Heterogeneous
Currency Uniform Different currencies and exchange rates
Economy Stable and uniform May be variable and unpredictable
Government Stable May be unstable
Labor Skilled workers available Skilled workers hard to find
Language Generally a single language Different languages and dialects
Marketing Many media, few restrictions  May be fewer media and more restrictions
Transport Several competitive modes May be inadequate


 

 

 

 

 

 

Best in Class Brand Licensing Agencies and Licensees

One of the most important decisions brand owners will make is choosing the right agencies to represent their brand. In addition, choosing the right licensing partners is critically important. When choosing an agency or licensee, make sure each…

  • Believe in the vision of the brand and see the benefit of establishing the brand in the respective category
  • Understand consumer needs and are willing to invest in marketing
  • Achieve category captain status (retailer recognition for their excellence)
  • Have strong leadership, are well managed and have limited employee turnover
  • Possess excellent references from licensors and retailers
  • Focus on innovation and product development
  • Deliver consistent financial results

Evaluation Checklist

Below is a checklist that can be used when evaluating brand licensing agencies and brand licensees. If these organizations can achieve these parameters within their markets, brand owners will have a foundation for success.

Parameters Licensor’s Expectations
Geographic reach Extensive
Service High
Financial Health Strong
Innovation Strong
Continuous Improvement Ongoing
Quality High
Product Scope Broad
Capacity Available
History Market success
Channel reach Broad
Price Aligned with channel


Key Considerations

As brand owners launch their brand licensing program, their goal should be to stimulate profitable, long term growth of licensing revenues, to maximize the efficiency and effectiveness of the licensing team, eliminate major risks and ensure that the right controls are in the place to keep their program running smoothly.

Strategic considerations should include brand equity protection and ensuring fair compensation based on segment/category value. From a financial perspective, brand owners should be concerned about financial compliance and the quality of the financial arrangement taking into account quality of the sales and royalty forecasts, licensee solvency and the timing of royalties. Legal considerations include legal compliance, the quality of the licensing contract and the due diligence conduct on prospective licensees (are they who they portray themselves to be?).

To separate the serious prospects from the curious we recommend brand owners get their prospects to fill out a robust licensing application. As part of the application process, they will need to collect business, financial and legal information for each prospective licensee. Key areas to evaluate include strategic, financial, legal, organizational and third party references.

From a strategic perspective, brand owners want the licensee or agency to have an understanding of the consumer, their brand, product development, market research, advertising and promotion. They should have a leadership position in their industry, have strong retailer relationships, significant channel presence and have demonstrated innovation capabilities. A good way to assess their innovation capabilities is to probe into their R&D efforts and how many new product launches did executed in the last three years.

From a financial perspective it will be important to look at prospective licensee D&B reports, credit references, bank references, licensees past three years of financial statements.  They should take a good look at their debt coverage, growth, cash flow and debt-equity ratio.

From a legal perspective, brand owners should try to assess their legal compliance. Do they have any past and pending law suits? In addition take a look at any prior product liability and what level of due diligence they use to assess their vendors.

From an organizational perspective, brand owners should be most concerned with their company leadership.  Are they well managed? What kind of organizational structure do they have? Is their internal alignment between the senior management team and their employees? Finally, what is the cultural fit between the licensee and their company?

There are two types of reference checks: licensor references and buyer references.

When speaking to other licensors about a prospective licensee brand owners should inquire about their Product Quality and Product Development. Also, they will want to assess their Design, Sales and Distribution Capabilities. Find out if they use an internal or external Sales group. What is their service ability? How strong is their marketing and packaging competencies, payment history, business planning and forecasting? Finally ask about their customer service procedures and capabilities.

When speaking with retail buyers, ask about their product quality, service levels, marketing capability, pricing, category leadership, product Innovation, warranty and return policy.

Finally, brand owners should evaluate their program from a macro and micro perspective. Find the right markets to enter with their brand and then look hard at who can help them enter those markets. If they stick to the well-developed markets initially, that will minimize problems from an intellectual property perspective while giving them the greatest chance for growth. Tying up with strong partners in those markets and following a rigorous brand licensing process will ensure long-term success.

Sponsored by: The Blake Project’s Brand Licensing Audit

FREE Publications And Resources For Marketers

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Brand Licensing

Brand Licensing Audits Offer Deep Value

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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.

Sponsored by: The Blake Project’s Brand Licensing Audit

Branding Strategy Insider is a service of The Blake Project: A strategic brand consultancy specializing in Brand Research, Brand Strategy, Brand Licensing and Brand Education

FREE Publications And Resources For Marketers

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Brand Licensing Branding: Just Ask... Derrick Daye

Brand Licensing Strategy

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Brand Licensing Strategy

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.

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Brand Licensing Derrick Daye

Choosing A Brand Licensing Agency

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Brand Licensing Agency George Foreman

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.

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