Licensing is the best way for a brand to develop its activities in a field that is different from its core business. Licensing enables companies whose brands have high preference to unlock a brand’s latent value and satisfy pent up demand that exists.
After Apple launched the iPod a number of years ago it created an immediate need for accessories; Apple could have chosen to manufacture and distribute these themselves, but decided they were not core to the business and therefore, chose to satisfy the need through licensing.
Licensing the iPod brand enabled many companies to produce all kinds of terrific products to make the iPod more user-friendly and enhance the listening experience. Examples include the Bose Sound System with iPod docking station, other products that enable an iPod to be heard through a vehicle’s built-in stereo and iPod holding devices that allow users “to take their music with them” when they go running. All these accessories are sold by licensees.
In addition to generating new revenue streams, licensors benefit from:
- strengthened relationships, reinforced brand values and additional touch-points with existing customers;
- extended brand awareness, reach and affinity to new consumers;
- entrance to new territories, markets and retail channels without increasing capital expenditures or ongoing expenses;
- brand promotion through licensees’ advertising, marketing and sale of licensed products; and
- enhanced trademark protection in the licensed categories.
Apart from benefits to licensors, there are benefits to licensees as well. Licensees lease the rights to a certain property for incorporation into their merchandise, but traditionally they do not share ownership in it. Having access to major national and global brands, and the logos and trademarks associated with those brands, gives the licensee significant benefits they previously did not possess. The most important of these is the marketing power the brand brings to the licensee’s products. Building a brand from scratch can take years, millions of dollars and a lot of luck. The company which licenses a brand gains immediate access to all the positive brand and image building that went before it. The licensee also takes with them the reputation of the licensor. Often this “halo” effect can translate into many intangible and immeasurable benefits such as returned calls, an agreement to meet, or simply the benefit of the doubt.
Here we tell you about the key processes and procedures in establishing a world-class corporate brand licensing program:
Prior to devoting resources and commencing work to set-up a licensing program, a brand owner must first determine whether and to what extent its trademark is actually capable of being licensed. The following five criteria are fundamental in considering a mark’s potential for successful brand extension.
Broad Awareness: Has the brand owner invested in the trademark to create wide-ranging consumer awareness? Is the mark associated with positive impressions? For a company to invest in licensing a trademark, positive awareness is absolutely critical.
Emotional Connection With Consumers: A trademark’s value directly relates to the emotional connection that consumers experience when interacting with its core product. A strong emotional connection based on consumers’ needs and desires drives consumer permission to extend into new product categories and territories.
Market Gap Or Trend: Is there an unmet need in the market? Although brand owners strive to create and maintain a consistent brand experience (i.e., the same products, in the same categories, with the same features, worldwide), regional differences in consumer preferences, retail environments, trademark registration rights and other factors will reasonably translate into different market gaps and trends in different territories.
Consumer Permission And Market Opportunity: Do consumers want and need new products from the brand and is there room for new products in the marketplace? This is basic supply and demand. If consumers are interested in products bearing a mark in new categories and territories and there is white space for such products in the marketplace, licensees will sign-up to develop and manufacture the products and retailers will place orders to supply the products to meet this demand.
Unique Point Of Difference In Relation To Competitor Brands: When entering new product categories and territories, a brand will likely also encounter new competitors, which can be completely different from the competitors to its core products.
In developing a solid foundation for a licensing program, the brand owner should first step back and consider the trademark’s history, brand essence (i.e., the heart and soul of what the brand stands for), brand promise (i.e., what consumers expect from the brand), key brand attributes (i.e., the set of characteristics that identify the physical, functional and emotional associations of the brand), core existing products, licensing vision, goals and objectives for the program and any specific areas of concern. That process should naturally lead to a brainstorming session where all possible areas of extension are considered and documented without evaluating their feasibility, practicability, relative merits, downsides or trade-offs.
From there, the brand owner should commence an evaluation process using the research and market opportunity analysis described above to narrow down the brainstorming outputs and develop a strategic licensing plan. This should encompass and sequence proposed product categories and territories for extension based on their ability to enhance the brand and meet strategic brand goals and initiatives. Common goals include building positive brand awareness through licensed products, reinforcing brand positioning to key constituencies by entering categories that leverage the brand’s attributes and strengthening the brand loyalty of targeted consumers by creating multiple touch points, which allow for a lasting experience with the brand.
The plan should also address channels of distribution, price positioning, target consumer demographics, marketing and merchandising requirements, the competitive landscape and a projected product launch timeline.
A strategic licensing plan should never be a static document or one-time event. Instead, it should be a living document and dynamic process that is reassessed and updated on a periodic basis to evolve, adapt and respond to consumer and market feedback and changing conditions.
Teams, Processes and Tools
As the licensing plan is developed, reviewed, approved and finalized, the brand owner should work in parallel on establishing its global licensing team and developing and implementing its licensing materials, systems and tools. In particular, it should assemble internal and external resources dedicated to licensing sales, licensee and retailer management, legal, finance, contract administration, royalty collections, product approvals and audits. It must also develop and implement the necessary materials, systems and tools which are critical to licensing program success, such as a brand asset library, style guide, sales materials, licensee proposal form, deal term sheet, standard form license agreement, licensee welcome kit, contract administration system and online product approval tracking portal, among others. In doing so, it describes, defines and presents examples of what the brand looks like in various visual forms and media, such as merchandise, packaging, advertising and other online and offline forms and formats. To be effective, it must clearly define the rules surrounding word usage, colors, size relationships, grammar, tone, and point of view related to the brand.