February 15, 2017
By Oliver Herzfeld
A well-functioning corporate licensing program can help a brand to expand into new categories and territories, adapting to new trends and a changing marketplace. However, setting up such a program takes hard work and ongoing care.
Licensing programs are an important commercial tool for corporate brand owners, enabling them to derive significant rewards from granting third parties the right to use their trademarks. 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.
So how does a brand owner go about granting licenses to third parties in a disciplined and diligent manner that maximizes rewards and minimizes risks? This three-part series provides a review and summary of 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 (a/k/a “brand equity”) 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.
The most important factor is brand awareness. That is the most indispensable and essential precondition of licensing. However, a trademark must be more than merely well known in order to succeed. Beyond awareness, licensed products must reflect current market trends and make sense in the minds of consumers. Some categories are already saturated, so for a retailer to stock a licensed product, some other existing product will have to come off the shelves. Therefore, it is imperative that a licensed trademark have a unique selling proposition, which is compelling to consumers and differentiates it from the competition.
When considering these factors, the brand owner should conduct quantitative and qualitative research using a variety of resources before developing a licensing program. This research should:
- measure consumer awareness and insights, brand stretch (i.e., the ability of an established brand to extend to unrelated products) and consumer feedback on specific categories and territories for consideration; and
- determine the opportunity size, market dynamics, competitive landscape and expected market share for each potential category and territory.
Brand owners should also speak with leading potential licensees to benefit from an expert opinion in their respective business segments.
Licensing must be firmly supported by the brand owner’s senior management and warmly embraced by its marketing department. Similarly, the brand owner should keep its sales, finance and legal teams – as well as its buyers, franchisees (if applicable), and other internal and external stakeholders – apprised of all relevant licensing developments and seek to secure their cooperation and buy-in.
Once licensing viability is confirmed and support is established, a brand owner may commence developing and implementing a comprehensive licensing plan.
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.
In order to build consumer acceptance for new products, it is important that the brand owner first consider extensions into categories that are close to core (i.e., categories that are extremely near to the brand’s existing products, basic competency and essence). Licensed products must reflect the trademark’s brand values while also being commercially viable for the relevant market opportunities. When evaluating categories for a strategic licensing plan, the following six key questions should be considered:
- Does the category build on the trademark’s equities for licensing?
- Will licensing into the category gain incremental marketing exposure for the trademark?
- Does entrance into the category expand the trademark’s retail presence?
- Will the category attract new consumers?
- Will the category resonate and appeal to the trademark’s current consumers?
- Does the trademark provide consumers with a unique selling proposition for this category?
Categories that extend further from the trademark’s core should be pursued through strategic sequencing, where consumer acceptance of the first phase of licensed products creates consumer permission for the second phase and so on.
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. A brand asset library is a centralized repository of all the names, symbols, designs, logos, images, slogans and other works of authorship related to the trademark which are available for licensing. A style guide is a manual that clearly defines the visual identity and overarching design aesthetic of the brand. 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.
Parts Two and Three
In the next installment of this three-part series, I will review licensee selection and negotiation, the license agreement, licensee management and product development. And in the final installment, I will cover unlicensed products, ongoing program optimization and using an agency.
Oliver Herzfeld is the Chief Legal Officer at Beanstalk, a leading global brand extension agency and part of the Diversified Agency Services division of Omnicom Group.