by Mark Levit
Brand licensing has exploded in recent years. With licensing, the overhead and learning curve associated with launching a new brand are eliminated. Launching a product under a trusted name is also less risky than introducing a product on its own. According to Julian Clarkson, Strategic Planning Director at Mercier Gray, "A product launch under an existing brand is about three times more likely to succeed than a newcomer with the same product in the same category without the association with the existing brand."
Licensing has become the ideal way to earn revenue in markets in which your brand is not traditionally known. For example, Home Depot has licensed its name to marketers of products not traditionally associated with the Home Depot name. Typically, when we think of Home Depot we think of building supplies and home products. But licensees have developed a line of toys to associate the "father and son" image with Home Depot. The toys are simply children’s versions of many of the products featured in the store. Home Depot toys are found in Toys R Us featuring items like the "Home Depot chainsaw with sound animation".
Research by the International Licensing Merchandisers’ Association confirms that brand licensing is extremely lucrative. According to Licensing Magazine, $178 billion was invested globally last year on rights, fees and royalties. When a brand has a clear image, high awareness and consumer trust, it can have very strong consumer appeal in certain product categories. "Product categories that are most successful are products that consumers buy on a regular basis," according to Michael Winick of the Kiwi Huggins Group.
For example, apparel is a very common product category for licensees. As a result, successful licensed brands are in greater demand by manufacturers looking to differentiate their product lines. "Licensing is an extremely low cost method of supporting the marketing budget, provided the products licensed are of appropriate quality and distributed through the right retail channels, the brand message can be maintained all year. Not only does this increase brand awareness, but it generates substantial revenue that often is channeled back into the marketing budget," explains Daniela Gould, Marketing Manager for Michelin.
Many of the "big players" have been using licensing as a means of promotion for years. Coca Cola generates more than 150 million dollars in retail sales in Western Europe via its licensing agreement for apparel and Coca Cola accessories products. The Cosmopolitan Magazine brand had reached into a variety of markets via its Cosmopolitan Collection. The line offers items like a sexy and hip bedding line, vitamins and even the Cosmo Spirit Caf�. These types of items are directed specifically towards Cosmo readers. The type of woman that would read the magazine is typically busy and successful, she also likes to take care of herself, be healthy and have fun.
Land Rover’s licensed brand extension includes apparel, footwear, toys and sunglasses�and worldwide sales generate $10 million dollars each year.
However, not every brand can or should have a licensing program, according to Michael Stone, chairman of Beanstalk, a consultancy that works with Coca Cola and Harley Davidson on their licensing programs. "The right brand should either be the leader in its field, like Coca Cola, or it should have a very special niche appeal," he says. " The brand must also appeal to a special demographic group." For example, 5 to 8 year olds, the hot licenses currently (to name a few), are Barbie, Yu-Gi-Oh, and SpongeBob SquarePants. Successful licensing tactics for this demographic are toy surprises given away by restaurants like McDonald’s and Dunkin Donuts; and character appearances in restaurants, at fairs, and similarly child friendly events. Here’s another example: Motorola has targeted African-Americans with the licensed Baby Phat cell phone. Selecting your consumer segment and knowing what they want is the most important element of licensing. To know whether licensing is the right approach for your product, first ask yourself a few questions. Who is the customer? What does the customer want? Will they spend the additional money? After finding the right consumer base, the next step is finding the right brand to associate with your product. As a licensee, you take on the responsibility of establishing distribution and funding advertising.
The cost? Of course the better known the brand, the higher the licensing fee. When licensing a product an initial fee is paid to the owner of the brand as well as a royalty for each unit sold. Fees are typically added onto the price of the product, (that’s why Barbie shoes are more expensive than plain ones). Royalties can range from 12% to 18% of the wholesale price. The initial licensing fee can be anywhere from thousands of dollars to millions depending on the stature of the brand. If the brand is successful, both ends make out well.
Licensing has exploded to satisfy brand hungry consumers. Look around, you’ll see licensed brand names everywhere. Television series, fashion designers, cartoons, movies, and NASCAR. Licensing is all around us.
Explore the advantages of licensing vs. establishing your own brand. Contact our managing partner Mark Levit, at 212.696.1200 for more information now.