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Leveraging Brand Licensing to Enter new Market Segments

Several companies operate multiple brands under the same product line, such as two brands of televisions with different feature packages at different price points targeted at two distinct consumer segments. However building new brands requires a significant amount of time and investment and may not always be successful. Brand Licensing can be a very effective strategy for a company to cater to a different market segment and thus increase its sales and market share by launching a licensed brand.

Consider the example of the partnership between Bajaj Electricals and Morphy Richards in India. Even though Bajaj Electricals had a leading market position in the small appliances market, it was increasingly facing competition from international brands such as Philips, Kenwood etc. in the premium segment of the market which was also growing at a much faster pace. For a traditional Indian brand like Bajaj, it was difficult to compete with the western brands in the premium segment. Thus Bajaj entered into a licensing partnership with Morphy Richards to launch a premium range of small appliances. The partnership has proven to be very successful for both partners with Bajaj retaining the leadership position in the market and capturing a significant pie of the more profitable premium segment which is dominated by international brands. Morphy Richards contributes almost 20% of Bajaj’s sales in the small appliances category which is a significant figure for both parties. In a recent statement Mr. Shekhar Bajaj, the chairman and managing director of Bajaj Electricals said "We realised that we are value for money and there was an opportunity in the premium segment. So, we tied up to distribute Morphy Richards products. We have also done substantial indigenisation of Morphy Richards to bring down costs. Morphy Richards and Bajaj don't cannibalise each other. The premium brand reaches 12,000 outlets, while Bajaj reaches 40,000 outlets."

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Similarly Fossil Group, which is one of the largest watch companies in the world, has signed several licensing agreements with brands such as Armani, Burberry, Michael Kors, DKNY, Diesel, Adidas, etc. which has enabled it to expand its sales by entering the premium and luxury distribution channels where it may not have had a presence as a mid-market brand. These partnerships have helped Fossil gain access to new distribution channels, new consumers as well as generate incremental revenues.

As a result Fossil’s licensed and self-branded products are sold in 30,000 doors, across department stores, branded boutiques and specialty retail stores in 90 countries and generate roughly $3 billion in annual revenues globally. One of its most successful partnerships has been with Michael Kors which accounts for almost 20% of its revenues. In the US market, Fossil has captured 80 percent of the market for watches in the $100 to $500 price range. Fossil continues to pursue new partnerships with large, well-known apparel companies and fashion designers every year, for example in 2015 it added two new brands, Kate Spade and Chaps to its portfolio. These new brands complement the existing brands in the portfolio and represent significant revenue opportunities; this is a key growth strategy for the group.

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In a similar way, premium brands have also utilized brand licensing to launch products under a licensed brand at lower price points thus maintaining the integrity of their own brands.

Thus overall, brand licensing can be a very effective tool for companies to build a brand portfolio in quick time without large investments in brand building, and maximize the market opportunity.

Also published at: BusinessWorld