Why Brands Must Add Brand Licensing To Their Marketing Mix
Being a market leader means you need to constantly acquire new customers to grow your brand. There will, inevitably, come a point when the opportunity arises to develop new products that are beyond the company’s core competency and this is where ‘Brand Licensing’ comes into play.
Brand licensing is a big business around the world. According to the International Licensing Industry Merchandisers’ Association (LIMA), the retail sales of licensed products crossed $270 billion last year!
Through a brand licensing agreement, the owner of a brand (trademark)- the licensor- can allow third parties- the licensees- to use their trademark on pre-defined products under certain conditions in return for a royalty payment. Brand Licensing allows brand owners to extend their brand through third parties in a controlled manner. A licensing agreement stipulates who will use the brand, how the brand will be used, where it will be used, and for how long.
Here are the top 4 reasons why leading brands must explore brand licensing:
1. Grow Brand Value
Brand licensing partnerships allows brands/licensors to explore and expand into new product lines, which can help in significant expansion of their customer base.
The tire brand ‘Goodyear’ began its licensing program in 2001, and now has over 100 licensee partners that sell Goodyear-branded products in 164 countries across the globe, including automotive accessories, footwear and lifestyle products. According to Goodyear’s Director of licensing, "Our focus is on reinforcing the Goodyear brand message and touching current and potential buyers".
Similarly, the leading tools & home products brand ‘Black+Decker’ has licensed products such as coffee machines, steam irons, safety shoes, garden tools etc. which helps expose the brand to new consumers, across several new retail touchpoints and builds brand awareness and equity.
Many consumers may not be able to afford high-end designer clothing from brands such as Gucci and Chanel, but they can still be targeted through more accessible products such as fragrances or eyewear, which are usually licensed, and the same consumers are likely to buy more premium products from these brands as they move up the income ladder. Tobacco and liquor brands have also utilized brand licensing to bypass advertising bans in their core categories; their goal is usually to enhance brand value, not to earn additional money. Thus, brand owners with experience in licensing, view it as a critical component of their Marketing Mix to create positive associations among core consumers, and create new ones.
2. Financial Benefit
While royalty income may not be the primary reason for most brands to enter licensing, it has become a significant profit center for several brand owners. Leading corporates such as General Motors, Electrolux, P&G, Caterpillar, Ferrari, The Hershey Co., Ralph Lauren, Whirlpool and Stanley Black & Decker are quite active in this business and each of them sell licensed products in excess of $1.5 Billion each year through such licensing partnerships.
A large percentage of licensing revenues, as compared to revenues from core business, go directly to the bottom line. Typically, costs of licensing could vary from 10% to 60% of royalty revenues – a new licensing program requires a much higher cost ratio than an established program with many successful licensees.
3. Lower Risk
Brand Extension is a risky business. Even the most high-profile brands have burnt their fingers trying to get into new product categories as they chase new markets and new consumers. Smart brand owners have used licensing partnerships to enter new areas and have been able to also do away with the overheads and learning curve associated with launching a new product from scratch.
Licensing is a low-risk tool for brand owners to extend their product lines into areas where they do not have product development capabilities, manufacturing infrastructure or existing distribution channels. Licensees with expertise and infrastructure relevant to the new categories would be far better equipped to manage the brand extension while the brand owner continues to focus on growing the core business.
4. Trademark Protection
A trademark might be registered for multiple products and services, but it is generally not feasible for the brand owner to be active across all such products and services. Since trademark rights arise from the use or intent to use a mark, brand licensing can help strengthen a trademark by expanding its use to new products outside the licensor’s core categories. Also, if the trademark happens to be exploited by unauthorized manufacturers, it may expose consumers to low quality and potentially hazardous products that don’t hold to the safety and quality standards that other branded products are held to, which could harm consumers and cause serious damage to the brand image. Thus, trademark protection is an important reason, especially for corporate brands, to set up licensing programs.
Brand Licensing should be an integral part of marketing mix, given the high stakes and the opportunity. Brands should not wait to reach a point of stagnation, before exploring licensing opportunities. Rather they should maximise the superior leverage that comes from being the first ones to extend into new categories, beyond their core products and consolidate their lead against the competition.
So if you are a leading brand, and you decide to extend your brand into new business areas, then as a first step, a complete licensing strategy is required to be put together, along with selection of a well-experienced brand licensing agency that can help you develop, execute and manage the entire brand licensing program.
Also published at: Exchange4Media