Brand Licensing Guide

As brand owners consider entering the global market via licensing, there are several points they should take into consideration. Some of the big ones include language, liquidity of their currency versus the dollar are their culture. Each of these can have a significant impact on brand owners’ ability to manage programs effectively.

The following chart helps articulate some of the differences between the US market and emerging markets. Each can have a potential adverse impact on business.

Factors	US Market	Emerging Market
Culture	Homogeneous	Heterogeneous
Currency	Uniform	Different currencies and exchange rates
Economy	Stable and uniform	May be variable and unpredictable
Government	Stable	May be unstable
Labor	Skilled workers available	Skilled workers hard to find
Language	Generally a single language	Different languages and dialects
Marketing	Many media, few restrictions	May be fewer media and more restrictions
Transport	Several competitive modes	May be inadequate

Best in Class Brand Licensing Agencies and Licensees

One of the most important decisions brand owners will make is choosing the right agencies to represent their brand. In addition, choosing the right licensing partners is critically important. When choosing an agency or licensee, make sure each…

• Believe in the vision of the brand and see the benefit of establishing the brand in the respective category
• Understand consumer needs and are willing to invest in marketing
• Achieve category captain status (retailer recognition for their excellence)
• Have strong leadership, are well managed and have limited employee turnover
• Possess excellent references from licensors and retailers
• Focus on innovation and product development
• Deliver consistent financial results

Evaluation Checklist

Below is a checklist that can be used when evaluating brand licensing agencies and brand licensees. If these organizations can achieve these parameters within their markets, brand owners will have a foundation for success.

Parameters	Licensor’s Expectations
Geographic reach	Extensive
Service	High
Financial Health	Strong
Innovation	Strong
Continuous Improvement	Ongoing
Quality	High
Product Scope	Broad
Capacity	Available
History	Market success
Channel reach	Broad
Price	Aligned with channel

Key Considerations

As brand owners launch their brand licensing program, their goal should be to stimulate profitable, long term growth of licensing revenues, to maximize the efficiency and effectiveness of the licensing team, eliminate major risks and ensure that the right controls are in the place to keep their program running smoothly.

Strategic considerations should include brand equity protection and ensuring fair compensation based on segment/category value. From a financial perspective, brand owners should be concerned about financial compliance and the quality of the financial arrangement taking into account quality of the sales and royalty forecasts, licensee solvency and the timing of royalties. Legal considerations include legal compliance, the quality of the licensing contract and the due diligence conduct on prospective licensees (are they who they portray themselves to be?).

To separate the serious prospects from the curious we recommend brand owners get their prospects to fill out a robust licensing application. As part of the application process, they will need to collect business, financial and legal information for each prospective licensee. Key areas to evaluate include strategic, financial, legal, organizational and third party references.

From a strategic perspective, brand owners want the licensee or agency to have an understanding of the consumer, their brand, product development, market research, advertising and promotion. They should have a leadership position in their industry, have strong retailer relationships, significant channel presence and have demonstrated innovation capabilities. A good way to assess their innovation capabilities is to probe into their R&D efforts and how many new product launches did executed in the last three years.

From a financial perspective it will be important to look at prospective licensee D&B reports, credit references, bank references, licensees past three years of financial statements.  They should take a good look at their debt coverage, growth, cash flow and debt-equity ratio.

From a legal perspective, brand owners should try to assess their legal compliance. Do they have any past and pending law suits? In addition take a look at any prior product liability and what level of due diligence they use to assess their vendors.

From an organizational perspective, brand owners should be most concerned with their company leadership.  Are they well managed? What kind of organizational structure do they have? Is their internal alignment between the senior management team and their employees? Finally, what is the cultural fit between the licensee and their company?

There are two types of reference checks: licensor references and buyer references.

When speaking to other licensors about a prospective licensee brand owners should inquire about their Product Quality and Product Development. Also, they will want to assess their Design, Sales and Distribution Capabilities. Find out if they use an internal or external Sales group. What is their service ability? How strong is their marketing and packaging competencies, payment history, business planning and forecasting? Finally ask about their customer service procedures and capabilities.

When speaking with retail buyers, ask about their product quality, service levels, marketing capability, pricing, category leadership, product Innovation, warranty and return policy.

Finally, brand owners should evaluate their program from a macro and micro perspective. Find the right markets to enter with their brand and then look hard at who can help them enter those markets. If they stick to the well-developed markets initially, that will minimize problems from an intellectual property perspective while giving them the greatest chance for growth. Tying up with strong partners in those markets and following a rigorous brand licensing process will ensure long-term success.

The Blake Project Can Help: Brand Licensing Audit