Branding Strategy Insider helps marketing oriented leaders and professionals like you build strong brands. BSI readers know, we regularly answer questions from marketers everywhere. Today we hear from Jennifer, a Reporter in Chicago, Illinois who has this question about licensing…
I have an assignment for Gourmet Business, an ezine read by gourmet food and housewares retailers, to write about the biggest licenses in 2013. I am hoping you could share some of your brand licensing insight with our readers. In general, how important are license agreements today?
Hi Jennifer, thanks for your questions. License agreements are getting more and more important as the world economy forces brands to exist in a non-conventional structure. What I mean by this is that the traditional manufacturer of the 1950s and 1960s which built and sold branded products over decades has become less and less commonplace in today’s marketplace. As companies lose profitability in certain categories due to competition, they are choosing to keep their brand presence in that category via licensing to avoid product exits. Motorola licensed their two-way radio business and Rubbermaid licensed their brand for kitchen tools & gadgets – two foundational categories for each brand. Companies like Iconix are buying up brands and licensing them out – they don’t manufacture anything. For companies to survive they must be innovative and licensing offers them such an option.
Can you offer any comparisons between how licensed products drive sales and create brand awareness versus sales and awareness of unlicensed products?
Licensed products borrow the competencies and resources of best in class manufacturers (licensees) to extend brands into categories that they would otherwise not normally be in. This creates additional brand presence on shelf, in advertisements and with consumers – in their homes or on their person. By licensing, companies can use licensees to keep their brand on the shelf and competitions’ off. While the sales of licensed product are posted to the brand’s licensing partners P&L, they are often reported in the footnotes of 10K and 10Q filings. The royalties (normally calculated as a percentage of sales) hit the brand owner’s P&L. Licensed products are marketed and sold by the licensees, which often are category captains in their industry. This means they have strong teams to promote the licensed products. Unlicensed products rely solely on the manufacturer, or their distributor, to reach the retail shelf. This usually means less resources and, if the product is relatively unknown, the chance of success is greatly diminished.
Has the influence of licensing grown or diminished in recent years?
Over time licensing has grown substantially. During the Great Recession, licensed product sales dropped in line with the overall economy. There has been a resurgence in the past 18 months as the stronger economy is giving businesses more opportunities to take risk.
New deals were struck with revered brands such as Wizard of Oz and Disney – is nostalgia a potent force for licensing?
Nostalgia can be a potent force; it really depends on the strength of the brands and if there is a compelling reason to reengage them with consumers. In the case of the Wizard of Oz, the movie is celebrating its 75th year. The movie’s re-release creates an opportunity for the brand to reconnect with consumers. I am confident we will see similar types of licensing programs be created as major film properties such as Gone With the Wind, Breakfast at Tiffany’s or Star Wars reach significant milestones.
Do you think licensing agreements with cooking show celebrities are gaining or losing ground among viewers in the wake of the Paula Deen scandal?
I do think licensing agreements with cooking show celebrities are losing ground. Not so much as a result of the Paula Deen scandal, but rather with the over proliferation of chef celebrities. It has become hard for the consumer to keep up with so many new faces entering their living rooms and mobile devices. There are a limited number of buyers and now they have more choices. For licensing programs to work, the brands (chefs) must matter to enough consumers that the manufacturers and retailers feel it is a worthwhile return on investment to create the product and stock the shelves. When there were only a handful of chefs, this made economic sense. Now with dozens of chef celebrities, the market has become saturated. Unless there is some compelling technology linked to a chef’s products that reinforces the way he/she cooks, the likelihood of success will diminish along with the overall market.
Another brand consultant I spoke to said that licensing deals today were more “microtargeted” thanks to the ability corporations have to gather consumer data based on what consumers look at on the Internet – so companies have a better grasp on demographics than ever before. Do you agree that advances in technology are influencing the type of branding deals we’re seeing?
To a certain degree “microtargeted” licensing deals makes sense. I can see why retailers would like it. The challenge is on the back end. Licensing deals take months to negotiate and years to get up and running. Unless licensing can become more streamlined, the return on investment made might not be sufficient to warrant the concept, especially if the lifespan of the product is too short or the size of the market becomes too niche.
Jennifer, we wish you and the readers of Gourmet Business the best. You will find more on brand licensing here.
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