Companies extend their brands via licensing for a variety of reasons. Licensing enables companies with brands that have high preference to unlock their brands’ latent value and satisfy pent-up demand. Through licensing, brand owners have the ability to enter new categories practically overnight, gaining them immediate brand presence on store shelves and often in the media. Let’s take a deeper look at the benefits that make licensing so attractive to brand owners.
By licensing their brands, companies are able to satisfy consumer needs in categories that are not core to their business. When Apple launched the iPod a number of years ago they revolutionized the way in which people listen to their music. The iPod was so successful that its quick acceptance created an immediate need for accessories such as armbands, adapters and auto chargers. Apple could have chosen to manufacture and distribute these accessories themselves. Instead, Apple decided that these accessories were not core to their business expertise and therefore chose to satisfy the need through licensing. By licensing the iPod brand, Apple enabled a tremendous number of companies to produce all kinds of terrific products to make the iPod more user-friendly and to enhance the listening experience. Examples of licensed products for the iPod include the Bose Sound System with iPod docking station, the Nike+ running shoe, auto adaptor kits, armbands and many other products. All of these accessories are sold by licensees.
Some licensors see licensing as an opportunity to “test” the viability of a new category without having to make a major investment in new manufacturing processes, machinery or facilities. In a well-run licensing program, the brand owner maintains control over the brand image and how it’s portrayed (via the approvals process and other contractual structures), positioning itself to reap the benefit of additional revenue (royalties) and brand exposure through product displayed through new channels and incremental shelf space. For example, Rubbermaid gained additional revenue and brand presence by licensing kitty litter containers that are sold in the mass channel core to Rubbermaid, and specialty pet shops core to United Pet Group, the licensee.
How can you determine your brand’s extendibility and identify what product categories it can sell in? It takes understanding your brand’s vision, architecture and positioning and the value that the brand provides. Before brand owners extend their brands into categories in which they intend to license, they should start with a brand licensing audit followed by market research. Market research would include reviewing secondary research, holding focus groups, conducting interviews and performing field surveys to clearly understand what consumers believe about the brand and what their expectations are. Once this is obtained, brand owners will be able to identify suitable categories in which to extend. Each category should then be evaluated on the prominence of brand associations, favorability of associations inferred by the extension and uniqueness of association from the new category.
Once the list of possible extensions has been trimmed, brand owners should then conduct an industry and competitive analysis of the category. Specifically, research includes the size of the market, current competitors, industry growth rate, and competitive nature. This analysis will enable the brand owner to determine whether it makes sense to even enter the category. Techniques to use include Strengths – Weaknesses – Opportunities – Threats (SWOT) analysis or a Porter’s Five Forces analysis. These methods are helpful in evaluating a business or a project from a strategic point of view. They involve specifying the objective of the venture and identifying the external and internal factors that are favorable or unfavorable to achieving that objective and to determining the attractiveness of the venture.
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Branding Strategy Insider is a service of The Blake Project: A strategic brand consultancy specializing in Brand Research, Brand Strategy, Brand Licensing and Brand Education