Licensing is the renting of IP assets to another company which has the core competencies to manufacture and distribute a product category which the brand owner neither wants to produce or has the capacity to successfully market; the decision to do so should be approached strategically. This is made up of three interdependent brand management components: External, Internal and Operational.
Strategic Licensing: External Brand Management
Licensing should be undertaken when the brand and its signature product is on the ascendency, preferably when all three measures of growth (market share, revenue and profits) indicate you are a market leader... too often, this is not the case, as licensing appears as a easy revenue generator.
Licensing should never be seen as a generator of revenue alone; it should be understood as part of other business objectives such as:
Increasing brand awareness
Partnering with licensees that have strong unique strengths (e.g. retail channel relationships) that the brand owner does not have
Market entry into foreign or new geographies, product categories or consumer segments
Strategic Licensing also may include prohibiting access to a market or channel of a significant competing brand.
In all instances above, brand extensions in the form of licensing have to be organic extensions of the product/brand category for which the brand owner is a market leader…here the concept of lifestyle comes into play.
the clearer the consumer perception that the mother brand has positioned itself as a lifestyle brand, the more likely it is that the new licensee (all other things being equal) will find acceptance as an authentic extension of the brand’s promise and values.
the determination of what constitutes a lifestyle brand cannot be simply the assertion of such by the brand manager but needs to be confirmed by the market through the fashion media, on-line communities and internet influencers. This needs to be framed over time through ads and images which portrayed brand and product in settings and situations which define a certain style of life. (think Ralph Lauren New England Brahmins or Michael Kors Jet Set)…still, there are caveats:
So for a brand owner to enter menswear without any alignment with their women’s sportswear brand is a risky strategy as leveraging the mother brand’s equity as a strategic advantage, is reduced when consumers are unfamiliar with the association between the brand and the product category; trusting and therefore testing the product is compromised. (witness Harley Davidson licensing its brand for neckties or toothpaste!).
In this regard, studies have shown that luxury brands are able to stretch the organic connection more than mass brands, as the equity they possess is deeper in the consumers perception of trust and authenticity
Strategic Licensing: Internal Brand Management
External brand management, to be successful, needs to be anchored in the culture of the company that owns the brand. This needs to be in place prior to marketing the brand for licensing. Each of the functionalities ( i.e. Sourcing, Mfging, Design, Merchandising, Sales, Marketing & Finance) must understand the brand’s values and its archetype as the foundation and the unifying principal in guiding internal business decisions. They all should speak in one brand language, embrace the brand’s written mission statement and strive to realize the brand’s written vision statement as well. Successful internal brand marketing is the pre-condition for successful external brand marketing.
These brand attributes become the basis for identifying and assessing the proper fit with potential licensees. Licensees must see the business through the kaleidoscope of the brand and be able to consistently execute its mission and identity in product, packaging, placement/distribution and pricing; for on-line, the same adherence must occur in conversations, content, context and on-line communities.
The brand owners marketing team will need to develop media kits and brand books both of which will provide the licensee with guardrails as to the appropriate use of IP assets and images for marketing communications helping to ensure a brand consistency across all product categories.
Strategic Licensing: Operational Brand Management
The final capability which must be in place prior to undertaking a licensing strategy is to have an internal operational licensing team and monitoring procedures. Licensing partners will have to adhere to brand guidelines in product development, distribution channels and image marketing and meet certain minimums in terms of sales goals and royalty rates. These latter financial obligations are contractual and licensees must meet quarterly and annual minimums and affect timely payments of royalties to the brand owner. Their shipments will need to be audited by the brand managers by reviewing invoices to ensure that appropriate pricing and distribution standards as stated in the contract, have been met.
Licensees must also adhere to time and action calendars to meet seasonal product releases and be guided by the latest market trends that brand owners are embracing. Story boards with color and themes presented for review must be part of the on-going process of monitoring each licensees pre-production brand strategy. Brand marketing in support of the seasonal collections will also, at this juncture, be presented and subject to review and sign-off by brand management.
[This piece, re-printed here with permission from the author, appeared in: “A Practical Guide to Fashion Law and Compliance” by Deanna Clark-Esposito, NY: Fairchild Books: 2018]