Weekly 포커스 혁신제품 개발활동에서 빠지기 쉬운 오해 · 2012-03-19 · 었으며, 크레스트 화이트스트립스(Crest Whitestrips)는 가정에서 손쉽고
Licensing101 Brand · For example Crest extended its brand from toothpaste into whitening. Before...
Transcript of Licensing101 Brand · For example Crest extended its brand from toothpaste into whitening. Before...
BrandLicensing 101The Basics Every Licensor
Should Know
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Copyright ©2019. Pete Canalichio. All Rights Reserved.
Table of Contents3 INTRODUCTION
5 CHAPTER ONE:
HowBrandPositioning,Loyalty&EquityAffectLicensing
9 CHAPTER TWO:
WhyDoCompaniesLicenseOutTheirBrands?
16 CHAPTER THREE:
WhyDoManufacturersLicenseBrands?
21 CHAPTER FOUR:
THEBRANDLICENSINGPROCESS
39 SUMMARY
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Copyright ©2019. Pete Canalichio. All Rights Reserved.
IntroductionHaveyoueverwonderedhowCoca-
Cola,acompanysofocusedonmeeting
yourbeverageneeds,sellsCoca-Cola
brandedteeshirtsorcaps?Orhowdoes
NewellRubbermaidprovideyousucha
rangeofproductsunderasinglebrand
name?Whilecompaniessometimes
manufacturetheseitemsthemselves,at
othertimes,theymaychoosetoallow
amanufacturertoproduceandmarket
theseproductsundertheirbrandnames.
Inreturnfortheuseoftheirbrand,these
companieschargethemanufacturer
afee.Suchanarrangementiscalled
brandlicensingandcanbedefinedasan
agreementthatauthorizesacompany
thatmarketsaproductorservice(a
licensee)toleaseorrentabrandfromabrandownerwhooperatesalicensingprogram(a
licensor)inreturnforaportionofthesalesrevenue(royalty).
Thisguidewillhelpyouunderstandbrandlicensingbetter,aswellasaddresswhy
companieslicensebrands.Wewillalsotakeyouthroughtheprocessofhowtodetermine
thelicense-abilityofabrand,expectationsoflicensorsandlicensees,thebrandlicensing
processandtheroyaltypaymentflow.
ShortlybeforeIjoinedNewellRubbermaid,theRubbermaidbusinesswasconsidering
signinganagreementwithacompanybasedinEdenPrairie,Minnesota.Thecompany
wasTricam,andtheywereexpertsinladdersandgardendumpingcarts.
Tricamwassoinnovativethatmanyoftheirproductsheldvaluablepatentsthatmade
Coca-Cola Products
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theirproductseasiertouse.Inaddition,Tricammaintainedexcellentcustomerservice.
Basedonresearch,Rubbermaidlearnedthatkitchenstepladdersandgardendump
cartswerebothproductsthatconsumersnotonlyexpectedtoseesoldbyRubbermaid,
butthattheywantedtobuyfromthem.
Rubbermaidknewthattheydidnotpossessthecoreexpertisetomakekitchenstep
laddersandgardendumpingcartswiththetypeofinnovationthatTricamwas
using.RubbermaidalsounderstoodthatifTricammanufacturedRubbermaidbranded
productsoftheirbehalf,Tricamcouldoffermanymorebenefitstotheirconsumers
thananythingRubbermaidcouldbuildintosimilarproducts.Thiswasimportantto
RubbermaidasanythingtheymarketedundertheRubbermaidnamehadtomeetor
exceedthebrand’spromisetoitsconsumers.
Tricamwasalsointriguedwiththisrelationship.Theyhadbeensellingtheirkitchen
stepladdersandgardendumpingcartsontheirownforseveralyearswithlimited
success.Tricamknewthatretailerslikedtosellbrandedproductsastheygave
consumersaleveloftrustandcertaintythatcouldnotbeconveyedfromunbranded
products,regardlessofthereturnpolicy.
TricamalsounderstoodthattheRubbermaidbrandwasadmiredandrespectedby
bothretailersandconsumersacrossNorthAmerica.IfTricamcouldpairtheirproduct
innovationandsuperiorcustomerservicewiththeRubbermaidbrand,theycould
convinceretailerstoplaceordersfortheirproductsandsubstantiallygrowtheir
business.
Understandingtheopportunityfacingthem,RubbermaidandTricamenteredintoa
relationshipwhereTricamwouldmanufacture,marketandsellRubbermaidbranded
stepladdersandgardendumpingcarts.Overthenextthreeyears,Tricamsuccessfully
solditsRubbermaidbrandeddumpcartintoCostcoanditsRubbermaidbranded
kitchenstepladderatTargetstores.
ConsumerslovedthequalityoftheRubbermaidbrandedTricamproductssomuch
thattensofthousandsofboththestepladdersandthedumpingcartsweresoldinthe
ensuingmonths.Thispleasedbothretailerscausingthemtoissuemultiplere-orders
forseveralyears.
Ifyouthinkthisstoryisrare,preparetobepleasantlysurprised.
Hundredsofmanufacturersandserviceprovidersselltheirproductseachdayunder
brandnameslikeMr.Clean,Klondike,Coca-Cola,CaliforniaPizzaKitchen,Cinnabon,
andRubbermaid.Byteamingupwithatopbrand,theygainimmediaterecognition
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Copyright ©2019. Pete Canalichio. All Rights Reserved.
andcredibilityhelpingthesesavvycompaniestoachievedoubleandeventripledigit
growth.Thistypeofgrowthisdramaticanytime,butespeciallyinadowneconomy.
Tounderstandbrandlicensingbetter,onemustunderstandthetwocomponentparts
separately–brandandlicensing.Let’sbeginwithunderstandingthemeaningofthe
term‘brand.’
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Copyright ©2019. Pete Canalichio. All Rights Reserved.
What is a Brand?AccordingtoPhilipKotlerandGaryArmstrong,abrandisdefinedas“aname,term,
sign,symbolorcombinationofthese,thatidentifiesthemakerorselleroftheproduct
(orservice).”
Thebrandoritslegalterm,trademark,affixedtotheproducthelpstheconsumer
understandwhereitwasmanufacturedorproduced.Fromthebrandowner’s
perspective,itdistinguishestheproductsorservicesfromthoseofitscompetitors.
Consumers,inturn,canbeassuredtheproducttheyarepurchasingisexactlywhat
theywant.Basedonitsreputation,abrandwillconveyalevelofquality,reliability,
anddurability.
Theprimaryreasoncompanies
choosetobrandtheirproductsis
todifferentiatethemfromtheir
competitors’products.Forexample,
mostconsumershavenoproblem
differentiatingaCokefromaPepsi.
Bygivingtheirproductsabrand,a
companyorbrandownercanbegin
tocommunicatewiththeirconsumersregardingtheattributesoftheirproducts.Over
time,consumerscanbegintorelyonthebrandtoconnotenotonlyaproduct’svaluebut
alsoitsreputation.Ifconsumerslikewhatabrandrepresentsandtheyhavepurchased
itbefore,thereisahigherlikelihoodtheywillchoosethebrandoftheirpreferenceover
acompetitor.Infact,consumerswilloftenpurchaseabrandforthefirsttimeifithasa
strongreputationorifitisusedbyfriendsorcelebrities.
Brandsalsoleadconsumerstodevelopcertainexpectationsofproducts.Thelonger
theyexperiencepredictable,consistentqualityandperformance,themoretheyexpect
anynewproductssoldunderthesamebrandtohavethesame.Thebrand,therefore,
1Cans of Pepsi and Coca-Cola
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addsvaluetotheseproducts.Forexample,customersexpectnewproductssoldunder
theBMWbrandtobeofthesamequalityastheexistingBMWs.Consumerswill
associateabrandwithacertainpricelevelandstandardofperformance.Ifwelookat
twodistinctwatchbrands,RolexandTimex,oneisassociatedwithahighpriceand
highperformanceandtheotherwithvalueanddurability.Thesesameattributescan
alsobeofbenefittobusinesses.ManyconsumerslooktoUPSfortheirshippingneeds,
andtheypreferdoingbusinesswithcompaniesthatshipviaBrown.UPSaddsvalueto
itsclientcompanies,withareputationformakingshippingsimple,easy,reliableand
effective.
Brand PositioningBrandPositioningisarrangingforabrandedproducttooccupyaclear,distinctive,
anddesirableplacerelativetocompetingbrands/productsinthemindofatarget
consumer.
P&GsellssixbrandsoflaundrydetergentintheUnitedStatesthatcompetewith
eachotherontheshelf,offerdifferentmixesofbenefits,andprioritizebenefits
differently,eachbasedonthedifferentgroupsoflaundrydetergentpurchasers:
Tide:Fabriccleaningandcareatitsbest
Cheer:Protectsagainstfading,colortransferandfabricwearinpowderorliquid,
withorwithoutbleach
Gain:Providesexcellentcleaningpowerandasmellthatsaysclean
Era:Powerfullaundrydetergentthatistoughonstains
Dreft:Speciallyformulateddetergentthatrinsesoutthoroughly,leavingclothes
softnexttoababy’sskin.DrefthasbeentheNo.1choiceofpediatriciansforyears
Ivory:Mildcleansingbenefitsforagentle,pureandsimpleclean
Logo of BMW, Rolex, and TimeX, respectively.
Logos for P&G, Tide, Cheer, Gain, ERA,
Dreft, and Ivory
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Brand LoyaltyWhenconsumersandbusinessesgetintothehabitofbuyingcertainbrands,they
automaticallybuythemagainandagain.Thisreducestheamountoftimeand
promotionneededtomakefuturesalestothoseconsumers.AccordingtoKotler,brand
loyalty,inmarketing,consistsofaconsumer’scommitmenttorepurchaseorotherwise
continueusingthebrand.Thiscanbedemonstratedbyrepeatedbuyingofaproductor
serviceorotherpositivebehaviorssuchaswordofmouthadvocacy.
Brandsusuallypassthroughsuccessivestagesofbrandloyalty,whichisthecustomers’
allegiancetoaparticularbrand.Thestrongerthebrandloyalty,thehigherthevalueof
thebrandandthegreaterrevenueitwilldriveforitsowner.
Stages of Brand LoyaltyBrandloyaltyhasthreestages.Thefirstisbrandrecognition.Brandrecognitionis
whenconsumersbecomeawareofabrandandknowabitaboutit.Brandrecognition
orawarenessisusuallyreferencedasaidedwhentheconsumerrecognizesabrand
afterhe/sheisgiventhename,andunaided,whichiswhentheconsumermentions
aparticularbrandwhenaskedifhe/sheknowsanybrandsinaparticularcategory.
Unaidedawarenessisseenasahigherlevelofbrandrecognition.
Nextisbrandpreference.Brandpreferenceisachievedwhenconsumerspreferto
purchaseacertainbrandbasedontheirpositiveexperiencewiththebrand.However,if
thatbrandisnotavailable,theconsumerswillpurchaseanotherbrand.
Whenconsumersinsiston“their”brandandwillnotacceptasubstitute,thebrand
hasreachedbrandinsistence.Onlythatparticularbrandwillsatisfycustomersfora
givenpurpose.Mostbrandsnevermakeittothisstageofbrandloyalty.Coca-Cola
isoneexampleofabrandthathasmadeittothebrandinsistencestage.Thereare
manyCokeconsumerswhosimplywillnotdrinkanyotherbrandsofcola.Andwhen
brandsmakeittothebrandinsistencestage,theyalsohaveatendencytodevelopa
competitiveadvantageinthemarketplace.Brandswiththislevelofloyaltyareinthe
strongestpositiontoinstitutealicensingprogram.
Brand Equity and ExtendibilityCompaniesthatknowtheirbrandswellwillhaveagoodunderstandingoftheequityof
eachbrand.Abrand’sequityisderivedfromtheawarenessandimageabrandholdswith
itsconsumers.Oftenbrandmanagerswillleverageabrand’sequitytoenterorextend
theirbrandsintonewproductcategoriestohelpdrivestrategicgrowthforthecompany.
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ForexampleCrestextendeditsbrandfromtoothpasteintowhitening.BeforeProctor&
Gamble(P&G),whoownstheCrestbrand,launchedCrestWhitestrips,theyconducted
researchtounderstandifthebrandhad‘permission’toenterintotheretailwhitening
category,longheldbyestablishedbrandssuchasRembrandtandAquafresh.
P&GwantedtofindoutifconsumerswouldexpectCresttooffera
whiteningproductandifso,purchasethisnewproductbasedontheir
preferencefortheCrestbrand.Asmanyofusareaware,CrestWhitestrips
haveperformedwellinthemarketplace,achievinghighrankingsand
advocacyratings.WhileP&Gdecidedtoenterthewhiteningcategoryby
sourcingtheproductoverseasanddistributingglobally,theycouldhave
choseneithertomanufactureitthemselvesorenterthemarketthrough
licensingandhavetheirlicenseemanufactureanddistributetheproduct.
InthecaseofP&G’sMr.Clean,theirleadinghouseholdliquidcleaner,P&G
discoveredthatconsumersexpectedthecompanytooffercleaningaccessoriesunder
theMr.Cleanbrand.Inthisinstance,P&Gdecidedtoenterthemarketbylicensingthe
categorytoMagla,acompanythatalreadyhadexpertiseandpresenceinthiscategory.
WhenwesaythatP&Genteredthecleaningaccessoriescategorythroughlicensing,we
meanthatP&GallowedMagla,amanufacturerofcleaningaccessories,tousetheMr.
Cleanbrandinexchangeforafee.
What is Licensing?Licensingmeanstherentingorleasingofanintangibleasset.Acompanyownstwo
typesofassets:tangibleandintangible.Tangibleassetsarephysicalholdingssuchasa
factory,machines,buildings,computers,andfurniture.Examplesofintangibleassets
includeasong,suchasNeedYouNowbyLadyAntebellum,acharacterlikeDisney’s
DonaldDuck,aperson’snamesuchasGeorgeClooney,orabrandlikeTheRitz-
Carlton.
Anarrangementtolicenseabrandrequiresalicensingagreement.Alicensing
agreementauthorizesacompanythatmarketsaproductorservice(alicensee)tolease
orrentabrandfromabrandownerwhooperatesalicensingprogram(alicensor).
Crest Whitestrips
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Why Do Companies License Out Their Brands?Companieslicensetheirbrandsforavarietyofreasons.Licensingenablescompanies
withbrandsthathavehighpreferencestounlocktheirbrands’latentvalueandsatisfy
pent-updemand.Throughlicensing,brandownershavetheabilitytoenternew
categoriespracticallyovernight,gainingthemimmediatebrandpresenceonstore
shelvesandofteninthemedia.Let’stakeadeeperlookatthebenefitsthatmake
licensingsoattractivetobrandowners.
The Ability To Test Drive New Businesses Or Geographical Markets With Minimal Risk
Bypartneringwithathird-partymanufacturerorserviceprovider,abrandowner
cantrynewbusinesses,ormoveitselfintonewcountrieswithasmallerupfront
investmentthanbybuildingandstaffingitsownoperations.Sincetheproduct
manufacturinganddistributionarehandledbythelicensee–thecompanywiththe
productexpertise–thereisverylittlelicensorengagementwiththeproductandthere
isnoinventorycommitment.
Collect Royalty Revenue For The Right To Use The BrandWhileusuallynotthemostimportantreason,licensinggeneratesrevenuefroma
minimumguaranteeandthroughroyaltypayments.Guaranteesareusuallydetermined
onanannualbasisandcalculatedasapercentageoftheanticipatedperannumroyalty.
Royaltypaymentsaretypicallycalculatedasapercentageofwholesalerevenue.As
longasthebrandisprotectedandthelicensingprogramisproperlyadministered,no
GeneralManagerwouldknowinglyturnawaythehealthyinjectionthesepayments
bringtohis/herbottomline.
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Expand Their Overall Marketing Support For The Core BusinessInmanyinstances,thelicenseewillberequiredtoprovidemarketingdollarstosupport
thelicensedcategory,whichisimportantforthesuccessofthelicense.Thismarketing
spend,inturn,providesadditionaloverallbrandpresence.Forexample:
• Ifalicenseepromotesitsproductinaweeklycircularandgainsanend-aisle
display,theadvertisinganddisplaynotonlygenerateproductsalesforthe
licensee,theyalsopromotethebrandowner’score
• Anarrayoftoysorappareltiedtoamovie,sittingonastoreshelf,alsohelpsto
promotethemovie
• Asportsfanwhowearsasweatshirtwiththelogoofherfavoriteteam
expressesherenthusiasmabouttheteam,butalsosubtlypromotesthesports,
theleagueandtheteamtoanyonewhopassesherbyonthe
• Thesamegoesforabeerbrand.Seeingastoredisplayofglasswarecarryinga
well-knownbeerlogolikeGuinness,orwalkingintoaneighbor’shomeand
seeingtheglassesonhisbarreinforcesthebrandimage,supportingthebrand’s
overallmarketing.
Achieve A Competitive StrikeForlicensorswhoknowtheirbrandcanenterintoacategorythatiscontrolledbytheir
competitor,licensingcanbeasmartandeffectivewaytocombatarivalinacategory
coretotheirbusiness.Bytakingtheoffensive,thelicensorwillinturntakethe
competitor’seyeoffoftheirowncorebusiness.Forexample,whatifAdidaslicenseda
shoemanufacturertocompetedirectlyagainstColeHaanshoeswithNikeAirTM?
Gain Strategic KnowledgeAsmanylicenseesareexpertsintheirownright,theyofferthelicensoraccessto
intangiblessuchasintellectualproperty(throughlicensinginbound),productdesign
andmarketingexpertise,supplychainmanagement,newcustomerrelationships
andstrategicalliances.Astruepartners,alicensorandalicenseecanholdforumsto
exchangeideasthatnotonlygrowthelicensedcategory,butalsoimproveotherareas
ofbothcompanies’businesses.
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Maintain Control Over An Original CreationForbrandowners(particularlythosedoingbusinessintheglobalmarketplace),
licensingandregisteringthebrandsinmultiplemarketsisawaytoprotectthebrand
frombeingusedbyotherswithoutauthorization.Whenlicensingfirststartedat
Coca-Colaitwasrunbythelegaldepartmentspecificallytoprotectthecompany’s
trademarksinthecategoriestheychosetolicensethroughouttheworld.
DiscussionBylicensingtheirbrands,companiesareabletosatisfy
consumerneedsincategoriesthatarenotcoretotheir
business.WhenApplelaunchedtheiPodanumberofyears
agotheyrevolutionizedthewayinwhichpeoplelistentotheir
music.TheiPodwassosuccessfulthatitsquickacceptance
createdanimmediateneedforaccessoriessuchasarmbands,
adaptersandautochargers.Applecouldhavechosento
manufactureanddistributetheseaccessoriesthemselves.
Instead,Appledecidedthattheseaccessorieswerenotcore
totheirbusinessexpertiseandthereforechosetosatisfythe
needthroughlicensing.BylicensingtheiPodbrand,Apple
enabledatremendousnumberofcompaniestoproduceallkindsofterrificproductsto
maketheiPodmoreuser-friendlyandtoenhancethelisteningexperience.Examplesof
licensedproductsfortheiPodincludetheBoseSoundSystemwithiPoddockingstation,
theNike+runningshoe,autoadaptorkits,armbandsandmanyotherproducts.Allthese
accessoriesaresoldbylicensees.
Somelicensorsseelicensingasanopportunityto“test”theviabilityofanew
categorywithouthavingtomakeamajorinvestmentinnewmanufacturingprocesses,
machineryorfacilities.Inawell-runlicensingprogram,thebrandownermaintains
controloverthebrandimageandhowit’sportrayed(viatheapprovalsprocessand
othercontractualstructures),positioningitselftoreapthebenefitofadditionalrevenue
(royalties)andbrandexposurethroughproductdisplayedthroughnewchannelsand
incrementalshelfspace.Forexample,Rubbermaidgainedadditionalrevenueandbrand
presencebylicensingkittylittercontainersthataresoldinthemasschannelcoreto
Rubbermaid,andinspecialtypetshopscoretoUnitedPetGroup,thelicensee.
Apple’s iPod
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Copyright ©2019. Pete Canalichio. All Rights Reserved.
Figure 1: Different Types of Brand Licensing
Similar examples include:• Awell-knownbrandofconstructiontoolssuchasDEWALTlicensedintosuch
areasasworkglovesorworkboots;
• AbrandofbeautyproductslikeNeutroginaextendedintoanewvitaminline
thatpromotesbetterlookingskin;
• ApopularrestaurantchainsuchasTGIFlicensingafrozenfoodmanufacturer
tomarketalineofappetizersunderitsbrand
• AfamousfashionlabelsuchasDonnaKaranlicensingitsnameintosuch
naturalextensionsasleatheraccessories,shoes,fragrancesorhome
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Brandlicensingalsoenablescompaniestotryoutpotentialnewbusinessesor
geographicalmarketswithrelativelysmallup-frontrisk.Bylicensingitsbrandtoa
third-partymanufacturer,alicensorcantrynewbusinesses,ormoveitselfintonew
countrieswithasmallerup-frontinvestmentthanbybuildingandstaffingitsown
operations.
Additionally,manufacturinganddistributionaretypicallymanagedbythelicensee,the
companywiththeproductexpertise.Therefore,licensingrequireslittlebrandowner
engagementwiththeproductandinvolvesnoinventorycommitment.WhenIwasat
Rubbermaid,weusedlicensingtoenterthecookwarecategoryinKorea.
Thisenabledustoassesstheviabilityofthebrandinthatcategorywithoutmuch
financialrisktothecompanyorequityrisktotheRubbermaidbrand.Dependingon
Rubbermaid’sperformanceinthecookwarecategoryinsideKorea,Rubbermaidcould
considerlicensingalineofbrandedcookwareinothermarkets.
Inreturnfortheuseoftheirbrand,companieschargemanufacturersafeeinthe
formofroyaltypaymentsandguaranteesthatconstituteasourceofrevenueforthe
company.Royaltypaymentsaretypicallycalculatedasapercentageofwholesale
revenuewhileguaranteesareusuallydeterminedonanannualbasisandcalculatedas
apercentageoftheanticipatedperannumroyalty.
Thediagramabovehelpsexplaintheflowofroyaltypaymentswithasimpleexample.
Theretailerearnsrevenueonlicensedmerchandisesoldatthemarketprice.
Thelicenseeearnswholesalerevenue,whichincludesthecostofmakingthegoods
plusamarkup.Thelicensorinturnreceivesapercentage(predeterminedinthe
licensingcontract)ofthewholesalerevenueasaroyalty.
Awell-managedlicensingprogramcangenerateasubstantialandgrowingstreamof
incrementalroyaltyrevenuethatwillcomplementacompany’scorebusiness.
The polo shirt licensee pays Disney, the licensor, $500,000 in royalities ($5 million x 10% rate)
Retailers pay the polo shirt licensee $5 million as wholesale cost of the polo shirts (based on 100% markup)
Consumers pay retailers a retail price of $50 per Disney branded polo shirt. A total of 200,000 polo shirts are sold generating $10 million in retail sales.
Figure 2: Royalty Payment Flow
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Copyright ©2019. Pete Canalichio. All Rights Reserved.
Brandlicensingalsoprovidesmarketingsupporttothecorebusiness.Inmany
instances,thelicenseewillberequiredtoprovidemarketingdollarstosupportthe
licensedcategory.Thismarketingexpenditure,inturn,providesadditionaloverall
brandpresence.Forexample,ifalicenseepromotesitsproductinaweeklycircularand
gainsanendaisledisplay,theadvertisingandretaildisplaynotonlygenerateproduct
sales,buttheyalsopromotetheoverallbrand.
Anarrayoftoysorappareltiedtoamovie,sittingonastoreshelf,servestopromote
themovieitself.Asportsfanwearingasweatshirtwiththelogoofhisfavoriteteam
expresseshisenthusiasmabouttheteam,whilesubtlypromotingthesport,the
leagueandtheteamtoanyonewhopassesbyhim.Thesamegoesforabeerbrand.
Seeingastoredisplayofglasswarecarryingawell-knownbeerlogo,orwalkinginto
aneighbor’shomeandseeingtheglassesonhisbar,reinforcesthebrandimage,
supportingthebrand’soverallmarketingefforts.
Forbrandownerswhoareconfidentthattheirbrandhaspermissiontoentera
categorythatiscontrolledbytheircompetitor,licensingcanbeasmartandeffective
waytocombatarivalwhereitmattersmost.Bytakingtheoffensive,thebrand
owner-turned-licensorwillforcethecompetitortotakeitseyeoffofitscorebusiness.
Thiscanhaveasignificantimpact.Forexample,whatifadidaschosetolicenseashoe
manufacturertocompetedirectlyagainstNike’sColeHaanbrand?
Manylicenseesareexpertsintheirownright;theyofferthelicensoraccesstotheir
intellectualproperty,productdesignandmarketingexpertise.Moreover,licensorscan
tapintotheirlicensee’ssupplychainmanagementknowledge,retailerrelationships
andstrategicalliances.Overtime,licensorsandlicenseescanholdknowledge
managementworkshopsandforumswheretheycanexchangetechniques,processes
andideasthatnotonlygrowthelicensedcategory,butalsootherareasoftheir
businesses.
Finally,forbrandowners(particularlythosedoingbusinessintheglobalmarketplace),
licensingtheirregisteredtrademarksinmultiplemarketsisawaytoprotectthe
brandfrombeingusedbyotherswithoutauthorization.WhenCoca-Colafirststarted
licensing,thelegaldepartmentmanagedtheprogramspecificallytoprotectthe
company’strademarksincountriesthroughouttheworld.
Quick SummaryWhywouldtopbrandownersagreetoallowthirdpartybusinessestosellproducts
undertheirname?Thesearethetopthree.
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Despite their impressive appearance even the world’s great companies
cannotdoeverythingontheirown.Theyneedthehelpofbest-in-class
manufacturersandserviceproviderstogetmoreandbetterproductsto
consumers.Bypartneringwiththirdpartymanufacturers,brandownerscan
maketheirbrandavailabletomoreconsumerswhowishtobuytheir
Moreover, brand owners can enter new product categories, sales channelsorcountriespracticallyovernight,gainingvaluableshelfspaceandthousandsofadditionalopportunitiestodelight.
Finally, brand owners receive a royalty from the third party manufacturerorserviceproviderfortherighttousetheirbrand.Withlittleinvestmentrequiredbythebrandowner,practicallyallofthisrevenuebecomes
operatingincomehelpingtostrengthenthebrandowner’sP&L.
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Copyright ©2019. Pete Canalichio. All Rights Reserved.
Why Do Manufacturers License Brands?Nowthatyouhaveabetterunderstandingofhowbrandownersbenefitbyallowing
theirbrandstobeextendedvialicensing,let’slookathowmanufacturersandservice
providers(licensees)canalsobenefit.Infact,therearetremendousbenefitsto
manufacturersandserviceproviders(licensees),aswell.Thatiswhythisstrategyisso
powerful.
Licenseesborrowtherightstoabrandtobuildintotheirmerchandise,buttraditionally
theydonotshareownershipinit.Havingaccesstomajornationalandglobalbrands,
andtheassociatedlogosandtrademarks,givesthelicenseesignificantbenefitsthey
previouslydidnotpossess.
Themostimportantoftheseisthe
marketingpowerthebrandbringstothe
licensee’sproducts.Buildingabrandfrom
scratchcantakeyears,millionsofdollars
andalotofluck.Thecompanywhich
licensesabrandgainsimmediateaccessto
allthepositivenameandimagebuildingthat
wentbeforeit.
Thelicenseealsotakeswiththemthe
reputationofthelicensor.Oftenthis“halo”
effectcantranslateintomanyintangible
andimmeasurablebenefitssuchasreturned
calls,anagreementtomeet,orsimplythe
implicationofquality.Let’stakeacloser
lookateachofthesebenefits:
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Mickey Mouse and Winnie the Pooh
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Achieve Instantaneous RecognitionConsiderateeshirtmanufacturerwithspecialtyprintingcapabilities.Whiletheymay
haveagoodnetwork,theyarerelativelyunknownbeyondthat.Throughlicensingone
daytheycouldbesellingunbrandedteeshirts;thenexttheycouldbeanofficialDisney
licenseeofMickeyMouseandWinniethePooh.HavingtheDisneylicensemeans
immediateandinstantaneousglobalrecognition.Thevalueofthisrecognitioncannot
bemeasured,butthesalesthemanufacturerwillnowmakecertainlycan.
Enhance Their Authenticity And CredibilityConsiderthevideogamemanufacturerwhohasdevelopedanamazingsoccergame.
Theyhavepresentedtheirgametoanumberofretailers,butallhaveturnedthem
down.If,however,theycanlicensetheFIFAWorldCuptrademarktheystandtogain
immediatelegitimacyandauthenticitytotheirgame.
Infact,manyretailerbuyerswilltellamanufactureriftheyhadarecognized
brand,theywouldissueapurchaseorder.Similarly,amakerofautomotiveparts
oraccessorieswilllicensespecificcarbrandssuchasToyotaorFordspecificallyto
establishintheconsumer’smindthatitsproductswillworkseamlesslywiththecars
oftheparentbrand.Thesearethenpurchasedbyautomotivedistributors,service
shopsandthebrandsownersdrivingsubstantialincrementalrevenue.
Reduce In-house CostsAmanufacturerorserviceproviderwhichacquirestherightstolicenseabrandoften
gainsthelicensor’spreferredpricingbyitssuppliers.Thiscanincludecommodities,
suchasresin,shippingandcreativeservices.Inaddition,theygainaccesstothe
licensor’sstyleguide,whichprovidesthemwithmostoftheimageryandartworkthey
needtodesigntheirproducts.
Havingthestyleguidenotonlyassiststhelicenseewithdesigntime,itstreamlines
theapprovalprocessandensurestheirproductshavethesamelookastheother
manufacturersorserviceproviderswhichhavelicensedthebrand.
Gain Access Into New Distribution ChannelsTakingonalicensecanhelpmanufacturersandserviceprovidersgainaccesstonew
distributionchannels.Forexample,amanufacturermayhaveanestablishedprivate
labelbusinesssellingintothemassmerchandisechannel.Bylicensingtherightstoa
mid-tierbrand,theycouldgainaccessintodepartmentstores(thatwouldn’tcarrythe
privatelabelbrand)anddoubletheirrevenue.
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Enter New RegionsAdoormatmanufacturerbasedinGermanyandsellingitsproductinEuropemaybe
abletoentertheUSmarketbylicensingamajorhouseholdbrandlikeBetterHomes
&Gardens.TheBetterHomes&Gardensbrandcangivethementryintothechannels
theycurrentlyaresellingothercategoriesofproduct.Insomeinstancesthelicensees
pooltheirproductstocreateanintegratedprogram,whichcanbeappealingtosome
retailerbuyers.
Acquire Strategic KnowledgeLicenseesgainaccesstointangiblessuchasthelicensor’ssubjectmatterexpertise
inareaswheretheyarenotproficientsuchasmarketing,supplychainmanagement,
customs,etc.Inaddition,manufacturersandserviceproviderscanbenefitfromthe
licensor’sdatabasesandlibrarieswhichcanincludeavarietyoftopicsincluding
marketresearch,manufacturingandproductdesign.Astruepartners,licensorand
licenseearenotlimitedtotheseareas,butcanidentifywhereeachother’sstrengths
areandtapintothem.
Obtain Other Licenses More EasilyOncealicenseeacquiresonelicensetheywillalmostautomaticallygainapprovalfrom
otherbrandownerswishingtoextendtheirbrandsintonewcategories.Forexample,
apinlicenseeofMajorLeagueBaseball(MLB),willhaveaneasiertimeacquiringthe
rightstotheNationalHockeyLeagueortheNationalBasketballAssociationbecause
thesebrandownersknowthelicenseemeetsthestandardsforMLBandalreadyhasan
understandingofthelicensingprocess.
Add Value To The BusinessGainingtherightsoneoftheworld’sgreatbrandscanaddinstantaneousvalueto
anorganization.Thiscouldbeanimportantconsiderationwhentheownersare
consideringsellingthecompany.Moreandmorebrandownersareawareofthisand
arerequiringtheyapprovethenewmanagementbeforeautomaticallyauthorizing
thecontinuationofthelicense.Inaddition,thebrandownermayrequireapayment
recognizingtheincreaseinvalueuponthesaleofthecompany.
How Licensors and Licensees Come TogetherThediagrambelowillustratesthedifferentstagesthatareapartoftheLicensed
ProductProcessFlow:
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What do brand owners who choose to license their brands expect?Licensorsexpectthatthelicenseewillbecommittedtoinvestinginthecategorythey
license.Thismeanstheywillworkhardtounderstandtheessenceofthebrandand
developtheirlicensedproductinawaythatcapturesthatessence.Inotherwords,the
licensedproductsshouldconnectwiththeconsumerbothfunctionallyandemotionally.
Ifthelicenseedoesthis,theproductstheydevelopwillnormallybeapprovedwithout
delayordifficulty.Toachievethistakestimeandmoney.Sowhilebothpartieswant
tosellproductsinthemarketplaceassoonaspossible,thelicensorwillexpectthe
licenseetostartwithbuildingthebrandintotheproductfirst.
Thelicensorwillalsoexpectthelicenseetobefamiliarwiththecontractandtomeet
theobligationsofthecontract.Thatiswhyitisimportantforthelicenseetoensureall
employeesinthelicensee’sorganizationworkingonthelicensearefamiliarwithits
contractualobligations.Forexample,whenaproductbecomesapproved,thelicensor
willexpectthelicenseetocommercializethelicensedproductassoonaspossiblein
eachoftheauthorizedchannels.
Finally,thelicensorwillexpectthelicenseetomeetorexceedtheprojectedsales
targetsforthecategoryasoutlinedinthecontract.Whenallofthesethingshappen,
theresultcanbethedevelopmentofawardwinningproductsthatmeetorexceed
annualsalesandroyaltyprojections.
What should the licensee expect?Licensees,inturn,expectthatthelicensetheyhaveacquiredwillprovidethemwith
substantialsalesgrowth,andrightfullyso.Thissalesgrowthmaybeintheformof
growthwithinexistingchannelsortheopportunitytoenteranewchannelornew
market.
Licensors picks the product categories to be licensed
Licensor or its agent finds and negotiates a license with best licensees
Licensees develop concepts, prototypes and final production samples and submit to Licensor for approval
Licensor approves licensed products for sale
Licensees sell approved licensed product in authorized channels to retailers
Different Stages of the Licensed Product Process Flow
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Toaccomplishthisobjective,licenseesexpectthatthebrandthey
• Thebrandtheyarelicensingisasstrongorstrongerthantheybelieveorhave
beentold,thatitwillopendoorsandultimatelyhelpthemmeetorexceedtheir
business
• Moreover,licenseesexpectthatthelicensorortheiragentswillrunasimple,
straightforwardlicensingprogramthatwillnotadministrativelytaxtheir
organization.
• Finally,theyexpectthatthelicensorwillapproachthelicensingrelationship
withawin-winattitudethatwillallowthemtomovequicklytotakeadvantage
ofopportunitiesthatpresent
Becauselicensingcontractsobligatethelicenseetosalestargetsandroyalties,the
licensee’sgoalwillbetoquicklyachievesalesoflicensedproducttomeetthese
requirements.
How do you know if your company is ready to benefit from licensing the world’s great brands?Youknowyouarereadyforlicensingwhenyouhave:
• Abusinessunitwithaminimumof$50millionrevenue.
• Best-in-classproductsthatmeetpentupconsumerdemand.
• Productssoldintothechannelsandregionsinwhichyouintendtosellthe
licensedproduct.
• Thecapabilityofbuildingthelicensedbrand’sessenceintoyourproducts.
• Theabilitytoinvestaminimumof3%ofyournetsalesgeneratedfromthe
brandlicensingprogramintomarketingtheproduct.
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• Anorganizationcapableoffollowingtherequirementsofthelicense,i.e.the
approvalprocess,testingrequirements,audits,royaltyreportingandpayments.
Fromhere,beginwithawellthoughtoutbrandlicensingstrategy.
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The Brand Licensing Process
Brandlicensingcanbeverybeneficialforbothbrandsandlicenseesifdoneinastep-
by-stepmanner.Wehavedividedthebrandlicensingprocessintoeightsteps.This
modulewillprovideyouwithanoverviewofeachofthesteps.Latermoduleswilllook
intoeachofthemingreaterdetail.
4Step 1Identify Where to Play
Step 4Perform DueDiligence
Step 7ConductOrientation
Step 2Detemine How to Win
Step 5Define LicensingOpportunit
Step 8Establish Business Plan
Step 3ProspectLicensees
Step 6NegotiateContract
1
>
>
>
>
>
Figure 3: The Brand Licensing Process
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Copyright ©2019. Pete Canalichio. All Rights Reserved.
Thebrandlicensingprocessstartsseveralmonthspriortothecommercializationor
launchofthelicensedproduct.Figure4belowwillgiveyouatimelineofeachofthe
processeslistedinFigure3.Licenseesandlicensorsshouldalsokeepinmindthat
missingcrucialdeadlinessuchasalinereviewcanpushtheproductlaunchoutbyup
toayear.
STEP 1: Identify Where to PlayAsexplainedintheprevioussections,weknowthatwhenconsumersbecome
delightedbyaparticularbrandexperience,theybegintobondemotionallywiththe
brand.Theybecomebrandloyalistsandadvocates–buyingthebrandmoreoften
andrecommendingittoothers.Thisbehaviorservestobuildthebrand’sreputation.
Consumerswilloftenpurchaseabrandforthefirsttimebecauseofitsreputation.The
brand,therefore,addsvalueandcertaintytoanotherwiseunknownproduct.
Thestrongerabrand’sreputation,thehigherthevalueofthebrandandthegreater
revenueitwilldriveforitsowner.Prospectivelicenseeswanttolicensebrandswiththe
strongestreputation,asthesearethebrandsconsumersdemandandretailersprefer
most.Thestrongerthebrand,thehigherlikelihoodretailerswillbuythelicensed
productsandthattheywillbesubsequentlypurchasedbyconsumers.Brandloyalists
andadvocateslooktotheirpreferredbrandstodelivermoreandbetterproductsyear
afteryear.Whenthisoccurs,thebrandgainspermissiontoextendintocategoriesthat
complementitsoriginaloffering.Thisisknownasbrandextension.
Figure 4: Product Commercialization Timeline
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec JanYr3
Identifywhere to play
Concept Development starts with samplesproduction & shipping
duediligencedefinelicensingopportunity
agree todeal termsD
eterm
inehow
to win
orient
ation
contra
act
signed
line r
eview
po iss
ued
commerc
ializa
tion
prosp
ectlice
nsees
negotia
tedea
l term
s
prototy
peapp
roved
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Copyright ©2019. Pete Canalichio. All Rights Reserved.
Forexample,theMr.Cleanbrand,ownedbyP&G,waslaunchedin1963asthefirst
householdliquidcleaner.Overtime,thebrandgainedastrongreputationforitsability
tocleaneffectivelyonavarietyofsurfaces.Bydelightingitsconsumers,Mr.Clean
builtsignificantbrandloyaltyandallegiance.Whenasked,consumerstoldtheMr.
CleanbrandteamthattheyexpectedtheMr.Cleanbrandtoofferadditionalproducts
thatsimplifiedandenhancedthehouseholdcleaningexperience.Tosatisfythese
consumers,Mr.Cleandevelopedalineofbrandedmops,brooms,andbrushes.
Theseproductsweremetwithenthusiasmandeventually,consumersdemandedeven
simplerandmoreeffectivewaystocleantheirhomes.Today,theMr.Cleanbrandcanbe
foundonanexpansivelistofproductsincludingscrubbingtubandshowerpads,Magic
Erasercleaningpads,autodrycarwashsystems,multi-surfacedisinfectingwipes,
rubberglovesandmanyotherproducts.ManyoftheseMr.Cleanproductsarelicensed.
Byowningabrandthatcanbeextendedintonumerouscategories,companiesareable
toattractandretainmultipleprospectivelicensees.Usinglicensingtoaugmentinternal
resourcesactuallyacceleratesacompany’soveralltimetomarket.
Howcanyoudetermineyourbrand’sextendibilityandidentifywhatproductcategories
itcansellin?Ittakesunderstandingyourbrand’svision,architectureandpositioning
Mr. Clean Products
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andthevaluethatthebrandprovides.Kodakisawell-knowncompanyinthecamera
business.Whatwouldbeanaturalextensionforthemfromcameras?Let’slookat
theirbrandarchitecturefirst.Thekeyemotionalbenefitofthebrandisthatitcaptures
preciousmomentsbutthe‘somethingbigger’thebrandprovidesisimmortality.With
thisinmind,thecompanydecidedtoenterthephotographypapermarket.Inthediagram
below,youwillseehowsellingphotographypaperfitsinsoperfectlywiththebrand’s
architectureandpositioning.
Therearesomebrandextensionsthathavenotdonewell,too.Forexample,Bic,a
companythatspecializesinsmalldisposablepocketitemsunsuccessfullyventuredinto
perfumes.
Beforebrandownersextendtheirbrandsintocategoriesinwhichtheyintendtolicense,
theyshouldconductmarketresearch.Thiswouldincludereviewingsecondaryresearch,
holdingfocusgroups,conductinginterviewsandperformingfieldsurveystoclearly
understandwhatconsumersbelieveaboutthebrandandwhattheirexpectationsare.
Oncethisisobtained,brandownerswillbeabletoidentifysuitablecategoriesinwhichto
extend.Eachcategoryshouldthenbeevaluatedontheprominenceofbrandassociations,
favorabilityofassociationsinferredbytheextensionanduniquenessofassociationfrom
thenewcategory.
Oncethelistofpossibleextensionshasbeentrimmed,brandownersshouldthen
conductanindustryandcompetitiveanalysisofthecategory.Specifically,research
Figure 5: Kodak brand architecture
Higher Order Brand Identity
Emotional Benefits
Functional Benefits
Product Attributes
Immortality
Long-LastingImage
HighQualityPaper
CapturesPreciousMoments
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includesthesizeofthemarket,currentcompetitors,industrygrowthrate,and
competitivenature.Thisanalysiswillenablethebrandownertodeterminewhether
itmakessensetoevenenterthecategory.TechniquestouseincludeStrengths–
Weaknesses–Opportunities–Threats(SWOT)analysisoraPorter’sFiveForces
analysis.Thesemethodsarehelpfulinevaluatingabusinessoraprojectfroma
strategicpointofview.Theyinvolvespecifyingtheobjectiveoftheventureand
identifyingtheexternalandinternalfactorsthatarefavorableorunfavorableto
achievingthatobjectiveandtodeterminingtheattractivenessoftheventure.
Strengths• Advantages
• Capabilities
• Resources,assets,people
• Marketingreach,
distribution,awareness
• Innovation
• Geographical
• Processes,systems
Weaknesses• Disadvantages
• Gapsincapabilities
• Reputation
• Financials
• Reliability
• Processes,systems
Opportunities• Marketdevelopments
• Industrytrends
• Technologicaldevelopments
• Globalinfluences
• Tactics
Threats• Political
• Legislative
• Economic
• Technological
• Competitorintentions
• Vitalcontracts
• Financialbacking
Figure 6: SWOT Analysis
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STEP 2: Determine How to WinOncetheproductcategorythatsatisfiesthebrandextensiongoalsandcreatespositive
associationsforyourbrandhasbeenidentified,thenextstepistodeterminehowtogo
aboutexecutingtheextension.Anymarketingactivityrequiressubstantialresources
andbeforeaprojectisbegun,thebrandownermustdeterminewhetherthecompany
hasenoughresourcestocompletetheendeavor.Thereisnothingworsethanstartinga
projectandthenhavingtoterminatemidwayduetolackofresources.
Sohowshouldthebrandownerdeterminethebestwaytogoaboutenteringthe
productcategorythathasbeenselected?Afirststepwouldbetomobilizekey
departmentswithintheorganizationtoconducttheirownduediligence.
Threat of New Entrants
• Barrierstoentry
• Economiesofscale
• Capitalrequirements
• Switchingcosts
• Governmentpolicies
Threat of Substitutes
• Priceofsubstitutes
• Qualityofsubstitutes
• Switchingcosttobuyers
Supplier Power• Supplierconcentration
• Productdifferentiation
• Switchingcosttoanother
input
• Threatofbackwardor
forwardintegration
Rivalry• Numberofcompetitors
• Sizeofcompetitors
• Industrygrowthrate
• Productdifferentiation
• Exitbarriers
Buyer Power• Numberofbuyersrelativeto
sellers
• Productdifferentiation
• Switchingcosttoanother
product
• Buyers’margins
• Threatofbackwardorforward
integration
Figure 7: Porter’s Five Forces Analysis
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Whencontemplatingenteringanewproductcategory,thefirststepistodetermine
whetherthecompanyhasthecompetencytodesign,produceandmarkettheproduct
withinternalresources.Whenwerefertointernalresources,wearereferringtoeitherthe
company’smanufacturingcapabilitytoproducetheproduct,oritsabilitytosourcethe
productcompetitivelyfromoneofitsthird-partysuppliers.
Onewaytoaccomplishthisistodelegatetheoperationsteamtoevaluatethe
competencyofmanufacturingorsourcingtheproductandthefinanceteamtoconduct
acost/benefitanalysisofmanufacturingversussourcingtheproduct.Iftheanalysis
conferswiththeabilitytoproducetheproduct,thenextstepistodeterminewhether
thereissufficientbudgetandcapabilitytomarkettheproduct.Arethereadequate
resourcestoinvestinproductdevelopment,advertisingandpromotionalactivities?Do
relationshipsexistwithdistributorsandretailchannelsthroughwhichtheproductwill
besold?Istheresufficientpresenceinenoughgeographiclocationstomakethebrand
extensionviable?
Eventhoughitmaybepreferredtomanufacturetheproductorsourceitandpriceit
competitivelytoearnahealthymargin,thecompanymaylacktheresourcesorthe
capabilitytomarkettheproducteffectively.Thiscanaffectthedecisionwhetherto
manufacturetheproductinternally.
Ifattheendoftheanalysis,it’sdeterminedthatthecompanyhasthecapabilityto
design,produceandmarkettheproduct,itshouldgoaheadandproceedwithproduct
development.However,ifacompanydoesnotpossessthecapabilitytoproducethe
productinternally,itshouldlookattheotheroptionsavailable.
Onewaytoextendthebrandintothenewcategoryistoacquireamanufacturerof
theproducttomakeitandthenmarketitusingyourownresources.Thisoptionis
oftenharderthanitseems.Foronething,acompanywouldneedextracashflow
tofundsuchatransaction.Also,acquiringnewbusinessesisatime-consuming
proposition.First,potentialtargetcompaniesmustbeidentified.Next,duediligence
mustbecompletedbeforenegotiatingonaprice.Onceacquired,thecompanymust
beintegratedwithintheexistingcompanystructure.Becauseofthelengthyprocess,
criticaltimecanbelostinlaunchingtheproduct.Evenifacompanydecidestogo
withthisoptionandthetimingfits,itstillmaynothavethemarketingbudgetorthe
capabilitytogoforward.
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Figure 8: Different approaches to licensing
Theotherwaytoextendthebrandexternallyistolicensethebrandtoamanufacturer
oftheproductinthesamecategory.Asmentionedinprevioussections,thereare
severaladvantagestolicensingabrand.Tobeginwith,themanufacturer(orlicensee)
notonlypossessesthecapabilitytomanufacturetheproductbutalsotomarketit,
havingdonesoforunbrandeditemsorlesser-knownbrands.Theyalsopossess
thenecessaryrelationshipswithdistributorsandretailerstomakeasuccessofthe
program.Onthedownside,thebrandownerforgoessomecontrolwhentheychoose
tolicensetheirbrand.However,enteringanewmarketvialicensinghaslowerriskin
termsofinvestment.
Youmaydecidetoenteranewproductcategoryvialicensingasyouevaluateyourgo-
to-marketstrategies.Alternatively,yourbrandcouldbesolicitedbyamanufacturer
whobelieveshisproductwouldbeagoodfitforyourbrand.Thiswouldthenstart
theprocessofthebrandmarketingteamevaluatingtheproductcategoryofthe
manufacturerfromabrandextendibilityperspective.RefertoFigure8abovetogetan
ideaofhowtheprocesswouldflow.
EligibleProduct
Categories
Yes No
Solicitation for
Your Brand
Alignmentof
Brand Team
Licensing Process
LicensingProcess
Acquire License
IssueLicense
IssueLicense
License
EvaluateProduct
Category forBrand Fit
Sales & Marketing
Ability
Acquire or License
Manufactureor Source
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Copyright ©2019. Pete Canalichio. All Rights Reserved.
STEP 3: Prospect LicenseesOncetheproductcategorythatbestfitsthebrandextensionplanshasbeenidentified
andbrandlicensingisdeterminedtobethemostbeneficialwaytoachievethis
extension,itistimetoscoutforprospectivelicenseeswithintheselectedproduct
category.
Beforeshortlistingthelicensees,itisimportanttoputtogetherabasicchecklistof
parametersinwhichtoevaluatethelicensees.Theseparameters,whichwerecommend
bedefinedbythebrandowner,mayincludethefollowing:
• Sizeofthecompany
• Marketshareintheproductcategory
• Currentorpreviouslicensesheldbythecompany
• Financials
Oncethechecklisthasbeendeveloped,thenextstepistoidentifycompaniesthat
manufacturetheselectedproductcategory.Thesecanbefoundeasilywithsome
research.Themostcommonsourcesofinformationaretradedirectories,trade
magazines,tradeshows,andresearchcompanieslikeHoovers,DunandBradstreet,
Frost&Sullivan,andVaultReports.Anotherwayforthelicensortoidentifyprospective
licenseesistoconductprimaryresearchsuchasstorewalks.Onceacomprehensive
listofprospectsisidentified,thesecandidatesshouldthenbeevaluatedbasedonthe
parameterslistedearlier.Thiswillleavethelicensorwithapoolofqualifiedcompanies
toinvestigatefurther.
Tomakealicensingagreementasuccess,bothpartiesmustbewillingtocommit
equaltimeandresources.Thebestwayofassessingtheirinterestlevelistoaskthem
directly.Thiscanbeaccomplishedbycallingthemoverthetelephoneormeetingthem
inperson.Basedoncomprehensiveinterviews,thelicensorwouldthenshortlistthe
mostqualifiedcandidateswithwhomtheydesiretomovefurtherintheprocess.
STEP 4: Perform Due DiligenceThisisthestagewhenthebrandownerbeginsrigorouslyqualifyingtheprospective
licenseestodeterminewhethertheywillprogresstothenextphase.Thisstage
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involvesconductingacomprehensiveduediligenceontheselectedcompaniesfroma
business,financial,legalandriskmanagementperspective.Themorecomprehensive
thisis,thelesslikelythelicenseewillhaveunforeseenissuesgoingforward.
AgoodfirststepinthisprocessistodevelopaLicenseeApplicationthatrequests
alloftheinformationthatisrequiredfromthelicensee.Theinformationfromthe
applicationwouldsubstantiatewhateversecondaryresearchwasgarneredonthe
prospectivelicensee.ALicenseeApplicationshouldtypicallyincludethefollowing:
LegalCheck:Isthecompanyalegitimatelegalentity?Howlonghavetheybeenin
business?Wherearetheyincorporated?Aretheydoingbusinessunderadifferent
name?Whatistheirstructure?Aretheyashellcorporationordotheyhaveactual
employees,assetsandliabilities?Havetheybeenthesubjectofanymajorlawsuitsin
thelastthreetofiveyears?Ifso,whatwasthenatureofthechargesandhowdidthe
companyresolvethem?
Financialcheck:Tofullyunderstandthefinancialstrengthofanorganizationitis
importanttoobtaintheprospectivelicensees’financialstatementsgoingbackatleast
threeyears.Financialstatementshelpassurethelicensorthatthelicenseehasthe
resourcestocommittothelicensingprogramfromthebeginningtotheendofthe
contract.Manyprospectivelicenseesareprivatelyheldcompanies.Assuch,theywill
bereluctanttosharetheirfinancialstatements.However,itiscriticalforalicensor
tohavethisinformation.Therefore,thisshouldbeanon-negotiableitem.Licensors
shouldalsoconductacreditcheckonalllicensees.Thecreditchecktellsthelicensor
thetimelinessandreliabilityoftheprospectivelicenseetopaytheirbills.Giventhe
systematicroyaltypaymentrequirementsofthelicensingcontract,understandingthe
credit-worthinessoftheprospectivelicenseeiscritical.
Businesscheck:Isthecompanyreputableintheselectedproductcategory?Dothey
possessanyotherbrandlicensesorhavetheyhadtheminthepast?Ifso,whatdo
theircurrentorpreviouslicensorshavetosayaboutthewaytheymanagetheir
licensingprograms?Whatistheirreputationinthemarketplace?Whatdotheircurrent
customershavetosayabouttheirreliabilityandserviceability?Howwellmanaged
isthecompany?Howeageraretheytogettheirlicense?Howcollaborativedothey
seem?Whataretheirestimatedsalesforecastsfortheselectedproduct,aswellassales
history,overthepastthreeyears?
Marketingcheck:Whatistheprospectivelicensee’smarketsharepositioninthe
selectedproductcategory?Howlonghavetheybeensellingtheproduct?Whatistheir
rankbyrevenue,distribution,employees?Aretheyamarketleader?Whatchannelsare
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theypresentin?Howhavetheybeengrowing?Whatkindofproductinnovationshave
theylaunchedinthepast?Whataretheirstrengths?Howwelldotheyunderstandthe
marketplaceandbranding?Howaretheycurrentlypromotingtheirproducts?
Referencecheck:Referencechecksareanimportantcomponentoftheduediligence
process.Licensorsshouldinterviewatleastthreebuyersfromamongtheretailers
thattheprospectivelicenseeintendstosell.Thishelpsthelicensorunderstand
quicklythequalityofcompanyfromadelivery,manufacturing,service,marketing
andsalesperspective.Inaddition,licensorsshouldinterviewuptothreelicensorsif
theprospectivelicenseeholdsotherlicenses.Theseinterviewswillenablethelicensor
tounderstandhoweffectivelytheycanexpectthecandidatetoexecutealicensing
program.
Qualityandcompliancecheck:Doesthelicenseeowntheirownmanufacturingordo
theyoutsourceit?Iftheysourcetheirproduct,howlonghavetheybeenworkingwith
theirmanufacturers?Willtheybeabletomeetthebrand’squalityexpectations?How
havethesemanufacturersperformedonpreviousaudits?Dotheyorcantheymeetthe
socialandenvironmentalcompliancestandardsofthebrand?
STEP 5: Define Licensing OpportunityAftercompletingtheduediligenceprocess,thelicensorshouldnormallybeleftwith
twotothreequalifiedprospects.Nowit’stimetoassessthesizeandscopeofthe
actuallicenseagreement.Thisrequiresthelicensortoworkwiththeselectedcandidate
licenseestofullyunderstandtheirstrengthsanddeterminewhetherthelicensing
opportunityisviableornot.
Outstandingcandidatelicenseeswillimmersethemselvesinthelicensor’sbrand
sothattheycanfullyunderstanditspositioningandarchitecture.Fromthis,they
shouldproposethelookandfeeloftheproducts.Theywillincorporatethebrand
attributesintothedesignoftheirproducts.Licenseeswillpayparticularattentionto
theplacementofthelogoontheproduct,thematerialfromwhichitisconstructedand
howthelogoisaffixedtotheproduct.Asharplicenseewillrequestthatthelicensor
providethemwiththebrand’sstyle-guidesotheyhavetherequiredinformationtodo
this.
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Simultaneously,thelicensorshouldrequestthatthecandidatelicenseesdevelop
three-yearsalesprojectionssotheycanassessthescopeofthelicense.Thisforecast
shouldbeaconservativeestimateofthesalesthelicenseethinkstheycanachieveand
issegmentedbyregion,channelandStockKeepingUnits(SKUs).Italsoincludesthe
numberofnewproductsthelicenseethinkstheywillintroduceeachyear.
Thesalesprojectionsprovidedbyeachoftheshortlistedlicenseesarecompared
witheachother.Thelicensorthenevaluatestheproposalstoassuretheyareviable,
achievableandmaximizethebrandopportunity.Forexample,aprospectivelicensee
whoisnumberoneintheircategorymayonlywishtodedicateasmallportionoftheir
businesstothelicense,whereasthecompanynumberthreeinthecategorymaybe
willingtoconvertalloftheirsalestothenewlylicensedbrand.Inthiscasethescope
oftheopportunitywithcompanynumberthreemaybemuchbiggerthancompany
numberone.Therefore,fromascopeperspectivethenumberthreecompanymaybe
preferred.However,itmaybedeterminedthatconvertingtheentireproductfromits
currentstatetoabrandstatemaynotbeachievable.Oncethesalesprojectionshave
beenvetted,thelicensorshouldusethesetorankthecandidates.Thesizeofsales
targetscanthenbeusedasaguidewhennegotiatingthefollowingquantifiabledeal
terms:minimumsalestargets,guaranteedroyaltyminimumsandcashadvances.As
Figure 9: LBI Business Estimator
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thesedealtermsarebasedontheforecastsdevelopedbythelicensees,theyshouldnot
onlybefair,theyshouldberobustandachievable.
Withthis,thegroundworkfortheactualcontractisprepared.Thelicenseesandthe
licensorsthengointothenextstep.
STEP 6: Negotiate ContractThebasisofthelicensingopportunityhasbeenpreparedbytheconservativesales
estimatesinthepreviousstep.Itisnowtimetoestablishthecoredealterms.These
parametersdefinethestructureofthecontract,anddefinesuchparametersasthe
termofthecontract,wherethelicensedproductswillbesold,whatroyaltyratewill
bepaidandwhattrademarkswillbeused.Becausethevalueofthesetermswillbe
uniquetoeverylicensingcontract,theymustbenegotiatedbetweenthelicensorand
prospectivelicensee.
Whileeachpartyinherentlywantstoarriveatthemostfavorabletermsfortheirside,
thebestsetofdealtermsarethosethatallowbothpartiestoachieveasuccessful
long-termlicensingprogram.Successfullicensorskeeptheendinmindandpractice
win-winnegotiatingstrategies.Similarly,smartlicenseeswillhaveidentifiedseveral
choicesofbrandsfromwhichtoacquirealicenseandwillsetlimitsonwhatdeal
termstheywillaccept,regardlessofthebrand.Intheseinstancesbothpartiescan
shakehandsonasetoftermstheyknowwillallowthembothtobesuccessful.
Thesetermsincluderightstoterritories,channels,coveredproductsandtrademarks,
workproduct,qualityassurancestandards,thelicensingapprovalprocess,
manufacturingfacilityapproval,royaltyrates,minimumguaranteedroyaltiesandsales
requirements.Understandingthesetermsandthecommitmentsthatwillbemade
iscrucialtoaneffectivelicensingcontractnegotiationandcouldsavethelicensee
hundredsofthousandsofdollarsoverthelifeoftheagreement.Asthedealtermsare
anintegralpartofthecontracttheyshouldbeunderstoodbyallrelevantmembersof
thelicensee’sorganization.
Thedealtermsarereviewedbybothparties,revisedifnecessary,andoncebothsides
arecomfortablewiththeterms,theyareincorporatedintothelicensingcontract.
Becauselicensingcontractsmustenablealicensortoprotecttheirbrandfully,they
tendtobeone-sidedwithsignificantprovisionsfortermination.Inmostcasesthe
standardcontractprovisionsarenotnegotiableandassuch,thelicensingcontractis
finalizedandsignedsoonafterthedealtermsareagreedupon.
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Copyright ©2019. Pete Canalichio. All Rights Reserved.
STEP 7: Conduct OrientationThesigningofthecontractmarksthebeginningofarelationship.Itisimportantforthe
licenseetogetfamiliarwiththelicensorandthelicensingprogramasmuchaspossible
anditisthelicensor’sresponsibilitytomakesuretheyprovidethelicenseewithall
theinformationtheyneed.Well-runlicensingprogramsrequireaformalorientation
sessionshortlyafterthecontractissigned.Theorientationprovidesanopportunityfor
keymembersfromthelicensor’sandlicensee’scompaniestomeetandgettoknoweach
other.Attendingfromthelicensor’ssideshouldbemembersfromthelicensinggroup,
thebrandgroup,productdevelopmentandsales.Membersattendingfromthelicensee’s
sideshouldincludethegeneralmanager,productdevelopment,accountmanagement,
salesandmarketing.Thelicensornormallygivesthelicenseeanoverviewofthebrand
architecture,brandpositioningandcategorypositioning.Thelicensoralsotakesthe
licenseethroughtheproductapprovalsprocess,timelinesandkeytermsinthelicensing
agreement.Theorientationsessionalsoincludesareviewofalltestingandauditing
protocols.
Normally,thelicensorwilldeliverabrandlicensingstyleguidetothelicenseeat
orientation.Thestyleguidehelpsdirectthelicenseeonhowtousethebrandlogo
andstyleelementswhencreatingproducts,packagingandmarketingcollateral.Ifthe
licensordoesnothaveabrandlicensingstyleguide,itishighlyrecommendedthat
theydevelopone.Inaddition,theorientationsessionisusedtowalkthenewlicensee
throughtheapprovalprocess.Thelicenseemustbeintimatelyfamiliarwiththe
approvalprocessiftheywishtogettheirproductsapprovedquicklyandefficiently.
Figure 11: Sample Approval Process
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Copyright ©2019. Pete Canalichio. All Rights Reserved.
DATEOFSUBMISSION:_____/_____/_____
LICENSEENAME: CONTACT:
LICENSEEPHONE: FAX:
EMAIL:
LICENSEEADDRESS:
PRODUCTNAME: STYLE/SKU:
PRODUCTDESCRIPTION:
SUGGESTEDUNITRETAIL:$ AVERAGEUNITWHOLESALE:$
MATERIALSUPPLIED:qPRODUCTqADVERTISINGqPOP/POSqPACKAGINGqOTHER
TYPEOFSAMPLE:qCONCEPTqPROTOTYPEqPRODUCTIONqCONTRACTUALqOTHER
HASTHISSAMPLEBEENSUBMITTEDBEFORE:qYES qNO
DATEOFPREVIOUSSUBMISSION: _____/_____/_____
PREVIOUSCOMMENTS: _____/______/_____
DOESTHESAMPLENEEDTOBERETURNED:qYESqNO
BYDATE: _____/______/_____
LICENSING,CREATIVEANDLEGALCOMMENTS:
qAPPROVEDqPROCEEDWITHCHANGESqRESUBMITWITHCHANGESqNOTAPPROVED
DATE:_____/_____/_____ SIGNEDBY:
TOBECOMPLETEDBYLICENSOR/BRAND
TOBECOMPLETEDBYTHELICENSEE
Figure 10: Sample Submission Form
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Copyright ©2019. Pete Canalichio. All Rights Reserved.
STEP 8: Establish Business PlanNowthatyou’vesignedacontractandhavemadesurethelicenseehasagood
understandingofthebrand,itisimportanttogivethelicenseetherighttoolstobe
successful.Monitoringthelicensee’sbusinessandensuringthattheysetachievable
targetsenablesthemtomakethemaximumuseofthelicense.
Thelicenseeshouldbeginwithdevelopingaone-yearbusinessplan.Thebusinessplan
shouldstartwithafirmunderstandingofthelicensor’sbrandandcategorypositioning
statements.Keytargetstakenfromthelicensingcontractshouldalsobecitedinthe
businessplan.Theseinclude:
• Minimumsales
• Minimumguarantees
• Royaltyrate
Thebusinessplanshouldalsocontainaclearunderstandingoftheproduct
development/commercializationtimeline,theSKUstheyplantosellincludingany
newproductsthattheyplantodevelop,andthekeyretailerswherethelicenseeplans
toselltheirlicensedproductoverthenextyear.Thesalesplanshouldbebuiltby
month,byretailer,andifapplicable,byregion.Projectedroyaltiesshouldbecalculated
basedonthesalesprojectionsandreviewedagainstminimumroyaltiestoassessthe
robustnessoftheplan.Onthenextpageisasnapshotofwhatsuchaplanshould
contain.
DashboardReviews:Onamonthlybasisthelicensorwillreviewthebusinessestimate
againsttheplan.Thusboththelicenseeandthelicensorshouldtracktheactualsales
androyaltiesversusthoseprojectedintheannualbusinessplan.Subsequentmonthly
projectionsshouldbelaidoutwithjustificationsforanyincreasesordecreasesrelative
tothebusinessplanandthemostrecentestimate.Theresultsofthiswillbeusedto
maximizeopportunitieswithinthecalendaryearandtodevelopthebusinessplanfor
thefollowingyear.Similarly,thereisaquarterlyandanannualreviewthatcompare
thesalesperformancewiththepreviousquarter(oryear).
Audits:Eachlicensingagreementprovidesthelicensorwiththerightstoaudit
itslicensee.Theseauditsincludeareviewofthelicensee’sfinancialandproduct
developmentrecords,aswellassocialcomplianceauditsofitsapprovedfactories.
Socialcomplianceauditsareconductedwheneveranewlicenseeorfacilityismade
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Copyright ©2019. Pete Canalichio. All Rights Reserved.
partofalicensingprogram.Inaddition,businessauditsareperformedroutinelyto
ensurethelicenseeiscomplyingwiththetermsoftheagreement.Typicallyauditsare
conductedbyapprovedthirdparties.
Anydiscrepanciesfoundinasocialcomplianceauditthatcanbeharmfulto
thefacility’semployeesmustberesolvedbeforethefacilitycanbeused.Others
mayberesolvedonanongoingbasis.Licenseebusinessauditsthatturnupany
inconsistenciesarereviewedfortheseriousnessoftheerror.Adiscrepancyrelatedto
sellingunapprovedproductorsellingproductinanunauthorizedmethodcanresult
intermination.Inaddition,therearesignificantpenaltiesforsalesofunapproved
orunauthorizedproduct.Royaltiesrelatedtothesesalestypicallyareequaltothe
salesvaluethemselves.Minorinfractionsareresolvedbycorrectingtheproblemina
prudentandexpeditiousfashion.
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Copyright ©2019. Pete Canalichio. All Rights Reserved.
Figure 12: Annual Business Plan template
Annual Business Plan
Licensee Name Licensee #1 Year 2 Licensor Budget: 3,000,000
Submission Date: Year 2 Year 2 Licensee Budget: 350,000
Royalty Rates (%): 5, 7.5, 10 Licensee Contribution: 12%
Minimum Guarantees: 100,000
Year 2 Licensor Estimate: 3,500,000
Year 2 Licensee Estimate: 375,000
Licensee Contribution: 11%
Retailer Summary Goal
Year 1 Year 2
Retailer Sales Royalties Sales Royalties % of Estimate
Wal-Mart 658,000 65,800 770,000 77,000 21%
Target 475,000 47,500 573,000 57,300 15%
The Home Depot 378,000 37,800 425,000 42,500 11%
Lowe’s 299,000 29,900 411,000 41,100 11%
SAM’s Club 108,000 10,800 379,000 37,900 10%
Costco 107,000 10,700 368,000 36,800 10%
SEARS 97,000 9,700 320,000 32,000 9%
Kmart 75,000 7,500 144,000 14,400 4%
Kohl’s 55,000 5,500 110,000 11,000 3%
Other 248,000 24,800 250,000 25,000 7%
Total 2,500,000 250,000 3,750,000 375,000 100%
Product Summary Goal
Year 1 Year 2
Product Sales Royalties Sales Royalties % of Estimate
A 658,000 65,800 770,000 77,000 21%
B 475,000 47,500 573,000 57,300 15%
C 378,000 37,800 425,000 42,500 11%
D 299,000 29,900 411,000 41,100 11%
E 108,000 10,800 379,000 37,900 10%
F 107,000 10,700 368,000 36,800 10%
G 97,000 9,700 320,000 32,000 9%
H 75,000 7,500 144,000 14,400 4%
I 55,000 5,500 110,000 11,000 3%
J 248,000 24,800 250,000 25,000 7%
Total 2,500,000 250,000 3,750,000 375,000 100%
Sales & Royalty Summary Goal
Year 1 Year 2 Comparison
Yr 1 Actual vs. Yr 2 Budget vs.
Actual Budget Estimate Yr 2 Budget Estimate
Sales 2,500,000 3,500,000 3,750,000 40% 7%
Royalites 250,000 350,000 375,000 40% 7%
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Copyright ©2019. Pete Canalichio. All Rights Reserved.
Figure 12: Annual Business Plan template (continued)
Sales & Royalty Summary Stretch
Year 1 Year 2 Comparison
Yr 1 Actual vs. Yr 2 Budget vs.
Actual Budget Estimate Yr 2 Budget Estimate
Sales 2,500,000 3,500,000 3,750,000 40% 7%
Royalites 250,000 350,000 375,000 40% 7%
Retailer Summary Stretch
Year 1 Year 2
Retailer Sales Royalties Sales Royalties % of Estimate
Wal-Mart 658,000 65,800 1,000,000 77,000 21%
Target 475,000 47,500 700,000 57,300 15%
The Home Depot 378,000 37,800 450,000 42,500 11%
Lowe’s 299,000 29,900 425,000 41,100 11%
SAM’s Club 108,000 10,800 379,000 37,900 10%
Costco 107,000 10,700 368,000 36,800 10%
SEARS 97,000 9,700 320,000 32,000 9%
Kmart 75,000 7,500 144,000 14,400 4%
Kohl’s 55,000 5,500 110,000 11,000 3%
Other 248,000 24,800 250,000 25,000 7%
Total 2,500,000 250,000 4,186,000 375,000 100%
Product Summary Stretch
Year 1 Year 2
Product Sales Royalties Sales Royalties % of Estimate
A 658,000 65,800 900,000 77,000 21%
B 475,000 47,500 573,000 57,300 15%
C 378,000 37,800 425,000 42,500 11%
D 299,000 29,900 500,000 41,100 11%
E 108,000 10,800 379,000 37,900 10%
F 107,000 10,700 468,000 36,800 10%
G 97,000 9,700 320,000 32,000 9%
H 75,000 7,500 144,000 14,400 4%
I 55,000 5,500 227,000 11,000 3%
J 248,000 24,800 250,000 25,000 7%
Total 2,500,000 250,000 4,186,000 375,000 100%
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Copyright ©2019. Pete Canalichio. All Rights Reserved.
SummaryFormostbrandowners,BrandLicensingisanunder-utilizedmethodofenteringa
newproductcategory.However,wehopethatthroughthismodulewehavebeenable
toillustratewhatBrandLicensingisandthenumerousbenefitsthatithastooffer
bothtolicensorsandlicensees,aswellasdescribetheentirebrandlicensingprocessas
wehaveseenitworkintherealbusinessworld.
Needlesstosay,theentireprocessislengthyandtimeconsuming,witheffortsstarting
asearlyas24monthsbeforeyoucanseeproductontheshelf.Onemustalsokeep
inmindthatthegoalisnottoachievethelicensebuttomakeasuccessofitandthe
activitiesthatfollowthesigningofthecontract.Theseprocesses,ifexecutedwell,
ontheonehand,canensurehugesuccessoftheprogram.Whileontheotherhand,
ifeitherthelicenseeorthelicensordonotliveuptotheircommitments,itcanaffect
sales,andmoreimportantlythereputationofthebrand.
ThismoduleattemptstogiveyouanoverviewoftheBrandLicensingprocess.Ifyou
thinkthismayhelpyourmanufacturingbusinessachievenewheights,orhelpyour
brandexpandintonewcategories,weencourageyoutotryoutourothermodulesthat
talkabouteachprocessingreaterdetail,includingdeterminingproductcategories
forbrandextension,prospectinglicensees,understandingdealtermsandnegotiating
contracts,orientationandbusinessplanning.
More Books by Pete Canalichio
35 Case Studies Of Brands That Successfully Entered New CategoriesWith35casestudiesallinoneplaceyou’llsavehoursofsearchingonGoogle.WithanalysisbybrandlicensingexpertPeteCanalichio,you’llgetabetterunderstandingoflicensingstrategiesandthewaybrandsinotherindustrieshavesucceeded.
Breakthrough Licensing: A Disciplined Path To Profitable Brand ExtensionsTakesyouthrougheverystageoftheprocessfromidentifyingstretch-readybrandstoimplementinggo-to-marketstrategies.Findouthowtoprospectlicensees,performduediligence,negotiatecon-tracts,andmore.
Is You’re Brand Ready To Stretch Into New CategoriesUseaprovenscoringsystemtodecideifyourbrandisreadytostretch,avoidcatastrophicfailures,knowhowtogetyourbrandreadytoexpandandextendifitscoresbadlyandbuildonyourbrand’sstrengthsifit scoreswell.
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