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License to print money Drapers

Published on 8 Aug 2009 under category: cubism

By David Salamons - Consultant at Cubism Law

As printed in Drapers - 8 August 2009

Increasing your profits without increasing your costs is the holy grail of business. David Salamons believes careful licensing in these turbulent times can deliver the cash boost your brand needs

 

In these difficult times it is obviously advantageous to use every possible weapon in your armoury to distin­guish your brand from competitors while, preferably, being as cost-effective as possible.

One method is brand licensing. In simple terms, this involves taking a brand you have built up successfully and licensing it to other businesses, which are specialists in products or services outside of your core skills. In return for these rights you will receive financial payments, normally in the form of royalties, on sales of licensed products.

For the business granting the licence, the advantages include enabling the business to extend brand awareness without incurring the costs and risks associated with entry into other, unfa­miliar product categories or markets.

A business can also increase brand awareness, particularly of its core prod­ucts among consumers unfamiliar with the core brand.

Changing the perception of a brand by allying it with, for example, a more "upmarket" licensed product depending on how the brand would like to be perceived in a different category or market - is another bonus, while enhancing your trademarks by broad­ening their use increases the value of your brand.

Picking the right product

 

In deciding which product areas to grant licences for, there are a number of rules to apply. Start with product areas that are reasonably ancillary to your own to build integrity. If you have a sports shoe brand, don´t license your brand onto bedding; it doesn´t make sense. At first, do not stretch the brand too far.

Then, look for product areas that sell into the same distribution outlets as your own brand so they complement each other and also those that have wider distribution in similar market segments. Do not grant licences in product areas that are too similar to your own product area as they may cannibalise your core product sales.

Brand licensing can be both a national and international strategy. The advantages of a national strategy have been outlined above. An interna­tional licensing strategy brings other possibilities, particularly around varia­tion of markets and brand perception within them. A brand can be more adventurous in product areas and alli­ances outside of the home territory.

International options

 

The reason for this is that there is a greater knowledge and perceived loyalty to the brand by consumers in the home territory.

For example, if a designer clothing brand started licensing itself onto ceramic mugs that were sold in Tesco, it may adversely effect the way the brand is perceived. It may be that the designer brand would generate huge income by going down this road but it could be to the long-term detriment of the brand.

However, if the brand started licensing into a country where the brand was known by name but with a less established brand awareness, it may be possible for the brand to be licensed into completely different areas such as ceramics and even food and sold in more mass-market outlets, thus yielding high income streams without it adversely affecting the brand´s standing in its home country.

Of course, this does not apply to truly international brands such as Adidas and Nike, because there is a worldwide brand loyalty and perception of these brands which cannot be easily divided Into home and foreign markets.

However, in order to create quality licensing programmes you will need substantial trademark and brand licensing documentation in place. This should balance the needs and requirements of the licensor and the licensee, and detail use and protection of the brand, royalties, sales targets, geographical territories and myriad other important matters that will help regulate the relationship between the parties.

Top licensing tips

 

1.) If you have a sports shoe brand, don´t license your brand onto bedding I look at using quality brand licensing agents to assist with strategy and selecting potential licensing partners.

2.) Plan your licensing strategy. Short-term, high-royalty income may harm your brand; consider a longer-term brand-building exercise.

3.) At first, grant licences for product areas ancillary to the product area in which your brand is situated.

4.) Do not necessarily select licensees who are chasing you. Be selective.

5.) Do credit checks/ due diligence on licensees-your brand could be in their hands.

6.) Ensure you have agreed financial targets from your licensees and minimum royalties

7.) Obtain agreements from licensees on distribution. If your products are in upmarket boutiques and their products are being sold in supermarkets, there is a brand gap, so your brand can only go one way - down.

8.) Listen to your licensees. They have knowledge about their own product areas.

9.) Unless you have given a great deal of thought to it, always ensure the market profile of your licensees and their distribution is either the same customer profile or a more aspirational one. Use a lawyer who has experience in drafting brand/ trademark licensing documents. This may prove essential.