The advantages of brand licensing

Brand Licensing allows businesses to take a successful brand and license it to others who are specialists in products or services outside of your core skills or are active in foreign markets in which you may lack a presence. In return for these rights you will receive financial payments normally in the form of royalties, on sales of licensed products.

For the business generating the license, 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. At the same time enhancing your trademarks by broadening their use increases the overall value of your brand.

Picking the right product

In deciding which product areas grant licenses for, there are a number of rules to apply. Start with the product areas that are reasonably ancillary to your own to build integrity. If you have a sports shoe brand, don’t license your brand into 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 licenses in product areas that are too similar to your own product area as they may cannibalise your core product sales.

International Brand Licensing

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 variations of markets and brand perception within them. A brand can be more adventurous in product areas and alliances outside of the home territory.

The reason for this is that there is greater knowledge and perceived loyalty to the brand by consumers in 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 taking this option in the short term but in the long term it may be to the 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 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

Use quality brand licensing agents to assist with strategy and screening potential licensing partners.
Plan your licensing strategy. Short-term, high royalty income may harm your brand; consider a longer-term brand building exercise.
Initially, grant licenses for product areas ancillary to the product area in which your brand is based.
Be selective when choosing licensees who are chasing you.
Do credit checks and due diligence on your licensees – you are trusting them with your brand.
Ensure you have agreed financial targets from your licensees and minimum royalties.
Obtain agreements from licensees on distribution. If your products are in upmarket boutiques and their products are in supermarkets, there is a brand gap, so your brand can lonely go one way – down.
Listen to the licensees. They have knowledge about their own product areas.
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 an aspirational one.
Use a lawyer who has experience in drafting brand licensing documents. This may prove essential.

David Salamons is the brand licensing consultant at Cubism Law, to speak to our brand licensing and franchising team please call 0207 821 0101.