The Cube

A Licence to Print Money

06 Dec, 2017

 

David Salamons is a Partner and Head of Brand Licensing at Cubism Law. He has over 25 years’ experience of working for corporates, senior executives and business owners in the hospitality and leisure sector.

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Brand licensing in the 21st century

In these difficult times it is obviously advantageous to use every possible weapon in your armoury to distinguish your brand from competitors whilst, 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 product or services. 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 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” or “differentiated“ licensed product, can change how the brand is perceived in the marketplace. For example if EasyJet licensed its brand name onto a range of upmarket handbags with market penetration in the Harvey Nichols, Selfridge’s market which used the logo in a very discreet way, this would give EasyJet visibility in an entirely different market.

Picking the right products

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 brand integrity. For example 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 the 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 on variation of markets and brand perception within them. A brand can be more adventurous in product areas and alliances outside of its 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.

The example if a high-end designer clothing brand started licensing itself onto ceramic mugs which were sold in Tesco, it may adversely affect the way the brand is perceived. It may be that the designer brand will 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 less established brand awareness it made it 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 an adverse effect on the brand’s standing in its home country.

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

However, in order to create quality licensing programs 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 a myriad of other important matters that will help regulate and enhance the relationship between the parties.


About the Author

David_Salamons.jpg

David Salamons

David Salamons is a Partner and Head of Brand Licensing at Cubism Law. He has over 25 years’ experience of working for corporates, senior executives and business owners in the hospitality and leisure sector.

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