The Basics Every Licensor Should Know 2 PAGE NUMBER

Brand Licensing101 The Basics Every Licensor Should Know 2 PAGE NUMBER

Table of Contents

3 INTRODUCTION

5 CHAPTER ONE: How Brand Positioning, Loyalty & Equity Affect Licensing

9 CHAPTER TWO: Why Do Companies License Out Their Brands?

16 CHAPTER THREE: Why Do Manufacturers License Brands?

21 CHAPTER FOUR: THE BRAND LICENSING PROCESS

39 SUMMARY

Introduction

Have you ever wondered how Coca- Cola, a company so focused on meeting your beverage needs, sells Coca-Cola branded tee shirts or caps? Or how does Newell Rubbermaid provide you such a range of products under a single brand name? While companies sometimes manufacture these items themselves, at other times, they may choose to allow a manufacturer to produce and market these products under their brand names. In return for the use of their brand, these companies charge the manufacturer a fee. Such an arrangement is called brand licensing and can be defined as an agreement that authorizes a company Coca-Cola Products that markets a product or service (a licensee) to lease or rent a brand from a brand owner who operates a licensing program (a licensor) in return for a portion of the sales revenue (royalty).

This guide will help you understand brand licensing better, as well as address why companies license brands. We will also take you through the process of how to determine the license-ability of a brand, expectations of licensors and licensees, the brand licensing process and the royalty payment flow.

Shortly before I joined Newell Rubbermaid, the Rubbermaid business was considering signing an agreement with a company based in Eden Prairie, Minnesota. The company was Tricam, and they were experts in ladders and garden dumping carts.

Tricam was so innovative that many of their products held valuable patents that made

their products easier to use. In addition, Tricam maintained excellent customer service.

Based on research, Rubbermaid learned that kitchen step ladders and garden dump PAGE NUMBER carts were both products that consumers not only expected to see sold by Rubbermaid, but that they wanted to buy from them.

Rubbermaid knew that they did not possess the core expertise to make kitchen step ladders and garden dumping carts with the type of innovation that Tricam was using. Rubbermaid also understood that if Tricam manufactured Rubbermaid branded products of their behalf, Tricam could offer many more benefits to their consumers than anything Rubbermaid could build into similar products. This was important to Rubbermaid as anything they marketed under the Rubbermaid name had to meet or exceed the brand’s promise to its consumers.

Tricam was also intrigued with this relationship. They had been selling their kitchen step ladders and garden dumping carts on their own for several years with limited success. Tricam knew that retailers liked to sell branded products as they gave consumers a level of trust and certainty that could not be conveyed from unbranded products, regardless of the return policy.

Tricam also understood that the Rubbermaid brand was admired and respected by both retailers and consumers across North America. If Tricam could pair their product innovation and superior customer service with the Rubbermaid brand, they could convince retailers to place orders for their products and substantially grow their business. Understanding the opportunity facing them, Rubbermaid and Tricam entered into a relationship where Tricam would manufacture, market and sell Rubbermaid branded step ladders and garden dumping carts. Over the next three years, Tricam successfully sold its Rubbermaid branded dump cart into Costco and its Rubbermaid branded kitchen step ladder at Target stores.

Consumers loved the quality of the Rubbermaid branded Tricam products so much that tens of thousands of both the step ladders and the dumping carts were sold in the ensuing months. This pleased both retailers causing them to issue multiple re-orders for several years.

If you think this story is rare, prepare to be pleasantly surprised.

Hundreds of manufacturers and service providers sell their products each day under brand names like Mr. Clean, Klondike, Coca-Cola, California Pizza Kitchen, Cinnabon, and Rubbermaid. By teaming up with a top brand, they gain immediate recognition

and credibility helping these savvy companies to achieve double and even triple digit

growth. This type of growth is dramatic any time, but especially in a down economy. PAGE NUMBER

To understand brand licensing better, one must understand the two component parts separately – brand and licensing. Let’s begin with understanding the meaning of the term ‘brand.’

What is a Brand?

According to Philip Kotler and Gary Armstrong, a brand is defined as “a name, term, 1 sign, symbol or combination of these, that identifies the maker or seller of the product (or service).”

The brand or its legal term, trademark, affixed to the product helps the consumer understand where it was manufactured or produced. From the brand owner’s perspective, it distinguishes the products or services from those of its competitors. Consumers, in turn, can be assured the product they are purchasing is exactly what they want. Based on its reputation, a brand will convey a level of quality, reliability, and durability.

The primary reason companies choose to brand their products is to differentiate them from their competitors’ products. For example, most consumers have no problem differentiating a Coke from a Pepsi. By giving their products a brand, a Cans of Pepsi and Coca-Cola company or brand owner can begin to communicate with their consumers regarding the attributes of their products. Over time, consumers can begin to rely on the brand to connote not only a product’s value but also its reputation. If consumers like what a brand represents and they have purchased it before, there is a higher likelihood they will choose the brand of their preference over a competitor. In fact, consumers will often purchase a brand for the first time if it has a strong reputation or if it is used by friends or celebrities.

Brands also lead consumers to develop certain expectations of products. The longer they experience predictable, consistent quality and performance, the more they expect any new products sold under the same brand to have the same. The brand, therefore,

adds value to these products. For example, customers expect new products sold under

the BMW brand to be of the same quality as the existing BMWs. Consumers will PAGE NUMBER associate a brand with a certain price level and standard of performance. If we look at two distinct watch brands, Rolex and Timex, one is associated with a high price and high performance and the other with value and durability. These same attributes can also be of benefit to businesses. Many consumers look to UPS for their shipping needs, and they prefer doing business with companies that ship via Brown. UPS adds value to its client companies, with a reputation for making shipping simple, easy, reliable and effective.

Logo of BMW, Rolex, and TimeX, respectively.

Brand Positioning Brand Positioning is arranging for a branded product to occupy a clear, distinctive, and desirable place relative to competing brands/ products in the mind of a target consumer.

P&G sells six brands of laundry detergent in the United States that compete with each other on the shelf, offer different mixes of benefits, and prioritize benefits differently, each based on the different groups of laundry detergent purchasers:

Tide: Fabric cleaning and care at its best

Cheer: Protects against fading, color transfer and fabric wear in powder or liquid, with or without bleach

Gain: Provides excellent cleaning power and a smell that says clean

Era: Powerful laundry detergent that is tough on stains

Dreft: Specially formulated detergent that rinses out thoroughly, leaving clothes Logos for P&G, Tide, Cheer, soft next to a baby’s skin. Dreft has been the No. 1 choice of pediatricians for years Gain, ERA, Dreft, and Ivory Ivory: Mild cleansing benefits for a gentle, pure and simple clean

Brand Loyalty PAGE NUMBER When consumers and businesses get into the habit of buying certain brands, they automatically buy them again and again. This reduces the amount of time and promotion needed to make future sales to those consumers. According to Kotler, brand loyalty, in marketing, consists of a consumer’s commitment to repurchase or otherwise continue using the brand. This can be demonstrated by repeated buying of a product or service or other positive behaviors such as word of mouth advocacy. Brands usually pass through successive stages of brand loyalty, which is the customers’ allegiance to a particular brand. The stronger the brand loyalty, the higher the value of the brand and the greater revenue it will drive for its owner.

Stages of Brand Loyalty Brand loyalty has three stages. The first is brand recognition. Brand recognition is when consumers become aware of a brand and know a bit about it. Brand recognition or awareness is usually referenced as aided when the consumer recognizes a brand after he/she is given the name, and unaided, which is when the consumer mentions a particular brand when asked if he/she knows any brands in a particular category. Unaided awareness is seen as a higher level of brand recognition.

Next is brand preference. Brand preference is achieved when consumers prefer to purchase a certain brand based on their positive experience with the brand. However, if that brand is not available, the consumers will purchase another brand.

When consumers insist on “their” brand and will not accept a substitute, the brand has reached brand insistence. Only that particular brand will satisfy customers for a given purpose. Most brands never make it to this stage of brand loyalty. Coca-Cola is one example of a brand that has made it to the brand insistence stage. There are many Coke consumers who simply will not drink any other brands of cola. And when brands make it to the brand insistence stage, they also have a tendency to develop a competitive advantage in the marketplace. Brands with this level of loyalty are in the strongest position to institute a licensing program.

Brand Equity and Extendibility Companies that know their brands well will have a good understanding of the equity of each brand. A brand’s equity is derived from the awareness and image a brand holds with its consumers. Often brand managers will leverage a brand’s equity to enter or extend their brands into new product categories to help drive strategic growth for the company.

For example Crest extended its brand from toothpaste into whitening. Before Proctor &

Gamble (P&G), who owns the Crest brand, launched Crest Whitestrips, they conducted PAGE NUMBER research to understand if the brand had ‘permission’ to enter into the retail whitening category, long held by established brands such as Rembrandt and Aquafresh.

P&G wanted to find out if consumers would expect Crest to offer a whitening product and if so, purchase this new product based on their preference for the Crest brand. As many of us are aware, Crest Whitestrips have performed well in the marketplace, achieving high rankings and advocacy ratings. While P&G decided to enter the whitening category by sourcing the product overseas and distributing globally, they could have chosen either to manufacture it themselves or enter the market through licensing and have their licensee manufacture and distribute the product. Crest Whitestrips In the case of P&G’s Mr. Clean, their leading household liquid cleaner, P&G discovered that consumers expected the company to offer cleaning accessories under the Mr. Clean brand. In this instance, P&G decided to enter the market by licensing the category to Magla, a company that already had expertise and presence in this category. When we say that P&G entered the cleaning accessories category through licensing, we mean that P&G allowed Magla, a manufacturer of cleaning accessories, to use the Mr. Clean brand in exchange for a fee.

What is Licensing? Licensing means the renting or leasing of an intangible asset. A company owns two types of assets: tangible and intangible. Tangible assets are physical holdings such as a factory, machines, buildings, computers, and furniture. Examples of intangible assets include a song, such as Need You Now by Lady Antebellum, a character like Disney’s Donald Duck, a person’s name such as George Clooney, or a brand like The Ritz- Carlton.

An arrangement to license a brand requires a licensing agreement. A licensing agreement authorizes a company that markets a product or service (a licensee) to lease or rent a brand from a brand owner who operates a licensing program (a licensor).

Why Do Companies License Out 2Their Brands? Companies license their brands for a variety of reasons. Licensing enables companies with brands that have high preferences to unlock their brands’ latent value and satisfy pent-up demand. Through licensing, brand owners have the ability to enter new categories practically overnight, gaining them immediate brand presence on store shelves and often in the media. Let’s take a deeper look at the benefits that make licensing so attractive to brand owners.

The Ability To Test Drive New Businesses Or Geographical Markets With Minimal Risk

By partnering with a third-party manufacturer or service provider, a brand owner can try new businesses, or move itself into new countries with a smaller upfront investment than by building and staffing its own operations. Since the product manufacturing and distribution are handled by the licensee – the company with the product expertise – there is very little licensor engagement with the product and there is no inventory commitment.

Collect Royalty Revenue For The Right To Use The Brand While usually not the most important reason, licensing generates revenue from a minimum guarantee and through royalty payments. Guarantees are usually determined on an annual basis and calculated as a percentage of the anticipated per annum royalty. Royalty payments are typically calculated as a percentage of wholesale revenue. As long as the brand is protected and the licensing program is properly administered, no General Manager would knowingly turn away the healthy injection these payments bring to his/her bottom line.

Expand Their Overall Marketing Support For PAGE NUMBER The Core Business In many instances, the licensee will be required to provide marketing dollars to support the licensed category, which is important for the success of the license. This marketing spend, in turn, provides additional overall brand presence. For example:

• If a licensee promotes its product in a weekly circular and gains an end-aisle display, the advertising and display not only generate product sales for the licensee, they also promote the brand owner’s core

• An array of toys or apparel tied to a movie, sitting on a store shelf, also helps to promote the movie

• A sports fan who wears a sweatshirt with the logo of her favorite team expresses her enthusiasm about the team, but also subtly promotes the sports, the league and the team to anyone who passes her by on the

• The same goes for a beer brand. Seeing a store display of glassware carrying a well-known beer logo like Guinness, or walking into a neighbor’s home and seeing the glasses on his bar reinforces the brand image, supporting the brand’s overall marketing.

Achieve A Competitive Strike For licensors who know their brand can enter into a category that is controlled by their competitor, licensing can be a smart and effective way to combat a rival in a category core to their business. By taking the offensive, the licensor will in turn take the competitor’s eye off of their own core business. For example, what if Adidas licensed a shoe manufacturer to compete directly against Cole Haan shoes with Nike AirTM?

Gain Strategic Knowledge As many licensees are experts in their own right, they offer the licensor access to intangibles such as intellectual property (through licensing inbound), product design and marketing expertise, supply chain management, new customer relationships and strategic alliances. As true partners, a licensor and a licensee can hold forums to exchange ideas that not only grow the licensed category, but also improve other areas of both companies’ businesses.

Maintain Control Over An Original Creation PAGE NUMBER For brand owners (particularly those doing business in the global marketplace), licensing and registering the brands in multiple markets is a way to protect the brand from being used by others without authorization. When licensing first started at Coca-Cola it was run by the legal department specifically to protect the company’s trademarks in the categories they chose to license throughout the world.

Discussion By licensing their brands, companies are able to satisfy consumer needs in categories that are not core to their business. When Apple launched the iPod a number of years ago they revolutionized the way in which people listen to their music. The iPod was so successful that its quick acceptance created an immediate need for accessories such as armbands, adapters and auto chargers. Apple could have chosen to manufacture and distribute these accessories themselves. Instead, Apple decided that these accessories were not core to their business expertise and therefore chose to satisfy the Apple’s iPod need through licensing. By licensing the iPod brand, Apple enabled a tremendous number of companies to produce all kinds of terrific products to make the iPod more user-friendly and to enhance the listening experience. Examples of licensed products for the iPod include the Bose Sound System with iPod docking station, the Nike+ running shoe, auto adaptor kits, armbands and many other products. All these accessories are sold by licensees.

Some licensors see licensing as an opportunity to “test” the viability of a new category without having to make a major investment in new manufacturing processes, machinery or facilities. In a well-run licensing program, the brand owner maintains control over the brand image and how it’s portrayed (via the approvals process and other contractual structures), positioning itself to reap the benefit of additional revenue (royalties) and brand exposure through product displayed through new channels and incremental shelf space. For example, Rubbermaid gained additional revenue and brand presence by licensing kitty litter containers that are sold in the mass channel core to Rubbermaid, and in specialty pet shops core to United Pet Group, the licensee.

PAGE NUMBER

Figure 1: Different Types of Brand Licensing

Similar examples include: • A well-known brand of construction tools such as DEWALT licensed into such areas as work gloves or work boots;

• A brand of beauty products like Neutrogina extended into a new vitamin line that promotes better looking skin;

• A popular restaurant chain such as TGIF licensing a frozen food manufacturer to market a line of appetizers under its brand

• A famous fashion label such as Donna Karan licensing its name into such natural extensions as leather accessories, shoes, fragrances or home

Brand licensing also enables companies to try out potential new businesses or geographical markets with relatively small up-front risk. By licensing its brand to a third-party manufacturer, a licensor can try new businesses, or move itself into new countries with a smaller up-front investment than by building and staffing its own operations.

Additionally, manufacturing and distribution are typically managed by the licensee, the company with the product expertise. Therefore, licensing requires little brand owner engagement with the product and involves no inventory commitment. When I was at Rubbermaid, we used licensing to enter the cookware category in Korea.

This enabled us to assess the viability of the brand in that category without much financial risk to the company or equity risk to the Rubbermaid brand. Depending on Rubbermaid’s performance in the cookware category inside Korea, Rubbermaid could consider licensing a line of branded cookware in other markets.

In return for the use of their brand, companies charge manufacturers a fee in the form of royalty payments and guarantees that constitute a source of revenue for the company. Royalty payments are typically calculated as a percentage of wholesale revenue while guarantees are usually determined on an annual basis and calculated as a percentage of the anticipated per annum royalty.

Consumers pay retailers a retail The polo shirt licensee pays Disney, Retailers pay the polo shirt licensee price of $50 per Disney branded the licensor, $500,000 in royalities $5 million as wholesale cost of the polo shirt. A total of 200,000 polo ($5 million x 10% rate) polo shirts (based on 100% markup) shirts are sold generating $10 million in retail sales.

Figure 2: Royalty Payment Flow

The diagram above helps explain the flow of royalty payments with a simple example. The retailer earns revenue on licensed merchandise sold at the market price.

The licensee earns wholesale revenue, which includes the cost of making the goods plus a markup. The licensor in turn receives a percentage (predetermined in the licensing contract) of the wholesale revenue as a royalty.

A well-managed licensing program can generate a substantial and growing stream of incremental royalty revenue that will complement a company’s core business.

Brand licensing also provides marketing support to the core business. In many

instances, the licensee will be required to provide marketing dollars to support the PAGE NUMBER licensed category. This marketing expenditure, in turn, provides additional overall brand presence. For example, if a licensee promotes its product in a weekly circular and gains an end aisle display, the advertising and retail display not only generate product sales, but they also promote the overall brand.

An array of toys or apparel tied to a movie, sitting on a store shelf, serves to promote the movie itself. A sports fan wearing a sweatshirt with the logo of his favorite team expresses his enthusiasm about the team, while subtly promoting the sport, the league and the team to anyone who passes by him. The same goes for a beer brand. Seeing a store display of glassware carrying a well-known beer logo, or walking into a neighbor’s home and seeing the glasses on his bar, reinforces the brand image, supporting the brand’s overall marketing efforts.

For brand owners who are confident that their brand has permission to enter a category that is controlled by their competitor, licensing can be a smart and effective way to combat a rival where it matters most. By taking the offensive, the brand owner-turned-licensor will force the competitor to take its eye off of its core business. This can have a significant impact. For example, what if adidas chose to license a shoe manufacturer to compete directly against Nike’s Cole Haan brand?

Many licensees are experts in their own right; they offer the licensor access to their intellectual property, product design and marketing expertise. Moreover, licensors can tap into their licensee’s supply chain management knowledge, retailer relationships and strategic alliances. Over time, licensors and licensees can hold knowledge management workshops and forums where they can exchange techniques, processes and ideas that not only grow the licensed category, but also other areas of their businesses.

Finally, for brand owners (particularly those doing business in the global marketplace), licensing their registered trademarks in multiple markets is a way to protect the brand from being used by others without authorization. When Coca-Cola first started licensing, the legal department managed the program specifically to protect the company’s trademarks in countries throughout the world.

Quick Summary Why would top brand owners agree to allow third party businesses to sell products under their name? These are the top three.

Despite their impressive appearance even the world’s great companies cannot do everything on their own. They need the help of best-in-class 1 manufacturers and service providers to get more and better products to consumers. By partnering with third party manufacturers, brand owners can make their brand available to more consumers who wish to buy their

Moreover, brand owners can enter new product categories, sales channels or countries practically overnight, gaining valuable shelf space and 2 thousands of additional opportunities to delight.

Finally, brand owners receive a royalty from the third party manufacturer or service provider for the right to use their brand. With little 3 investment required by the brand owner, practically all of this revenue becomes operating income helping to strengthen the brand owner’s P&L.

Why Do Manufacturers License Brands? 3Now that you have a better understanding of how brand owners benefit by allowing their brands to be extended via licensing, let’s look at how manufacturers and service providers (licensees) can also benefit. In fact, there are tremendous benefits to manufacturers and service providers (licensees), as well. That is why this strategy is so powerful.

Licensees borrow the rights to a brand to build into their merchandise, but traditionally they do not share ownership in it. Having access to major national and global brands, and the associated logos and trademarks, gives the licensee significant benefits they previously did not possess.

The most important of these is the marketing power the brand brings to the licensee’s products. Building a brand from scratch can take years, millions of dollars and a lot of luck. The company which licenses a brand gains immediate access to all the positive name and image building that went before it.

The licensee also takes with them the reputation of the licensor. Often this “halo” effect can translate into many intangible and immeasurable benefits such as returned calls, an agreement to meet, or simply the implication of quality. Let’s take a closer look at each of these benefits: Mickey Mouse and Winnie the Pooh

Achieve Instantaneous Recognition PAGE NUMBER Consider a tee shirt manufacturer with specialty printing capabilities. While they may have a good network, they are relatively unknown beyond that. Through licensing one day they could be selling unbranded tee shirts; the next they could be an official Disney licensee of Mickey Mouse and Winnie the Pooh. Having the Disney license means immediate and instantaneous global recognition. The value of this recognition cannot be measured, but the sales the manufacturer will now make certainly can.

Enhance Their Authenticity And Credibility Consider the videogame manufacturer who has developed an amazing soccer game. They have presented their game to a number of retailers, but all have turned them down. If, however, they can license the FIFA World Cup trademark they stand to gain immediate legitimacy and authenticity to their game.

In fact, many retailer buyers will tell a manufacturer if they had a recognized brand, they would issue a purchase order. Similarly, a maker of automotive parts or accessories will license specific car brands such as Toyota or Ford specifically to establish in the consumer’s mind that its products will work seamlessly with the cars of the parent brand. These are then purchased by automotive distributors, service shops and the brands owners driving substantial incremental revenue.

Reduce In-house Costs A manufacturer or service provider which acquires the rights to license a brand often gains the licensor’s preferred pricing by its suppliers. This can include commodities, such as resin, shipping and creative services. In addition, they gain access to the licensor’s style guide, which provides them with most of the imagery and artwork they need to design their products.

Having the style guide not only assists the licensee with design time, it streamlines the approval process and ensures their products have the same look as the other manufacturers or service providers which have licensed the brand.

Gain Access Into New Distribution Channels Taking on a license can help manufacturers and service providers gain access to new distribution channels. For example, a manufacturer may have an established private label business selling into the mass merchandise channel. By licensing the rights to a mid-tier brand, they could gain access into department stores (that wouldn’t carry the private label brand) and double their revenue.

Enter New Regions PAGE NUMBER A door mat manufacturer based in Germany and selling its product in Europe may be able to enter the US market by licensing a major household brand like Better Homes & Gardens. The Better Homes & Gardens brand can give them entry into the channels they currently are selling other categories of product. In some instances the licensees pool their products to create an integrated program, which can be appealing to some retailer buyers.

Acquire Strategic Knowledge Licensees gain access to intangibles such as the licensor’s subject matter expertise in areas where they are not proficient such as marketing, supply chain management, customs, etc. In addition, manufacturers and service providers can benefit from the licensor’s databases and libraries which can include a variety of topics including market research, manufacturing and product design. As true partners, licensor and licensee are not limited to these areas, but can identify where each other’s strengths are and tap into them.

Obtain Other Licenses More Easily Once a licensee acquires one license they will almost automatically gain approval from other brand owners wishing to extend their brands into new categories. For example, a pin licensee of Major League Baseball (MLB), will have an easier time acquiring the rights to the National Hockey League or the National Basketball Association because these brand owners know the licensee meets the standards for MLB and already has an understanding of the licensing process.

Add Value To The Business Gaining the rights one of the world’s great brands can add instantaneous value to an organization. This could be an important consideration when the owners are considering selling the company. More and more brand owners are aware of this and are requiring they approve the new management before automatically authorizing the continuation of the license. In addition, the brand owner may require a payment recognizing the increase in value upon the sale of the company.

How Licensors and Licensees Come Together The diagram below illustrates the different stages that are a part of the Licensed Product Process Flow:

Licensors picks the Licensor or its agent Licensees Licensor approves Licensees product categories finds and negotiates develop concepts, licensed products sell approved PAGE NUMBER to be licensed a license with best prototypes and for sale licensed product licensees final production in authorized samples and submit channels to to Licensor for retailers approval

Different Stages of the Licensed Product Process Flow What do brand owners who choose to license their brands expect? Licensors expect that the licensee will be committed to investing in the category they license. This means they will work hard to understand the essence of the brand and develop their licensed product in a way that captures that essence. In other words, the licensed products should connect with the consumer both functionally and emotionally.

If the licensee does this, the products they develop will normally be approved without delay or difficulty. To achieve this takes time and money. So while both parties want to sell products in the marketplace as soon as possible, the licensor will expect the licensee to start with building the brand into the product first.

The licensor will also expect the licensee to be familiar with the contract and to meet the obligations of the contract. That is why it is important for the licensee to ensure all employees in the licensee’s organization working on the license are familiar with its contractual obligations. For example, when a product becomes approved, the licensor will expect the licensee to commercialize the licensed product as soon as possible in each of the authorized channels.

Finally, the licensor will expect the licensee to meet or exceed the projected sales targets for the category as outlined in the contract. When all of these things happen, the result can be the development of award winning products that meet or exceed annual sales and royalty projections.

What should the licensee expect? Licensees, in turn, expect that the license they have acquired will provide them with substantial sales growth, and rightfully so. This sales growth may be in the form of growth within existing channels or the opportunity to enter a new channel or new market.

To accomplish this objective, licensees expect that the brand they PAGE NUMBER

• The brand they are licensing is as strong or stronger than they believe or have been told, that it will open doors and ultimately help them meet or exceed their business

• Moreover, licensees expect that the licensor or their agents will run a simple, straight forward licensing program that will not administratively tax their organization.

• Finally, they expect that the licensor will approach the licensing relationship with a win-win attitude that will allow them to move quickly to take advantage of opportunities that present

Because licensing contracts obligate the licensee to sales targets and royalties, the licensee’s goal will be to quickly achieve sales of licensed product to meet these requirements.

How do you know if your company is ready to benefit from licensing the world’s great brands? You know you are ready for licensing when you have:

• A business unit with a minimum of $50 million revenue.

• Best-in-class products that meet pent up consumer demand.

• Products sold into the channels and regions in which you intend to sell the licensed product.

• The capability of building the licensed brand’s essence into your products.

• The ability to invest a minimum of 3% of your net sales generated from the brand licensing program into marketing the product.

• An organization capable of following the requirements of the license, i.e. the

approval process, testing requirements, audits, royalty reporting and payments. PAGE NUMBER

From here, begin with a well thought out brand licensing strategy.

Step 41 Step 5 Step 6 Perform Due > Define Licensing > Negotiate Diligence Opportunit Contract

Step 7 Step 8 Conduct > Establish Orientation Business Plan

Figure 3: The Brand Licensing Process

Brand licensing can be very beneficial for both brands and licensees if done in a step- by-step manner. We have divided the brand licensing process into eight steps. This module will provide you with an overview of each of the steps. Later modules will look into each of them in greater detail.

The brand licensing process starts several months prior to the commercialization or

launch of the licensed product. Figure 4 below will give you a timeline of each of the PAGE NUMBER processes listed in Figure 3. Licensees and licensors should also keep in mind that missing crucial deadlines such as a line review can push the product launch out by up to a year.

Identify due define agree to where to play diligence opportunitylicensing deal terms prospect negotiate licensees how to win deal terms Determine

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Concept Development production & shipping signed contraact

starts with prototype approved po issued orientation samples line review commercialization

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Yr3 Figure 4: Product Commercialization Timeline STEP 1: Identify Where to Play As explained in the previous sections, we know that when consumers become delighted by a particular brand experience, they begin to bond emotionally with the brand. They become brand loyalists and advocates –buying the brand more often and recommending it to others. This behavior serves to build the brand’s reputation. Consumers will often purchase a brand for the first time because of its reputation. The brand, therefore, adds value and certainty to an otherwise unknown product.

The stronger a brand’s reputation, the higher the value of the brand and the greater revenue it will drive for its owner. Prospective licensees want to license brands with the strongest reputation, as these are the brands consumers demand and retailers prefer most. The stronger the brand, the higher likelihood retailers will buy the licensed products and that they will be subsequently purchased by consumers. Brand loyalists and advocates look to their preferred brands to deliver more and better products year after year. When this occurs, the brand gains permission to extend into categories that complement its original offering. This is known as brand extension.

For example, the Mr. Clean brand, owned by P&G, was launched in 1963 as the first PAGE NUMBER household liquid cleaner. Over time, the brand gained a strong reputation for its ability to clean effectively on a variety of surfaces. By delighting its consumers, Mr. Clean built significant brand loyalty and allegiance. When asked, consumers told the Mr. Clean brand team that they expected the Mr. Clean brand to offer additional products that simplified and enhanced the household cleaning experience. To satisfy these consumers, Mr. Clean developed a line of branded mops, brooms, and brushes.

Mr. Clean Products

These products were met with enthusiasm and eventually, consumers demanded even simpler and more effective ways to clean their homes. Today, the Mr. Clean brand can be found on an expansive list of products including scrubbing tub and shower pads, Magic Eraser cleaning pads, auto dry car wash systems, multi-surface disinfecting wipes, rubber gloves and many other products. Many of these Mr. Clean products are licensed. By owning a brand that can be extended into numerous categories, companies are able to attract and retain multiple prospective licensees. Using licensing to augment internal resources actually accelerates a company’s overall time to market.

How can you determine your brand’s extendibility and identify what product categories it can sell in? It takes understanding your brand’s vision, architecture and positioning

and the value that the brand provides. Kodak is a well-known company in the camera

business. What would be a natural extension for them from cameras? Let’s look at PAGE NUMBER their brand architecture first. The key emotional benefit of the brand is that it captures precious moments but the ‘something bigger’ the brand provides is immortality. With this in mind, the company decided to enter the photography paper market. In the diagram below, you will see how selling photography paper fits in so perfectly with the brand’s

Higher Order Brand Identity Immortality

Emotional Benefits Captures Precious Moments

Functional Benefits Long-Lasting Image

Product Attributes High Quality Paper

Figure 5: Kodak brand architecture

architecture and positioning. There are some brand extensions that have not done well, too. For example, Bic, a company that specializes in small disposable pocket items unsuccessfully ventured into perfumes.

Before brand owners extend their brands into categories in which they intend to license, they should conduct market research. This would include reviewing secondary research, holding focus groups, conducting interviews and performing field surveys to clearly understand what consumers believe about the brand and what their expectations are. Once this is obtained, brand owners will be able to identify suitable categories in which to extend. Each category should then be evaluated on the prominence of brand associations, favorability of associations inferred by the extension and uniqueness of association from the new category.

Once the list of possible extensions has been trimmed, brand owners should then conduct an industry and competitive analysis of the category. Specifically, research

includes the size of the market, current competitors, industry growth rate, and

competitive nature. This analysis will enable the brand owner to determine whether PAGE NUMBER it makes sense to even enter the category. Techniques to use include Strengths – Weaknesses – Opportunities – Threats (SWOT) analysis or a Porter’s Five Forces analysis. These methods are helpful in evaluating a business or a project from a strategic point of view. They involve specifying the objective of the venture and identifying the external and internal factors that are favorable or unfavorable to achieving that objective and to determining the attractiveness of the venture. Strengths Weaknesses • Advantages • Disadvantages • Capabilities • Gaps in capabilities • Resources, assets, people • Reputation • Marketing reach, • Financials distribution, awareness • Reliability • Innovation • Processes, systems • Geographical • Processes, systems Opportunities Threats • Market developments • Political • Industry trends • Legislative • Technological developments • Economic • Global influences • Technological • Tactics • Competitor intentions • Vital contracts • Financial backing

Figure 6: SWOT Analysis

Threat of New PAGE NUMBER Entrants • Barriers to entry • Economies of scale • Capital requirements • Switching costs • Government policies

Supplier Power Rivalry Buyer Power • Supplier concentration • Number of competitors • Number of buyers relative to • Product differentiation • Size of competitors sellers • Switching cost to another • Industry growth rate • Product differentiation input • Product differentiation • Switching cost to another • Threat of backward or • Exit barriers product forward integration • Buyers’ margins • Threat of backward or forward integration

Threat of Substitutes • Price of substitutes • Quality of substitutes • Switching cost to buyers

Figure 7: Porter’s Five Forces Analysis STEP 2: Determine How to Win Once the product category that satisfies the brand extension goals and creates positive associations for your brand has been identified, the next step is to determine how to go about executing the extension. Any marketing activity requires substantial resources and before a project is begun, the brand owner must determine whether the company has enough resources to complete the endeavor. There is nothing worse than starting a project and then having to terminate midway due to lack of resources.

So how should the brand owner determine the best way to go about entering the product category that has been selected? A first step would be to mobilize key departments within the organization to conduct their own due diligence.

When contemplating entering a new product category, the first step is to determine

whether the company has the competency to design, produce and market the product PAGE NUMBER with internal resources. When we refer to internal resources, we are referring to either the company’s manufacturing capability to produce the product, or its ability to source the product competitively from one of its third-party suppliers.

One way to accomplish this is to delegate the operations team to evaluate the competency of manufacturing or sourcing the product and the finance team to conduct a cost/benefit analysis of manufacturing versus sourcing the product. If the analysis confers with the ability to produce the product, the next step is to determine whether there is sufficient budget and capability to market the product. Are there adequate resources to invest in product development, advertising and promotional activities? Do relationships exist with distributors and retail channels through which the product will be sold? Is there sufficient presence in enough geographic locations to make the brand extension viable?

Even though it may be preferred to manufacture the product or source it and price it competitively to earn a healthy margin, the company may lack the resources or the capability to market the product effectively. This can affect the decision whether to manufacture the product internally.

If at the end of the analysis, it’s determined that the company has the capability to design, produce and market the product, it should go ahead and proceed with product development. However, if a company does not possess the capability to produce the product internally, it should look at the other options available.

One way to extend the brand into the new category is to acquire a manufacturer of the product to make it and then market it using your own resources. This option is often harder than it seems. For one thing, a company would need extra cash flow to fund such a transaction. Also, acquiring new businesses is a time-consuming proposition. First, potential target companies must be identified. Next, due diligence must be completed before negotiating on a price. Once acquired, the company must be integrated within the existing company structure. Because of the lengthy process, critical time can be lost in launching the product. Even if a company decides to go with this option and the timing fits, it still may not have the marketing budget or the capability to go forward.

Evaluate Eligible Solicitation Alignment PAGE NUMBER Sales & Product Product Marketing for of Categories Your Brand Category for Brand Team Ability Brand Fit

Ye s No

License Manufacture Acquire or or Source License

Licensing Process Acquire License

Licensing Issue Process License

Issue License

Figure 8: Different approaches to licensing

The other way to extend the brand externally is to license the brand to a manufacturer of the product in the same category. As mentioned in previous sections, there are several advantages to licensing a brand. To begin with, the manufacturer (or licensee) not only possesses the capability to manufacture the product but also to market it, having done so for unbranded items or lesser-known brands. They also possess the necessary relationships with distributors and retailers to make a success of the program. On the downside, the brand owner forgoes some control when they choose to license their brand. However, entering a new market via licensing has lower risk in terms of investment.

You may decide to enter a new product category via licensing as you evaluate your go- to-market strategies. Alternatively, your brand could be solicited by a manufacturer who believes his product would be a good fit for your brand. This would then start the process of the brand marketing team evaluating the product category of the manufacturer from a brand extendibility perspective. Refer to Figure 8 above to get an idea of how the process would flow.

STEP 3: Prospect Licensees PAGE NUMBER Once the product category that best fits the brand extension plans has been identified and brand licensing is determined to be the most beneficial way to achieve this extension, it is time to scout for prospective licensees within the selected product category.

Before short listing the licensees, it is important to put together a basic checklist of parameters in which to evaluate the licensees. These parameters, which we recommend be defined by the brand owner, may include the following:

• Size of the company

• Market share in the product category

• Current or previous licenses held by the company

• Financials

Once the checklist has been developed, the next step is to identify companies that manufacture the selected product category. These can be found easily with some research. The most common sources of information are trade directories, trade magazines, trade shows, and research companies like Hoovers, Dun and Bradstreet, Frost & Sullivan, and Vault Reports. Another way for the licensor to identify prospective licensees is to conduct primary research such as store walks. Once a comprehensive list of prospects is identified, these candidates should then be evaluated based on the parameters listed earlier. This will leave the licensor with a pool of qualified companies to investigate further.

To make a licensing agreement a success, both parties must be willing to commit equal time and resources. The best way of assessing their interest level is to ask them directly. This can be accomplished by calling them over the telephone or meeting them in person. Based on comprehensive interviews, the licensor would then shortlist the most qualified candidates with whom they desire to move further in the process.

STEP 4: Perform Due Diligence This is the stage when the brand owner begins rigorously qualifying the prospective licensees to determine whether they will progress to the next phase. This stage

involves conducting a comprehensive due diligence on the selected companies from a

business, financial, legal and risk management perspective. The more comprehensive PAGE NUMBER this is, the less likely the licensee will have unforeseen issues going forward.

A good first step in this process is to develop a Licensee Application that requests all of the information that is required from the licensee. The information from the application would substantiate whatever secondary research was garnered on the prospective licensee. A Licensee Application should typically include the following:

Legal Check: Is the company a legitimate legal entity? How long have they been in business? Where are they incorporated? Are they doing business under a different name? What is their structure? Are they a shell corporation or do they have actual employees, assets and liabilities? Have they been the subject of any major lawsuits in the last three to five years? If so, what was the nature of the charges and how did the company resolve them?

Financial check: To fully understand the financial strength of an organization it is important to obtain the prospective licensees’ financial statements going back at least three years. Financial statements help assure the licensor that the licensee has the resources to commit to the licensing program from the beginning to the end of the contract. Many prospective licensees are privately held companies. As such, they will be reluctant to share their financial statements. However, it is critical for a licensor to have this information. Therefore, this should be a non-negotiable item. Licensors should also conduct a credit check on all licensees. The credit check tells the licensor the timeliness and reliability of the prospective licensee to pay their bills. Given the systematic royalty payment requirements of the licensing contract, understanding the credit-worthiness of the prospective licensee is critical.

Business check: Is the company reputable in the selected product category? Do they possess any other brand licenses or have they had them in the past? If so, what do their current or previous licensors have to say about the way they manage their licensing programs? What is their reputation in the marketplace? What do their current customers have to say about their reliability and serviceability? How well managed is the company? How eager are they to get their license? How collaborative do they seem? What are their estimated sales forecasts for the selected product, as well as sales history, over the past three years?

Marketing check: What is the prospective licensee’s market share position in the selected product category? How long have they been selling the product? What is their rank by revenue, distribution, employees? Are they a market leader? What channels are

they present in? How have they been growing? What kind of product innovations have

they launched in the past? What are their strengths? How well do they understand the PAGE NUMBER marketplace and branding? How are they currently promoting their products?

Reference check: Reference checks are an important component of the due diligence process. Licensors should interview at least three buyers from among the retailers that the prospective licensee intends to sell. This helps the licensor understand quickly the quality of company from a delivery, manufacturing, service, marketing and sales perspective. In addition, licensors should interview up to three licensors if the prospective licensee holds other licenses. These interviews will enable the licensor to understand how effectively they can expect the candidate to execute a licensing program.

Quality and compliance check: Does the licensee own their own manufacturing or do they outsource it? If they source their product, how long have they been working with their manufacturers? Will they be able to meet the brand’s quality expectations? How have these manufacturers performed on previous audits? Do they or can they meet the social and environmental compliance standards of the brand?

STEP 5: Define Licensing Opportunity After completing the due diligence process, the licensor should normally be left with two to three qualified prospects. Now it’s time to assess the size and scope of the actual license agreement. This requires the licensor to work with the selected candidate licensees to fully understand their strengths and determine whether the licensing opportunity is viable or not.

Outstanding candidate licensees will immerse themselves in the licensor’s brand so that they can fully understand its positioning and architecture. From this, they should propose the look and feel of the products. They will incorporate the brand attributes into the design of their products. Licensees will pay particular attention to the placement of the logo on the product, the material from which it is constructed and how the logo is affixed to the product. A sharp licensee will request that the licensor provide them with the brand’s style-guide so they have the required information to do this.

Figure 9: LBI Business Estimator

Simultaneously, the licensor should request that the candidate licensees develop three-year sales projections so they can assess the scope of the license. This forecast should be a conservative estimate of the sales the licensee thinks they can achieve and is segmented by region, channel and Stock Keeping Units (SKUs). It also includes the number of new products the licensee thinks they will introduce each year.

The sales projections provided by each of the shortlisted licensees are compared with each other. The licensor then evaluates the proposals to assure they are viable, achievable and maximize the brand opportunity. For example, a prospective licensee who is number one in their category may only wish to dedicate a small portion of their business to the license, whereas the company number three in the category may be willing to convert all of their sales to the newly licensed brand. In this case the scope of the opportunity with company number three may be much bigger than company number one. Therefore, from a scope perspective the number three company may be preferred. However, it may be determined that converting the entire product from its current state to a brand state may not be achievable. Once the sales projections have been vetted, the licensor should use these to rank the candidates. The size of sales targets can then be used as a guide when negotiating the following quantifiable deal terms: minimum sales targets, guaranteed royalty minimums and cash advances. As

these deal terms are based on the forecasts developed by the licensees, they should not

only be fair, they should be robust and achievable. PAGE NUMBER

With this, the groundwork for the actual contract is prepared. The licensees and the licensors then go into the next step.

STEP 6: Negotiate Contract The basis of the licensing opportunity has been prepared by the conservative sales estimates in the previous step. It is now time to establish the core deal terms. These parameters define the structure of the contract, and define such parameters as the term of the contract, where the licensed products will be sold, what royalty rate will be paid and what trademarks will be used. Because the value of these terms will be unique to every licensing contract, they must be negotiated between the licensor and prospective licensee.

While each party inherently wants to arrive at the most favorable terms for their side, the best set of deal terms are those that allow both parties to achieve a successful long-term licensing program. Successful licensors keep the end in mind and practice win-win negotiating strategies. Similarly, smart licensees will have identified several choices of brands from which to acquire a license and will set limits on what deal terms they will accept, regardless of the brand. In these instances both parties can shake hands on a set of terms they know will allow them both to be successful.

These terms include rights to territories, channels, covered products and trademarks, work product, quality assurance standards, the licensing approval process, manufacturing facility approval, royalty rates, minimum guaranteed royalties and sales requirements. Understanding these terms and the commitments that will be made is crucial to an effective licensing contract negotiation and could save the licensee hundreds of thousands of dollars over the life of the agreement. As the deal terms are an integral part of the contract they should be understood by all relevant members of the licensee’s organization.

The deal terms are reviewed by both parties, revised if necessary, and once both sides are comfortable with the terms, they are incorporated into the licensing contract. Because licensing contracts must enable a licensor to protect their brand fully, they tend to be one-sided with significant provisions for termination. In most cases the standard contract provisions are not negotiable and as such, the licensing contract is finalized and signed soon after the deal terms are agreed upon.

STEP 7: Conduct Orientation PAGE NUMBER The signing of the contract marks the beginning of a relationship. It is important for the licensee to get familiar with the licensor and the licensing program as much as possible and it is the licensor’s responsibility to make sure they provide the licensee with all the information they need. Well-run licensing programs require a formal orientation session shortly after the contract is signed. The orientation provides an opportunity for key members from the licensor’s and licensee’s companies to meet and get to know each other. Attending from the licensor’s side should be members from the licensing group, the brand group, product development and sales. Members attending from the licensee’s side should include the general manager, product development, account management, sales and marketing. The licensor normally gives the licensee an overview of the brand architecture, brand positioning and category positioning. The licensor also takes the licensee through the product approvals process, timelines and key terms in the licensing agreement. The orientation session also includes a review of all testing and auditing protocols.

Normally, the licensor will deliver a brand licensing style guide to the licensee at orientation. The style guide helps direct the licensee on how to use the brand logo and style elements when creating products, packaging and marketing collateral. If the licensor does not have a brand licensing style guide, it is highly recommended that they develop one. In addition, the orientation session is used to walk the new licensee through the approval process. The licensee must be intimately familiar with the approval process if they wish to get their products approved quickly and efficiently.

Figure 11: Sample Approval Process

TO BE COMPLETED BY THE LICENSEE

DATE OF SUBMISSION: _____/_____/_____ LICENSEE NAME: CONTACT: LICENSEE PHONE: FAX: EMAIL: LICENSEE ADDRESS: PRODUCT NAME: STYLE/SKU: PRODUCT DESCRIPTION: SUGGESTED UNIT RETAIL: $ AVERAGE UNIT WHOLESALE: $ MATERIAL SUPPLIED: q PRODUCT q ADVERTISING q POP/POS q PACKAGING q OTHER TYPE OF SAMPLE: q CONCEPT q PROTOTYPE q PRODUCTION q CONTRACTUAL q OTHER HAS THIS SAMPLE BEEN SUBMITTED BEFORE: q YES q NO DATE OF PREVIOUS SUBMISSION: _____/_____/_____ PREVIOUS COMMENTS: _____/______/_____ DOES THE SAMPLE NEED TO BE RETURNED: q YES q NO BY DATE: _____/______/_____

TO BE COMPLETED BY LICENSOR/ BRAND

LICENSING, CREATIVE AND LEGAL COMMENTS:

q APPROVED q PROCEED WITH CHANGES q RESUBMIT WITH CHANGES q NOT APPROVED

DATE: _____/_____/_____ SIGNED BY:

Figure 10: Sample Submission Form

STEP 8: Establish Business Plan PAGE NUMBER Now that you’ve signed a contract and have made sure the licensee has a good understanding of the brand, it is important to give the licensee the right tools to be successful. Monitoring the licensee’s business and ensuring that they set achievable targets enables them to make the maximum use of the license.

The licensee should begin with developing a one-year business plan. The business plan should start with a firm understanding of the licensor’s brand and category positioning statements. Key targets taken from the licensing contract should also be cited in the business plan. These include:

• Minimum sales

• Minimum guarantees

• Royalty rate

The business plan should also contain a clear understanding of the product development/ commercialization timeline, the SKUs they plan to sell including any new products that they plan to develop, and the key retailers where the licensee plans to sell their licensed product over the next year. The sales plan should be built by month, by retailer, and if applicable, by region. Projected royalties should be calculated based on the sales projections and reviewed against minimum royalties to assess the robustness of the plan. On the next page is a snapshot of what such a plan should contain.

Dashboard Reviews: On a monthly basis the licensor will review the business estimate against the plan. Thus both the licensee and the licensor should track the actual sales and royalties versus those projected in the annual business plan. Subsequent monthly projections should be laid out with justifications for any increases or decreases relative to the business plan and the most recent estimate. The results of this will be used to maximize opportunities within the calendar year and to develop the business plan for the following year. Similarly, there is a quarterly and an annual review that compare the sales performance with the previous quarter (or year).

Audits: Each licensing agreement provides the licensor with the rights to audit its licensee. These audits include a review of the licensee’s financial and product development records, as well as social compliance audits of its approved factories. Social compliance audits are conducted whenever a new licensee or facility is made

part of a licensing program. In addition, business audits are performed routinely to

ensure the licensee is complying with the terms of the agreement. Typically audits are PAGE NUMBER conducted by approved third parties.

Any discrepancies found in a social compliance audit that can be harmful to the facility’s employees must be resolved before the facility can be used. Others may be resolved on an ongoing basis. Licensee business audits that turn up any inconsistencies are reviewed for the seriousness of the error. A discrepancy related to selling unapproved product or selling product in an unauthorized method can result in termination. In addition, there are significant penalties for sales of unapproved or unauthorized product. Royalties related to these sales typically are equal to the sales value themselves. Minor infractions are resolved by correcting the problem in a prudent and expeditious fashion.

Annual Business Plan Licensee Name Licensee #1 Year 2 Licensor Budget: 3,000,000 Submission Date: Year 2 Year 2 Licensee Budget: 350,000 PAGE NUMBER 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%

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%

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%

Figure 12: Annual Business Plan template

Sales & Royalty Summary Stretch

Year 1 Year 2 Comparison PAGE NUMBER 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%

Figure 12: Annual Business Plan template (continued)

Summary For most brand owners, Brand Licensing is an under-utilized method of entering a new product category. However, we hope that through this module we have been able to illustrate what Brand Licensing is and the numerous benefits that it has to offer both to licensors and licensees, as well as describe the entire brand licensing process as we have seen it work in the real business world.

Needless to say, the entire process is lengthy and time consuming, with efforts starting as early as 24 months before you can see product on the shelf. One must also keep in mind that the goal is not to achieve the license but to make a success of it and the activities that follow the signing of the contract. These processes, if executed well, on the one hand, can ensure huge success of the program. While on the other hand, if either the licensee or the licensor do not live up to their commitments, it can affect sales, and more importantly the reputation of the brand.

This module attempts to give you an overview of the Brand Licensing process. If you think this may help your manufacturing business achieve new heights, or help your brand expand into new categories, we encourage you to try out our other modules that talk about each process in greater detail, including determining product categories for brand extension, prospecting licensees, understanding deal terms and negotiating contracts, orientation and business planning.

35 Case Studies Of Brands That Successfully Entered New Categories With 35 case studies all in one place you’ll save hours of searching on Google. With analysis by brand licensing expert Pete Canalichio, you’ll get a better understanding of licensing strategies and the way brands in other industries have succeeded. Learn More

Is You’re Brand Ready To Stretch Into New Categories Use a proven scoring system to decide if your brand is ready to stretch, avoid catastrophic failures, know how to get your brand ready to expand and extend if it scores badly and build on your brand’s strengths if it scores well. Learn More

Breakthrough Licensing: A Disciplined Path To Profitable Brand Extensions Takes you through every stage of the process from identifying stretch-ready brands to implementing go-to-market strategies. Find out how to prospect licensees, perform due diligence, negotiate contracts, and more. Learn More