Brand Licensing101 The Basics Every Licensor Should Know 2 PAGE NUMBER PAGE 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 Copyright ©2019. Pete Canalichio. All Rights Reserved. 3 PAGE NUMBER PAGE 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 Copyright ©2019. Pete Canalichio. All Rights Reserved. 4 their products easier to use. In addition, Tricam maintained excellent customer service. Based on research, Rubbermaid learned that kitchen step ladders and garden dump NUMBER PAGE 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 Copyright ©2019. Pete Canalichio. All Rights Reserved. 5 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. NUMBER PAGE 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.’ Copyright ©2019. Pete Canalichio. All Rights Reserved. 6 PAGE NUMBER PAGE 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, Copyright ©2019. Pete Canalichio. All Rights Reserved. 7 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 NUMBER PAGE 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 Copyright ©2019. Pete Canalichio. All Rights Reserved. 8 Brand Loyalty PAGE NUMBER PAGE 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.