Licensing Essentials

Most brand managers around the world think of licensing mainly as a source of revenue that their brand can deliver by leveraging its hard earned brand equity. More and more companies today realise that their most valuable asset is the brand and not their technology or other tangible assets. A strong brand commands loyalty, emotions, preference and associative powers which is hard to duplicate by the competition. The brand is the single USP for many products today. Also, in the much cluttered marketplace, where it is very expensive and time consuming to get brand recognition and brand affinity; many companies choose brand extension licensing to launch new products by leveraging the power of the existing strong brand and shout out through the clutter.

This is when the most relevant question arises – when to license the brand?  When and how do we know that the brand is ripe for licensing, and if licensing then in which categories?

We go back to our texts to find some relevance and we find a model developed by David Aaker.

It is important to ask three questions while identifying the route for an apt brand extension.

• What is your organisation’s core competency?
• How is the brand relevant to your target audience?
• What is the market opportunity?

Question one is to understand the organisation’s core competency, whether it is manufacturing a particular product or product line, distribution, brand building, etc. Then go on to question two and understand what the target audience thinks of your brand; brand association; does the TG aspire for this brand; etc. To understand this question a formal consumer research is recommended.  Question three involves understanding the market opportunity through sector research and often involves analysing the growth rates, existing players, competition mapping, challenges faced, etc. Once we have these answers, it is easy to map them on the above model and identify the way forward. When the brand has relevance to the consumers in areas that don’t fall directly under organisational competence but the market opportunity still exists, choose licensing to launch the new brand extension. And, whenever it is identified that the brand has relevance with the TG and market opportunity exists to manufacture a product that falls under the core competency of the organisation, choose to develop the brand extension internally.

An apt example will be HLL’s brand ‘Axe’. Axe as a brand is very popular with the youth and the young at heart, and has very strong brand affinity. HLL’s core competencies are to manufacture fast moving consumer goods and build a strong brand to support and maintain the sale through. Its distribution is wide and strong. And there is no edgy smart brand of soap with good and varied fragrance for youth in the market. Now, if Axe desires to launch Axe soap for example, it’s apt for them to launch it themselves by developing another brand extension. However, if ‘Axe’ chooses to launch a line of sunglasses, ‘Axe’ must be licensed in this category to another company/licensee. ‘Axe’ sunglasses will also be relevant to the TG and the licensee will be able to manage the business well as this will be his core competency.

Category due diligence

It is important to identify and evaluate viable product concepts before launching the brand extension in a particular category. The due diligence process gathers and analyses the information on the industry dynamics and competitive environment of the target product category. Some parameters are listed below.

• Industry size
• Growth rate
• Target audience: consumer and trade
• Category key drivers: seasonality and profit margins
• Competition and market shares
• Potential licensees
• Distribution channels
• Marketing / Promotional expenditure
• Brand loyalty: repeat purchasers, price premiums
• Brand awareness: recognition, recall and knowledge
• Product features & USPs
• Brand fit
• Health / Safety standards

However, it is also important to launch brand extension in a category that is smart on associations, interesting, fun and sometimes even a little tongue in cheek. It is important to ensure that the licensed merchandise launched does not look like merchandise which consumers expect to get for free for just being a loyal customer. Consumers should be able to recognise that the brand is reaching out in an unusual way.

Licensee due diligence

While launching brand extensions, it is also important to launch the brand for the right categories and products. If the license is extended to a category which does not fit the brand values of the core brand then the product is bound to fail. And if this happens, it will hurt the mother brand and bring down the brand equity drastically. Similarly, signing on with right partners is also equally important. A wrong partner who cannot do justice to the brand either at retail or design or manufacturing, for example, can also hurt the perception of a particular brand. And both these factors can make or break the licensing programme of any brand.

Another thing to keep in mind while launching brand extensions in the new market is visibility at retail. The partners you tie up with need to give the required visibility to the brand at retail through dedicated space and build buzz among consumers and trade by doing ATL (Above the Line) and BTL (Below the Line) marketing strategies.

It’s critical to ensure success of a licensing programme at the time of launching the first few product categories. If anything is amiss it will not only hurt the brand equity but also very difficult to take the licensing programme off the ground. 

Hence, we can say that once it is established that  licensing is the way forward to pursue a particular brand extension, it is essential to carry out apt category and licensee due diligence to ensure a successful licensing programme.