Some companies are very successful in licensing, some are not. In general, very little is known about reasons, measures, and pitfalls. We developed 23 basic rules that help you to better manage your license business. We have structured them into four different areas. These rules have proven to be generally valid and applicable under any circumstances. Use them as a checklist to see if there is room for improvement in your licensing activities.
No licensing without a strong and attractive brand.
There are five major prerequisites for successful brand licensing.
- The core of the brand must contain elements that can be transferred as well as create value on products in other categories. Brands with core values, which are closely linked to one distinct product or technology, are hard to transfer.
- The brand must be successful from the consumers’ perspective.
This means that the brand offers a solution which is up-to-date and superior to other brands, and the brand is growing. In some cases, brands on decline can be transferred, but this is much more difficult (i.e., retro brands).
- The brand must have a high awareness in its target group. You must consider that a good portion of your brand buyers will not follow your proposition in the new category. So, you need a considerable number of people who know the brand already but didn’t buy the existing products so far. Brand awareness should reach an estimated amount of at least 25% of total population and 50-60% in the target group.
- The brand must be successful from the brand owner’s perspective.
This means that the brand is profitable enough to bear attractive marketing and branding budgets in the long run. Don’t try to collect a royalty rate of 7% if your own business earns only 2%. Your brand premium won’t be attractive enough.
- Successful trademark registration in the new categories is a must have.
And registration with an international scope takes more time than you would ever expect.
With your decision to license out, you rely heavily on the skills and engagement of your license partner. Even if you own the strongest brand in the world – it is just as good as your license partner. The ideal license partner simply does not exist – only the most suitable at a certain point of time. But there are (of course) some basic requirements. It is helpful to develop a kind of profile.
- Don’t give the license to a company that is on the decline, because its existing products or brands are out-of-date. Look at success stories and growth in the past three years – relative to industry performance. Important note: look at specific innovations or novelties that your partner invented in the past.
- Make sure that the existing business of your license partner is profitable, and that he has enough reserves to finance the investment requirements for the launch of the licensed products.
- Never forget that you can grant the license only once, as an exclusive license. So, it is vital to know the strategic interest of your license partner. Does the license enhance his existing business? What would he do without the license? Does he have many more equivalent or even better opportunities to invest in? Make sure that his interest is and will stay as high as possible.
- For instance, shoemakers are quite different from fashion makers, because the products have special historic roots, technologies, and symbolism. That’s why successful license partnerships need company cultures which are similar to each other. In the long run, collaboration will be difficult and tiring, if the conflicts in thinking, planning, deciding, and working are too serious. Try to match to a maximum criteria like ownership and management structures, brand and marketing philosophy, stage and size of the companies, organization structure and decision-making processes.
In the end, it is the product(s) that generate success: turnover, visibility, brand value or innovation.
Your license partner is – or should be – expert in these products. But you should at least make the demands on him.
- Always try to stay one step ahead – also in the licensed categories.
Read magazines, attend trade fairs, visit shops, talk to retailers and buyers, and analyze trends. This is the only way to match your brand with product innovations in the licensed category.
- Do not leave product development to your license partner alone.
It is your job to define USP(s), benefit, price, quality, and design of the licensed products. So, give your license partner a considerable amount of input in product development. Not only in the beginning of your partnership – ongoing and continuously.
- Many licensed products are just imitations or standard catalogue merchandise with another label. Don’t accept that. Strive for leadership and make your licensed products unique in their category. Give them a specific benefit and look so that they are superior to their competitors. Distinction and superiority are key.
- Don’t be mainstream with your licensed products. Try to be as trendy as
in your core product category. Organize creativity circles with your partners, insist on innovations. Once there are innovations, leave the benefits and property rights to the inventor which in most cases is your license partner.
- Product designs and aesthetics are crucial for the brand identity, in particular within lifestyle segments. But styles can vary substantially in different product categories. It is important to find matching styles over any category and
to transport novelties (i.e. colors, materials, shapes, forms) as quickly as possible from the trend setting category to all the others.
Administrative and organizational factors
Licensing is not a part-time job, nor for the managing director neither for the communication director. If you take your licensing activities seriously, you must devote capital and people to it. These people will have to organize, control, and coordinate all the activities of the licensees. This is a demanding, challenging and one of the most essential tasks.
- Reinvest +/- one third of your revenues from licensing in your licensing office. Use the remaining two thirds for your shareholders or for investment in your brand, but preferably not to cover losses in your core business. Your licensees wouldn’t accept that.
- Assign senior people with diplomatic personalities. Keep in mind that you are not entitled to instruct your licensees as their boss or executive shareholder. You can only guide them based on the license contract and well-worked arguments.
- Assign different skills to your licensing activities, including product management, design, communication, controlling and sales.
- Install a detailed and timely reporting system and controlling procedures, including target setting and benchmarking.
- Manage your licensing office as an integral part of your organization, near product management, marketing, and design. Don’t let them take on a life of their own. Keep the leash short, if needed.
- Push your licensing office to travel and to visit your license partners and important fairs. They must be out of office 50% of their time.
- Work out business plans together with each of your license partners once a year. Discuss and review such plans on a regular basis.
- Do not only expect plans and reports from your partners. Consider your own reporting towards your licensees as natural and equally important.
Organize common activities like pool meetings, joint advertising, joint trade fair participation, joint promotions etc., and make every partner not only feel like but be a valuable part of the whole program.