Much of today’s licensing business is based on what it was twenty years ago, although it has changed completely in terms of the required support, necessary implementation parameters and potential available partnerships.
It’s no longer the case that a brand name is simply put on a product and the respective producer thus boosts a sale. No, it is the case of strategic and holistic brand management.
First, it’s important to ask what goals are being pursued with the granting of a license? Both on the part of the licensor and the licensee! Because, depending on the prevailing objectives, the strategic orientation of a license is quite different – it can even be conflicting when it comes to (brand) objectives and sales/profit objectives.
Objectives on the part of the licensor are primarily:
- Brand protection
- Expansion / dissemination of the target group (customer acquisition)
- Stronger exploitation / protection of existing buyers (customer loyalty)
- Brand updating
- Proper in-store positioning
- PR effects
- Sales & profit etc.
The licensee pursues the following goals:
- Sales growth
- Interconnecting links with existing business, cost reductions
- Protection, crisis management
- Completion of the product range
- Highlighting the brand/products in a bespoke fashion
- New business fields
- Product initiation or start-up, etc.
Therefore, it is important to create clear prerequisites that both licensor and licensee define jointly in advance. This is because there is usually an ongoing dilemma between brand management and sales regarding the implementation requirements.
If the sales side views growth and sales – which could easily be increased by serving lower price ranges or other sales channels – brand management is based on brand positioning – i.e., managed as puristically and narrowly as possible, because this is the easiest and most transparent.
Eventually, only management can resolve these conflicts and maximize profits. It is about the distribution of the (fixed) costs of brand management as well as the long-term revenue generation.
CONCLUSION: License management must resolve such conflicts with confidence!
Accordingly, how licenses are operated is subject to quite different philosophies, ranging from tight to lose. As an important principle, every brand must follow the same approach in the licensing business as it does in its core business in terms of product competence, design / style & tonality, positioning (such as the reason why-what is the reason for the brand or product and which positioning will it take?), communication & key incentives, distribution channels and, of course, price positioning, i.e., price range.
Since the available distribution channels play a crucial factor in the positioning of the brand, one must insist on knowing the retail structures in depth. This is because building a brand takes considerable time and costs money. The more closely and strictly a brand philosophy is implemented, the higher the brand will be positioned. Brand management derives the necessary parameters from the different retail structures – qualified specialized trade (small-area) or multi-brand stores.
When does it have to be intensively managed?
When a consistent product design / styling or a uniform look is pursued. This applies to joint product presentation in the same area or when the product is to be combinable. Here, one pursues the strict quality requirement principle!
What characterizes tight or loose license management?
It’s often readily apparent how an organization manages it licensing. The more important and tightly knit the brand is seen, the more likely it is that investments will be made in the number of license managers and the involvement of the licensor’s specialty departments.
In product development, it often happens that design specifications are made or developed within. The marketing specification may be standard, as is the use of funds, and with sales it is usually necessary to obtain approval for distribution, as in the dual sales system for mono-label stores of the brand.
In this regard, a licensor also participates in budget and action planning and adheres to clear monthly reporting. Quality controls underpin the “attitude” and perception of a brand and must be stringently enforced. The less a brand is seen, the more relaxed the attitude will be towards license management and coordination.
Integrated license management – the ideal starting point
No other lifestyle brand understands this business better than Ralph Lauren (PRL). Over the decades, the company not only developed and built-up the brand with aplomb, but it manages to sustain core brands that strongly embody the company spirit.
These qualities are managed closely and are clearly defined in the licensing business. Adherence to the following by the company bolsters it success:
- The licensor takes over the complete marketing for all product segments. For this, the licensees pay a marketing fee, which is appropriately positioned and targeted through higher resources on the part of PRL;
- PRL is deeply involved in the product design of the licensee. Separate design contracts apply in certain cases, which are remunerated separately (design royalty) and supplies all designs such as copyrights, thereby also becoming or remaining the owner;
- Segments such as Home & Living are handled by PRL on its own as far as sales and distribution are concerned. Here, the licensee is only responsible for production, storage and delivery;
- 55% of the license income is reinvested (including design and advertising fees), which means that there is still a considerable return on license sales with a low capital investment.
Entrepreneurial independence of the licensees is thus reduced to a considerable extent and close management is retained.
This trend has increased in the industry, especially in the high-end lifestyle sector, and is increasingly leading to licensees becoming so dependent that, once they reach a certain size, they consider taking over production.
Meanwhile, this applies to the entire product value chain and noble houses “vie” for the choice production sites. The possibilities of consolidated systems, controlled frameworks and other key concerns promote this and allow for the ideal allocation of profit and control.