International Licensing - State of Affairs

Branding was once thought to be an interesting growth strategy for developing new products and establishing a foothold in the marketplace. Today it is considered absolutely critical— not only for top brands, but also for retailers, manufacturers and licensees.

According to licensing industry reports, after a down year in 2001, the licensing industry rebounded strongly in 2002, posting a $225 million increase in U.S. revenues. Manufacturers paid more than $5.8 billion in royalties for licensed products. In 2003 licensed products generated retail sales of $71.4 billion in the U.S. and Canada. The largest and fastest-growing segment of the industry is corporate brands and trademarks, which produced 25% of that $71.4 billion.

Brand licensing supports new products in a wide array of categories such as food and beverage products, apparel, accessories, house wares and publishing among others. And while the aforementioned figure serves as testament to US dominance,  the evolution of markets in China and South America suggest this  bias could be addressed in forthcoming years.

As acknowledged by a myriad of properties in market places throughout the globe, there are numerous global commonalities and conflicts. Some brands use licensing to develop as many consumer products as possible; others use it to develop the most unique consumer products as possible.

Brand licensing has become a strategy for retailers to gain even more power and control in the sales of consumer products. Examples of retailer licensed brands can be found in a growing number of categories: Wal-Mart's GE-branded housewares; Target's Phillips small appliances; and Home Depot's Scott's outdoor power equipment. K-Mart also had tremendous success last year selling over $1 billion of Martha Stewart home products.

Among US based consumer product brands there is every conceivable approach to licensing - from "merchandise-based"  or "equity-based" approaches to licensing. These two key approaches are adopted widely on a local scale, serving as an important first step in developing a successful licensing program.

The licensing programs of Coke and M&M's exemplify the local climate of merchandise-based approaches. Coke offers licensees different "looks" to use each season, looks that relate only indirectly to its own products and advertising. Similarly, M&M's will allow its candy characters to appear in almost any position and attitude to fit the distribution or usage of a licensed product.

Exploring the concept of global brand licensing, recent research by specialist AC Nielsen observed over 200 consumer packaged goods (CPG) brands from more than 50 global manufacturers.  The research initiated a new category, deemed the global mega brand franchise.

The key finding of the ACNeilsen report in the context of licensing  was that by licensing a brand name to manufacturers outside of the corporate expertise, manufacturers are able to use the expertise of others to extend their brand name into alternative product categories (e.g., Sunkist).

According to ACNeilsen boundaries, In order to be a mega brand franchise, a brand had to have products that were marketed under the same brand name in at least three different categories (based on ACNielsen’s category definitions). The brand also had to meet the brand franchise criteria in at least three of the five geographical regions. In addition, the brand had to be sold in at least 15 of the 50 countries studied.

One key finding of the study is that there are more global mega brand franchises in Personal Care than in Food, Beverages & Confectionery. Over 50 percent of the 62 global mega brand franchises were found within the Personal Care & Cosmetics categories…32 brands from 12 manufacturers.

Food, Beverages & Confectionery manufacturers ranked second, with 23 of the 62 brand franchises. Seventeen manufacturers marketed these 23 brands. Interestingly, 15 of the 23 brand franchises on the list were based on some derivative of the manufacturer’s current corporate name.

Meanwhile, within north American spheres, the recent Licensing 2004 International trade show, hosted in NYC showed a surprising lack of video game licenses, yet Japanese influences were everywhere. Among all the various trends, toys and t-shirts, four major themes dominated among the hottest new licenses:

Active preschoolers; the attention given to the childhood obesity epidemic in the US has paved the way for a slew of preschool properties dedicated to getting the little ones off the couch. Properties include Nick Jr.’s Lazy Town, Discovery’s Hi-5, and PBS’s Boobah (Boobah TC).

Retro revival: Gen X and Gen Y classics, such as Strawberry Shortcake, Transformers, Cabbage Patch Kids, Weebles, and My Little Pony had major presences. Mattel debuted a Barbie-branded clothing line for women. And thanks to an appearance on The O.C., Care Bears are hot once again.

Movie merchandise: licensed film merchandise dominated the show this year. Expected biggies include Peter Jackson’s King Kong remake, The Pink Panther, Fantastic Four, Curious George, Lemony Snicket’s A Series of Unfortunate Events, and Batman Begins.

Tween scene: We’ve already seen the success of lines from Mary Kate and Ashley Olsen and Hilary Duff, and the "tween lifestyle brand" category is expanding even more. Nickelodeon’s everGirl (everGirl TC) debuted here, as did Trollz, a new lifestyle and entertainment brand based on the popular fuzzy-haired creatures.

According to Kirk Martensen, President of Goldmarks Company, a Chicago-based consultancy that specializes in brand extension, licensing represents a favorable option for companies seeking to acquire strong brands  as it is the lower risk option and an alternative to high purchase prices.

“Consider two recent brand acquisitions: Salton, Inc.'s $137 million purchase of the George Foreman name and Disney Co.'s $350 million outlay for rights to Winnie the Pooh characters. Companies that can't afford to invest or risk that kind of capital often use licensing to secure the exclusive rights to a brand,” says Martensen.

Martensen believes major retailers are using brand licensing to invigorate mature products. “As retailers secure the rights to powerful brands and extend them into new products, it is a major shift in leverage and serious threat to the existing brands in those categories,” he says.

The key to success for brand licensors says Martensen is to be cautious and extend the brand only into product categories where the brand has relevance and appeal to consumers. “Retailers need to work closely with licensors and licensees to ensure that new brand extension products are consistent in product quality-value, packaging-communications, and wherever possible, features-benefits. Licensors must also weigh the pros and cons of entering into retail licenses, and carefully analyze the dynamics and trends of new product categories since these decisions can have a major impact on their core business.”

”Not surprisingly, brands are playing an increasingly important role in the trademark licensing business. Going forward, brand licensing should become even more prevalent as a strategy used by manufacturers and retailers. The market leverage and power will continue to reside in brand owners; the question is, will it be manufacturers or retailers that own the brands of the future?” Martensen said.

Asked by License Magazine about the current retail climate Jordan Sollitto Executive Vice President, Worldwide Marketing for Warner Bros underscored the competitive nature of the marketplace. “It is astoundingly competitive, both internationally and nationally. Nowadays we are far more mindful of the significance of our retailers and their baring on the marketplace.

Asked about the differences between entertainment brands and specific properties, Sollitto says Entertainment properties such as Warners derive their essence from the TV shows or movies that are produced under their banner, whereas brands create their own reason for being, taking cues from the media and society at large.

“They create their own stance and their own point of view. Entertainment properties can on the other hand cross over this barrier and become their own self sustaining brands,” Sollitto adds.

Adding her differentiation, Ashley A. Lee  Coordinator, Marketing and Business Development  for The Beanstalk Group says Entertainment licensing is directly inspired by the characters and themes of the property, while brand licensing is inspired by a brand's equities and the unique positioning it enjoys in the minds of consumers.”

“A brand can stand for a lifestyle or function as a seal of approval.  Successful brand licensing must tap into the brand's unique point of difference and translate it into high quality products in strategic categories that are close to the core of the brand. For a brand to be licensable, it must be well-known and widely used by the public,” Lee said.