Handled well, brand licensing can be a win-win situation for both licensee (the company using a brand to enhance its product) and licensor (the brand owner). It can be a great way to raise a product’s profile and achieve commercial success by tapping into people’s awareness of the licensed brand, giving a product access to a specific target market. From the licensor’s perspective, not only can money be made from the act of licensing, but it can also be a good way of easing the brand name into categories and markets that are commercially attractive but perhaps have a high cost of entry – as “brand Virgin” has.
“Virgin is a master of this, leveraging its brand into a whole host of categories,” says Karen Connell of management consultancy Commercial Advantage. “Many of these categories, some would argue, are rather disparate and not truly aligned to a clear brand strategy. Nonetheless, Virgin is still a very much sought-after brand by budding entrepreneurs and businesses wishing to trade on what they might perceive as a magic formula.”
However, the fact that some of these licensing projects haven’t been too successful – Virgin Cola for instance – is proof that this marketing tool is no panacea.
“Brand licensing is all about promoting a product’s appeal, but it is not a miracle cure or short cut to success,” Connell continues. “The commercial ambition needs to be clear and realistic. Brand licensing costs money and businesses need to understand what they need in return – if it’s a miracle, then they might be better spending their money on improving organisation capability or product development rather than embarking on a programme that requires diligence, commercial savvy and control. Using a brand’s name or logo will not mask poor product delivery, service or marketing. Brand owners will not appreciate their brand being associated with customer complaints, watchdog reports or unflattering suggestions of proprietary.”
Creating conflict with a brand owner in this way can prove disastrous to any brand licensing campaign. Consequently, keeping the licensor happy should be a priority for any prospective licensee. It is essential to explore all the ways in which a licensed property may and may not be used in a promotion before finalising any agreement. Finding out too late that a licensed property cannot be used in the way required as part of a marketing strategy could be a costly mistake.
“Leave plenty of time to research the opportunities available and ensure that all dos and don’ts are agreed in writing so that there can be no surprises for either party further down the line,” recommends David Pearson, director at Filmology, which creates marketing campaigns linked to the film industry.
“Keep an open line of communication with the licensor throughout all stages of development,” he advises. “This means being in close contact from when the concept is still in its preliminary draft stages. Remember that licensors know their license inside out and will have valuable input on how their icon or character does or doesn’t work. Involving them in the creative process can result in some excellent ideas that can really enhance the overall project.”
Pearson also stresses that licensors love to hear about new approaches to how the brand they own can be licensed. “They are usually willing to be flexible,” he says. “Approaching them with original and innovative ideas that are relevant and appropriate to the license can help create an exciting and effective campaign for everyone concerned.”
Sian Croxon, partner at law firm DLA Piper, agrees, insisting that working closely with the licensor is vital to achieving clarity of purpose and certainty of success.
“The terms of any brand licence should be sufficiently clear,” she advises. “Problems arise when the parties are uncertain about the precise terms of any arrangement or too much is left open to interpretation. For example, the scope of the licence must be defined with as much precision as possible, including how the brand must appear, in which media, for how long, and in which territory. Any ambiguity regarding the use of the brand can result in a potential conflict between the brand owner and a licensee.”
The repercussions of such a conflict can hit both sides, affecting the product and, in some cases, the brand being licensed.
“If it all goes wrong, the most obvious consequence is the breakdown of the relationship between the parties along with the likelihood of financial damage,” says Croxon. “Licensing disagreements can cost more than money. There could also be a significant and often long-term reputational cost. Any misuse of the brand can serve to dilute – or even destroy – its overall image.”
No product, no campaign
The most severe repercussion stemming from a disagreement would be the licensee being forced to withdraw its products from sale. However, more likely is some form of compensation or withdrawal of license. But if licensed products that contravene a licensing agreement do make it onto retailers’ shelves, ultimately it is the licensee’s responsibility to recall them as soon as possible.
“The Olympics provided many opportunities for the misuse of brand licences,” explains Commercial Advantage’s Connell. “Many manufacturers with sponsorship agreements with Olympic athletes were using their property in conjunction with the Olympic rings, for which they did not have an agreement in place to use. Some might say this mistake was innocent, but the Olympic Committee was kept busy handing out severe legal letters, and brand managers were spending a lot of their time running back to their printers looking for new labels and draining their marketing budgets funding packaging write-offs.”
Sometimes the action of the licensee can be viewed by the © licensor as so serious, threatening the stability of the brand itself, that it could deem it necessary to take legal action.
“Then the licensee companies are left with not only no promotion, but also poor publicity and a potentially expensive legal case,” says Filmology’s Pearson.
However, this can be avoided by laying down a carefully structured licensing agreement at the outset. The last thing a licensee or licensor wants is conflict, but even if everything is done to avoid this through good communication of both brand values and the proposed promotional activity by both parties, unforeseen factors can still crop up that threaten the agreement. Consequently, it is vital to acknowledge this by providing some form of protection when the contract is drawn up.
Leave the party satisfied
“It’s essential to outline both parties’ obligations under the contract to provide each with the confidence and certainty that if something does go wrong it can be dealt with to the satisfaction of everyone involved,” says DLA Piper’s Croxon. “Often a party is provided with an opportunity to remedy a ‘lower level’ breach of the licence agreement within, say, a limited time period, and if so, this should be made clear in the contract. “
“There are agencies and legal firms that specialise in offering objective advice on brand licensing,” says Connell. And given the financial and reputational risk at stake to both licensee and licensor, both parties would be well advised to seek expert help early on in the process, especially if approaching brand licensing for the first time.
Whatever approach is taken, what is certain is that brand owners and licensees must clearly understand their respective responsibilities and that, for the benefit of all concerned, every effort must be made to ensure that there is a clear way out of the relationship without damaging the licencee company or the brand itself.
Brand Licensing Europe
Brand Licensing Europe is the only pan-European event dedicated to licensing and brand extension. About 180 exhibitors and more than 4,000 visitors will congregate from October 2 to October 3rd at Grand Hall, Olympia, London
This year’s show includes:
The Licensing Academy: a free to attend, high-level, ten-session seminar programme.
The Screening: a fully working cinema where major films present licensing opportunities for forthcoming movies. By invitation only.
The Art, Design and Image Licensing Zone: an extension to the previously named Art and Design Zone – presenting latest design trends.
Advice Centre: consultations are available with professionals from a wide range of services including IP lawyers, accountants and design agencies.
For more information visit: www.brandlicensingeurope.com