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Have you heard of Harley Davidson’s cake decorating kits, Heineken shoes, or Zippo perfumes? No? Believe it or not, these are actual products (some of them are still for sale), and some of the worst brand extensions that have ever hit the shelves. Brand licensing, when done wrong, can cause unnatural, and just plain wrong mixes of brands and products. (Colgate frozen entrees, anyone?)But, when done right, brand licensing can be a great way to increase your revenue, expand your brand and your company, without having to invest in developing, manufacturing, advertising, and distributing new product lines, which maybe isn’t the best use of your resources. Take Bugatti, for example, and its recent partnership with yacht builder company Palmer Johnson. They have recently released the “Niniette,” a $2.2 million yacht, with personalization options such as gilded bathroom fixtures or diamond-crusted steering wheel. What Bugatti has done right is licensing the brand to a product that reflects its opulence and exclusiveness —luxury yachts–even though their main business is not making boats. So, while Bugatti is busy getting ready to release the new Chiron later this year, someone else is making inroads into the yacht market for them, launching the Bugatti of the sea. The genius in this strategic brand licensing agreement is that it allows Bugatti to continue focusing on what they do best, namely engineering luxury performance cars while, at the same time, expanding their brand and increasing revenue. Kind of like making money while you sleep. What is not smart about that?
What is brand licensing?
Brand licensing is the process by which the owner of a brand (the “licensor”) gives permission to an individual or company (the “licensee”) to use their brand as part of a product or service, in exchange for a specified portion of royalties, during a set period of time, and within a pre-established territory. All of these aspects are clearly stated in a brand licensing agreement, outlined below.
What are the benefits of brand licensing?
There are several benefits to both parties involved in a brand licensing agreement:
Benefits for the licensor:
- It increases brand loyalty, as consumers are more likely to choose a specific brand, the more they buy it. This reduces future promotion efforts and expense of future sales.
- It allows companies to develop their main product to its full potential and provide consumers with complementary products that facilitate a more meaningful and complete experience.
- It reinforces the idea of reliability, quality and price level of the brand, when the licensed products are manufactured to the same standards.
- It provides a steady stream of royalty revenue.
Benefits for the licensee:
- It positively associates the new product with the reputation and good image of the brand, which adds value to the product.
- The brand gives the new product an edge over its competitors, facilitating marketing and making it more effective.
- The brand will be easily recognized, which resulting in product awareness, and ultimately, more sales.
Tips for good branding licensing
One of the most important steps towards brand licensing is to protect your intellectual property from the beginning of your business. Don’t put yourself in a vulnerable position. Contact a specialized attorney to trademark your brand and register your copyrights, first and foremost. Then, develop your brand and start looking for licensing opportunities that can help you grow and benefit from your licensee, while providing value as a licensor as well.
As the licensor, you must be very clear about the terms of use of your branding and imaging. These aspects should be stated in your licensing agreement, but most importantly, you need to have deep knowledge of your brand in all its aspects, and have clear, defined goals for the alliance you are about to start.
It is of utmost importance that licensees make every effort to analyze and understand the brand and its consumers. By doing so, the resulting product will be a true reflection of the brand, and not a random object with branding plastered over it. Licensees must produce a high-quality product or service, with standards and style comparable to the internal product, and that can be easily associated with the brand.
Finally, both parties should approach this agreement with a winning and collaborative attitude. Part of the reason why odd products such as Vespa perfumes or Paula Deen’s furniture hit the market is that the brand is so well-known. But in the long run, these disconnected licensing agreements may damage or dilute the brand image. At the same time, licensees shouldn’t look to take advantage of the brand, but rather work hard to give back the prestige and awareness that the brand will give to their products.
Brand licensing can be a great expansion option for a recognized brand. By combining forces, the brand owner and its licensee can reach an entirely different market, and increase their profits, something that could be extremely hard and costly to do on their own. It may be worth considering it, don’t you think?
