How to drive purpose and profit through strategic brand licensing – exclusive best practice insights
Updated: Dec 13, 2021
(Originally Published in the World Trademark Review)
By: Ciarán Coyle, President and COO, LMCA
Lack of familiarity with the licensing business model means that companies too often underuse their licensing programmes
Successful licensing is not just about the bottom line – alignment with the business is key
Electrolux’s transformation into an ambitious champion of sustainability shows change has been driven by the brand and how it is licensed
For as long as trademarks have existed (with the earliest trademark law passed in England in 1266), their primary purpose has been to stop others from using identical or similar signs. Likewise, trademark or brand licensing was originally another way for brand owners to prevent others from directly imitating what they do.
So what changed that lead trademark owners to consider monetising their brands – that is, letting others use their marks for profit? The answer, put simply, is the convergence of three forces:
the development of a brand licensing business model that could result in a high-margin, low-risk revenue stream for trademark owners;
the opportunity for brands to become more ubiquitous – and therefore more famous – through partnerships with category experts (ie, licensees) across multiple channels and territories; and
the need for trademark owners to protect their brands more widely across numerous classes and territories.
As this business model developed, so did rigour and expertise around the discipline. Early licensing examples were more an extension of merchandise product lines from the entertainment sphere – putting a logo on an existing product such as a t-shirt, backpack or cap – than a unique offering reflecting the equity of the brand. However, brand licensing programmes, at their best, are now strategic tools to promote the brand, protect trademarks and drive profitable revenue in a way that is both relevant and engaging for consumers.
Brand licensing programmes in silos
Corporate licensors too often treat the brand licensing programme as a kind of orphan child of the main business. This is because few in upper management are familiar with the brand licensing business model, even though it usually brings with it much higher margins than the core business.
Where awareness of the model does exist, it frequently triggers two different reactions in senior management – but lead to the same conclusion:
The margins are too good to be true. Something must be wrong with how our brand is being used. Let us keep it siloed until we feel more comfortable.
The margins are marvellous, but let us keep this business separate from the rest of our activities because it is ‘different’.
The lack of integration with the main business and, therefore, the lower priority given to brand licensing in many large corporates often leads to an opaque decision-making process and further reluctance by senior management to risk the brand with anything close to core – that is, those products and services that might be the most meaningful and relevant to the consumer.
Of course, some consumer brands, such as Westinghouse and Blaupunkt, are entirely licensed. The decision-making processes should be more straightforward in these cases – there is no core business to harm – but there will still be the necessary protection of the brand equity and the need to have a clear strategy for licensing.
Getting alignment and buy-in
To break out of the silo and make brand licensing an integral part of any brand’s day-to-day business, corporates need to overcome several hurdles and put in place the following structures/processes:
alignment with the key objectives of the brand and the business;
alignment with the company vision or purpose;
efficient and effective decision-making processes;
quality, responsible sourcing and sustainability processes throughout the value chain;
committed partners – licensees – that understand the brand and the requirements of the programme;
efficient and effective governance processes; and
an experienced brand licensing team and/or agency.
Let us consider each of these in turn.
Alignment with the key objectives of the brand and the business
In order for a licensing programme to remain relevant to both consumers and the core business, it must be aligned with the positioning of the brand and the objectives of the company. It is therefore essential that a case be made to senior management on how the licensing programme strengthens the relationship with core consumers and enhances brand equity. This is impossible if there are quality issues with any of the licensed products or services already in the marketplace or if there is a disconnect between the equity of the brand and the associated licensed offerings.
I have always believed that a profitable revenue stream is the outcome of a successful licensing programme – it is not the goal. Alignment is the goal. In my experience, most brand licensing programmes fail because they put potential short-term profit over long-term relevance. Corporate brand licensing programmes have a long-term view and are, therefore, less subject to trend variations. Other forms of licensing (eg, entertainment and fashion) may rely more on seasonal popularity and regular event launches (eg, movie releases and TV franchises).
Alignment with the company vision or purpose
Alignment with a company vision or purpose is probably at the heart of a successful brand licensing programme today. Why? Because purpose matters to consumers.
As we will see in the Electrolux case study, consumers care about how a product or service is made and delivered, and they expect brands to care too. Delivering a product or service through a brand licensing model makes no difference to the consumer. The brand needs to stand for the same values regardless of whether the product or service was created by the brand itself or by a third party. Integrity matters.
Efficient and effective decision-making processes
When the decision-making processes of a large corporate are opaque or even just slow, it chokes the life out of the brand licensing programme. Licensing partners have deadlines to meet in running their businesses – whether to order a product consignment or to meet a retail window – and a slow response from a brand owner can seriously undermine this.
Best practice suggests that the key stakeholders in the brand should meet on a regular basis (preferably monthly, but no less than quarterly) to review progress against the strategy and make key decisions on new partners and products. They need to feel that they have ownership in the business and can integrate it into their normal product or service planning cycles.
Quality, responsible sourcing and sustainability processes throughout the value chain
The benchmark for any brand licensing programme is, at a minimum, the standards and key success factors in place for the core business. Those who are suspicious of licensing often claim that the licensing programme dilutes the brand equity because the delivery of the product or service is through third parties. The best counterargument to this is to have the same metrics in place as for the core offering.
By metrics, I mean the same audit and performance requirements that pertain to the core business. Those requirements might include International Organisation for Standardisation factory and labour standards, the prohibition of restricted chemicals, the recyclability (so-called ‘circularity’) of the product and the performance of the product in the marketplace (known as the ‘service call rate’). In short, the expectations on the licensed product or service are no less than on the core product or service – and they are verifiable.
Committed partners that understand the brand and the requirements of the programme
When searching for a new licensing partner, brand teams often look at the financials first: what does their licensing business proposal look like? How strong is their credit rating? Who have they worked with in the past?
I suggest we should look at this in a different way: do potential partners getthe brand and understand the requirements that will be asked of them from day one? What processes and procedures do they have in place for responsible sourcing? How do they monitor the quality of their products or services? And, crucially, how do they handle consumer feedback and consequently adjust their offering? For the long-term health of the brand and the programme, it is essential to answer these questions before you even look at the numbers in the business proposal.
Efficient and effective governance processes
Once the right processes and procedures are in place, you need to govern them. Such governance can take many shapes and forms but, essentially, it is wise to have the processes and procedures codified in a handbook – or other such document – and disseminated across the team so that they become part of the day-to-day running of the business.
Here are just 10 examples of what such a document might cover:
boilerplate licence agreement;
new licensee onboarding structure;
rules on contract amendments and domain name agreements, among other things;
guidelines on social media;
invoicing and royalty collection procedures;
supplier authorisation process;
audit processes (brand use, royalties and factories);
product and/or service testing; and
brand training (and refresh).
This oversight process should be managed daily and updated regularly. Having such a process – and governance of it – in place will give more confidence to the C-suite that the brand is being closely monitored and protected and therefore safe in the hands of third parties.
An experienced brand licensing team and/or agency
All of this works only if you have the right team in place. That team could be in-house or outsourced to a qualified agency, but it must have the necessary expertise to marry the various elements of the programme outlined above: be close to the brand, work within efficient and effective decision-making and governance structures, be close to the licensing partners in the programme and, crucially, be very close to the end consumer!
Case study – Electrolux
Electrolux is on a journey: from a manufacturing company founded in 1919 to a consumer marketing organisation in the 2000s to, now, a truly consumer-centric organisation with a clear purpose to Shape Living for the Better(the company’s tag line) for all its consumers, existing and new. And brand licensing is an integrated and aligned part of that purpose.
But first, some numbers on the company and the current brand licensing programme.
According to License! Global Magazine’s list of the top 150 global licensors, Electrolux is the world’s second largest corporate brand licensor and the overall 19th largest brand licensor. It has certainly developed expertise in licensing its large portfolio of brands into the marketplace.
The task for the brand licensing team was to align the programme with the commitments the company has made publicly on sustainability and the specific targets it has set for the next 30 years. One of the company’s beliefs, “Everyone at Electrolux can, in one way or another, contribute to our sustainability success”, is not about wanting to do this for its own sake. The slogan resonates with the company’s consumers and reflects a shared need to protect the planet and do the right thing for future generations. In a recent survey by Accenture (see below), 83% of consumers polled said that it was important or extremely important for companies to design products that are meant to be reused or recycled. And 72% said that they were buying more environmentally friendly products than they were five years ago.
In an article in the United Kingdom’s Guardian newspaper published on 6 December 2020 and following the demise of several famous UK high-street retail chains, retail expert Mary Portas commented about today’s shoppers: “They’re not supporting businesses who don’t prioritise people or the planet. We’re moving away from that: there is a new value system at play.”
Electrolux has committed to:
reducing absolute carbon emissions from operations by 80% and emissions from products by 25% by 2025 (compared to 2015), making it one of the first 100 companies in the world to set science-based targets;
being climate neutral in operations by 2030 – a target set out in the Better Living Programme; and
having net zero emissionsthroughout its entire value chain by 2050 to help limit the global temperature rise to 1.5°C by 2100.
These are ambitious targets but the business has been organised around these goals and has defined clear and tangible consumer benefits that align with them.
Each of Electrolux’s consumer experience areas of taste, care and wellbeing has specific consumer benefits that will also benefit the planet. So, for example, the company’s Care Target for 2030 is to make clothes last twice as long as they do today (through innovative washing and drying technology), while using half the water and electricity of traditional appliances of this sort. Win-win.
To accelerate its sustainability initiatives, Electrolux has been working to get its extensive supplier base on board – with considerable success to date, as noted by this press release last summer:
Electrolux has secured commitment from its top 200 suppliers to disclose emissions and set targets through the CDP Supply Chain Program as the company works towards a target of zero net carbon emissions throughout the supply chain by 2050. (August 2020, Electrolux)
Electrolux has also been leading the way in piloting 100% recycled products, starting with a vacuum cleaner announced to the market in October 2020. This was an important step on the journey towards circularity with a prototype for change. Together with Stena Recycling in Sweden, Electrolux developed a vacuum cleaner made of 100% recycled and reused materials. The plastic and components originate from consumers’ electronic products, such as used hairdryers, vacuum cleaners and computers. The project was aimed at addressing some of today’s key recycling challenges, while exploring circularity in household appliances.
How does Electrolux align its brand licensing programme with its company purpose?
Electrolux has brought its responsible sourcing colleagues fully into the brand licensing process flow, from the initial prospecting for licensing partners right through to the ongoing management of the programme.
Due diligence is conducted up front on prospective licensees’ sustainability initiatives and capability and includes provisions on, for example, restricted materials (eg, conflict minerals) in the respective licensing agreements. Licensees know that when they sign up with Electrolux, they need to reflect the brand values and commitment to both Electrolux consumers and the planet.
As a consequence, Electrolux has some great partners driving the agenda in sustainable licensed products around the world across a number of brands and categories, including solar energy, air care, water care and even motors for e-bikes.
To read the article as originally published, please visit: https://www.worldtrademarkreview.com/index.php/brand-management/how-drive-purpose-and-profit-through-strategic-brand-licensing-exclusive-best-practice-insights