Editor's Note: Take a look at our featured best practice, Cost Segregation Study: Multiple Property Class Analysis (Excel workbook). Accountants, accounting firms, and real estate property owners can all benefit from this cost segregation study (CSS) template. It makes the estimated benefit easy to figure out and has flexible assumptions for high level or detailed segregation analysis. You get a summary of cost [read more]
Don’t Blame Brand Licensing
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Jack Trout in his blog published on BrandingStrategyInsider.com “Licensing: Trouble for Brands” dated February 25, 2008 makes a compelling argument for why not to consider licensing as a method of brand extension. Furthermore, he backs it up with multiple examples of established brands with flawed licensing programs that serve to prove his hypothesis. After reading about Pratt & Whitney and Pierre Cardin, what CEO in their right mind would choose to risk the company’s crown jewels to a group of third party manufacturers, which don’t have a clue about how to build a brand, let alone manage one? With so much at stake, only those CEOs that are either reckless or desperate would consider licensing. Right?
Maybe the problem isn’t licensing, but its poor or improper execution? After all, why would a company choose to forgo its consumer driven innovation process or marketing principles only when it comes to extending their brands through licensing? Some of the best and biggest brands around the globe have been actively and successfully licensing. Disney, P&G, Coke, and Harley Davidson each have outstanding licensing programs. These programs not only enjoy strong royalty income, they enhance their brands’ attributes in the process.
The problem definitely isn’t licensing. Rather, it’s either the lack of sound brand guardrails in the brand licensing process or a failure to heed to those guardrails. Jack Trout builds multiple assumptions into his argument that are flawed. I agree that the promise of royalty revenue can be intoxicating, especially to a public company struggling to meet its forecasted quarterly operating income. However, this is an indictment of management and not licensing. Licensing is simply a tactical execution of a brand extension strategy (even if the strategy is no strategy).
In considering brand licensing, the first question that needs to be addressed is where the brand should play. In other words, what categories should the brand be in? If a company begins with a sound understanding of their brand’s architecture and positioning, they can then develop a robust brand extension strategy. Knowing where the brand has permission to play enables a company to identify extensions that offer the best overall business opportunity. Once the company knows where the brand can play, they must determine “how to win.” Should the company extend the brand organically? Or, should they source the category? If the company chooses not to extend the brand with internal resources, they do so through acquisition or licensing. Like any brand extension, each licensed category must support the brand’s architecture and positioning. At Newell Rubbermaid, we would draft a category positioning statement aligned with the brand positioning statement for each licensed category. This ensured each category licensed reinforced the brand’s positioning.
If a company chooses to extend their brand without a fundamental understanding of the brand’s architecture and positioning, the licensed products will at best have a neutral impact on the brand. More likely, they will permanently erode the brand’s equity. This consequence would occur irrespective of how the company chooses to extend their brand. Licensing gets a bad rap for damaging brands when either internal licensing teams or their agencies decide to extend a brand into “adjacent” categories in the pursuit of a quick royalty infusion. Whether or not a company chooses to use other peoples’ resources and money when executing their brand extension strategy, they must always ensure every product brought to market continues to support the brand’s commitment and promise.
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About Pete Canalichio
Pete Canalichio is an expert with over 20 years of global experience in the areas of Brand Strategy and Brand Licensing, working with brands such as The Coca-Cola Company and Newell Rubbermaid. Recognized as a leading expert, he is frequently asked to speak at branding and licensing conferences and leading business schools globally. He is a series of brand licensing and strategy frameworks and webinars available on Flevy here.
