Brand extension, if approached correctly, has the opportunity to add real value to your business. Peter Hasler of the Licensing Company explains the how and why of brand licensing.
The decision to license a brand invariably comes from the very top of an organisation, to initiate this type of strategy needs buy-in at the highest level as it is the chief executive officer who is ultimately responsible for the brand.
Increasingly brand owners are recognising that corporate brand extension has the opportunity to add real value to their businesses – both through the associated marketing benefits and revenue streams.
In simple terms, brands can be extended either internally or through a third party under license from the brand owner. Globally, brand extension through licensing accounts for around $25bn at retail each year, representing the fastest growing sector in the licensing industry and an area of huge potential for brand owners.
WHAT MAKES A BRAND EXTENDABLE?
While there is no secret formula for determining whether or not a brand is extendable, there are clear signs which help signal if a brand has potential. If a brand ticks all these boxes then there is a good chance that it will have success in extending into other product areas. Ideally, the brand will possess:
- Clear and precise brand values
- Well-defined target audiences
- Transferable authority
- Consumer voice and clear natural retail home
- Strong desirability
- International reach
- Trademark protection
Brands interested in extending can come from virtually any product category; however, the ability to do this successfully varies significantly, and this is why most brand owners debate this option rather than move forward. While strong brand awareness is important it is not necessarily the most important factor, as it can also hinder extension opportunities.
Strong global brands such as Coca Cola and McDonalds are examples of brands that are so closely aligned to a particular product that the consumer would struggle to accept extension into new product areas. At the same time, smaller brands which have strong transferable authority provide opportunities to extend into all types of products.
Regardless of the strength of your brand, brand extension is not something that should be embarked upon lightly. Doing it properly requires thorough preparation – with a minimum of a few months taken to assess the opportunity and produce a detailed plan for implementation. The rewards can be significant, but only if approached correctly.
WHY EXTEND YOUR BRAND?
Brand extension through licensing should always be approached from the marketing perspective – if executed correctly, the financial benefits will naturally follow.
If financial incentives are at the top of the agenda, the danger is that they dominate the decision-making process to the detriment of the brand – potentially leading to inappropriate licensees and products, which could erode the brand equity rather than enhance it. At the forefront of any brand extension programme should be objectives such as:
- Increasing brand awareness
- Reinforcing key marketing messages
- Enhancing the brand personality
- Creating additional consumer touch points
- Introducing new distribution channels
The financial benefits can derive from the products themselves – for which the brand owner receives a royalty – but also through direct benefits to the core brand. For example, your new partners can help your core product to get into new retail outlets for the first time.
THE KEY SUCCESS FACTORS
Above all, brand extension should look straight forward and obvious to the consumer. To start with, this requires adherence to basic marketing rules:
- Understand your customer
- Always be relevant
- Recreate your brand values in everything you do
Where brand licensing differs is in the execution, with products manufactured, marketed and distributed by a third party. The key is to ensure that the brand owner retains sufficient control over the process, while also providing licensees with the inspiration to produce great products. This involves:
- Presenting a strong visual interpretation of the brand
- Ensuring that it is well controlled in all aspects
- Understanding that licensing never leads
This final point is an obvious one, but often forgotten. There has to be a compelling reason for a licensee to agree to pay a premium for using your brand. The brand needs to have the brand equity and transferable authority to extend into a new product area – licensing cannot create a new brand image – it can emphasise specific elements of a brand, and even help shift perceptions over time, but only by following the core brand.
Often the best products are those which are so close to the core brand that consumers believe they are produced by the brand owner, rather than a licensee – such as Michelin foot pumps or tire pressure gauges. Creating these types of product may appear simple but requires a strong multifaceted team of brand licensing experts for it to be delivered successfully, covering; legal / IP issues, retail relationships, financial / royalty management, international relationships, creative interpretation of the brand and licensee management.
Above all, brand licensing shouldn't be seen as a quick fix – to do it well requires time. Comprehensive licensing programmes should be built around a robust strategy that will build gradually from the core brand, taking anything from three to ten years to reach maturity. A clear strategy means that everyone involved in the process understands the objectives of the licensing programme – providing both an inspirational platform for licensees and complete control for the brand owner.
The decision to embark on a brand extension programme through licensing should not be taken lightly – the rewards can be significant, but only if the process is approached in the right way.
