Magazine article Marketing

Licensing: Path to Extension

Magazine article Marketing

Licensing: Path to Extension

Article excerpt

Licensing can offer a safe, effective and profitable route for established brands but it can also go badly wrong, writes Suzy Bashford.

More than 80% of marketing directors believe brand extension will be the main way to innovate in the next two to three years, according to a survey by brand consultancy thebrandgym. It can also offer a head start at launch because the brand is already familiar to consumers.

The success rate of a new product is reduced by half when consumers are not already familiar with part of the name, according to IRI research.But extending a product out of its core area of expertise is risky, with one in two such ventures ending in failure.

The high flop rate explains why marketers often opt for conservative extensions, such as additional flavours or sizes. David Taylor, managing partner of thebrandgym and author of Brand Stretch, calls these extensions 'dwarfs'. He contrasts these with the 'giants' - bigger, braver launches, such as Apple's iPod, which changed consumer perceptions of the brand.

Many branding experts see little point in creating dwarfs. 'These small incremental changes to core products produce only subtle discernible benefit for consumers and fog up the marketing atmosphere with loud announcements of minor innovations,' says Adam Bass, director of brand licensing consultancy Golden Goose and a speaker at the forthcoming Brand Licensing Show's seminar on product extension. Taylor agrees. 'Think big, or don't do it at all,' he says.

Licensing can provide a safer way to extend a brand out of its core.

By granting a licence to the 'licensee' manufacturer, a brand can outsource product expertise, but still retain control over the brand. The deal will also generate royalties for the brand and, when the contract expires, it can opt to take over manufacturing of the extension product and run it as a profitable business, as sports brand Head has chosen to do with its sports-bag range.

Although many licensees argue that extending products via licensing is like making money in your sleep, not many marketers are getting it right.

Those that have taken the licensing route have tended to become slap-happy with their logo to the detriment of the core product. For them, says Taylor, licensing has become one big ego trip. He cites Virgin's Sir Richard Branson as an example, and claims his mantle is swiftly being picked up by easyJet founder Stelios Haji-Ioannou.

'Brand ego trips are unlikely to be big in business terms, as is shown by many of Virgin's licensed extensions,' Taylor says. 'Virgin forgot what made it famous. Take Virgin Vodka - it failed because the only thing it had going for it was cheapness. Where were the Virgin values of irreverence, fun and challenge?' He believes Haji-Ioannou is falling into the same trap with easyGroup's extensions, such as its no-frills male grooming range easy4Men, and plans for a mobile phone service.

Exceeding the limit

If asked for an example of a brand licensing disaster, experts will almost certainly cite Pierre Cardin - commonly regarded as a luxury brand which sold its soul to the licensing devil.

'Pierre Cardin gave its name to everything and you found it on some really cheap, tacky products because it got greedy.

It was a premium brand, but started signing deals with anyone that came forward. You still see it around from time to time, but it has lost its luxury appeal,' says Kevin James, senior vice-president of international operations at Helen of Troy, which holds licences for the haircare, healthcare and beauty categories of Vidal Sassoon, Cosmopolitan and Scholl respectively.

Greed is the main reason licensing fails, but there are other contributing factors. There is often a tension between the marketing and licensing departments within brands - the latter being intent on getting its name on as many products as possible to create incremental revenue streams, with the former wanting to protect brands from dilution. …

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