Rubén Gil – CEO Enjoy Brand Licensing
Licensing is defined as the transfer of the equity of a brand to a third party who, in exchange for that equity, delivers a payment in cash. This equity is added to a product or service, making it more attractive to the consumer.
In the strictest sense, licensing would be the cession of a brand to a third party for the manufacture and distribution of a given product or service in exchange for a royalty per unit sold or for a service rendered. There are many examples, from Paw Patrol T-shirts to the advertising campaigns of Movistar in conjunction with Star Wars.
Licensing is a magnificent tool for the expansion a brand, so for this journey into different sectors and regions, it is therefore an excellent means of achieving the internationalisation of the brand.
So then, what are the requirements for a brand to be internationalised?
Requirements for the Internationalisation of a brand:
- Reputation: in order for a brand to be suitable to be licensed, it must have recognised prestige and must bring equity to those who purchase this brand (licensees).
- There has to be a scheme of licenses: that is to say, it must be clear what products are being licensed, the price/ positioning, advertising, and the regions where the brand will be licensed.
- A series of procedures must be in place:
- A Style guide: a style guide must be produced, which will serve as a basis for future licensees to adapt the brand to their products or services.
- A Design Department, which enhances and updates the style guide and undertakes the whole procedure of approval of the licensed products or services (products or services to which the equity of the brand has been brought), as well as for all advertising of the licensed products or services carried out by the licensee. This is crucial because it protects the brand, and lends it coherence and continuity.
- The Commercial /Marketing/License Department, which markets the licenses and undertakes the monitoring, coordination and leadership of the licensing scheme.
- The Accountancy Department, which monitors and oversees the collection of the corresponding royalties (remuneration the licensor receives from the licensee in payment for the transfer of the corresponding license).
- The Legal Department: must be able to assume the costs of the protection and monitoring of the brand in all the regions in which it has a presence.
Now that we have covered the fundamental requirements, we shall consider the steps of approach to internationalisation of brands by means of licensing .
The brands that «travel» best are those which originate in the world of entertainment (TV, cinema, apps, Internet, music), sports and fashion.
Development schemes for internationalisation of a brand may be organic, as is the case with Disney, where all the means are at their disposal, through the exposure of their product through their TV channels, and where their local offices undertake all the advertising. Or they may be non-organic activities, through agents, in which case the owners of the brands (licensors) build networks of independent agents, to whom they cede part of the equity of remuneration in exchange for undertaking development of the business in the field.
As previously mentioned, at the time of implementing an internationalisation scheme based on the licensing of a brand, we must work from a base of the reputation of the brand in the region in question. If the brand is not reputable, it will not be of interest.
Once the reputation of the brand is assured, it must be decided how to undertake its commercialisation, whether directly or through agents with local licenses.
The manner in which this area is usually dealt with at a pan-regional and international level, is that the agreements are managed directly by the owner of the brand. For example, agreements with companies like Zara, McDonalds, Hasbro, given that the agents are few, their scope worldwide, and their high level of strategic importance. As agreements are refined at a regional level, the role of the local licensing agency takes on more importance.
It is of crucial importance to choose local agents carefully, given that there are licensing agencies that specialise in a particular type of property (brands), some of which are large agencies with many holdings and resources, and others that are smaller with fewer holdings and fewer resources. The recommended criterion is to select the agency based on the type of brand that is to be commercialised. If it is a brand of entertainment, with a good reputation and a short life span (very dependent on media exposure), the ideal would be a large agency, given that, in spite of having many other properties, they will focus on the ones with best reputation, using the wide range of resources at their disposal. In contrast, if the holding belongs to the realm of fashion or design, where the handling must be more painstaking, with a focus on the long term and a more «artisan» style of work, and with a more medium and long term profitability, agencies specialising in this type of brand, with fewer properties in their portfolio, tend to be the ideal.
Also of great importance is the level of resources the licensor is prepared to devote to coordination and leadership of the local agents. If resources are limited, then it is best to use a pan-regional licensing agency, with offices in several countries and with management centralised in one of them, given that in this way it is possible to manage large areas such as Europe, Asia, Latin America and North America, with 5 or 6 players . This greatly simplifies management, but the down side is that it will not be the best possible agency in the region. If the resources are available, then the ideal is to select the best possible agency by country, although this implies higher management costs.
The local agent will perform the prospecting for the best licensees, submit the contracts of license to the Licensor for approval, undertake a monitoring process of the whole relationship with the licensees, promote overlapping marketing activities between the different licensees and support activities that retailers undertake with the brand. At times they may also participate in the process of approval of the licensed products.
Once the network of agents around the world is established, the position of the licensor must be to act as the leader the licensing programme. The licensor should lead activities in the main countries, in order to work in coordination with the local agents, with the following key players:
- Key retailers: fundamental, because they lead the brand, what they display in their premises sells and what they don´t, does not.
- Resources: if the brand depends on a specific type of media exposure, it is crucial to coordinate this exposure with the placing of the product in the market and other marketing activities that the key retailers and licensees undertake.
- Main licensees: such as international or pan-regional partners.
Ultimately, the internationalisation of a brand through licensing is very efficient because it transfers much of the risk to the licensees, who assume the manufacture, distribution and advertising of the licensed products, and it also transfers the management of business development in each region to local agents. The challenge that is always faced in these case, is that lack of control may lead to a loss of prestige for the brand, for which reason the mechanisms for controlling and leading the key processes are very important, as is the choice of the right partners, equally in the spheres of agents, retailers and licensees.