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The Benefits of Licensing & Understanding and Mitigating the Risks
Presented by the American Bar Association
Forum on Entertainment and Sports Industries and ABACLE
American Bar Association ABACLE 321 North Clark Street, Suite 2000 Chicago, IL 60654-7598 www.americanbar.org 800.285.2221
The materials contained herein represent the opinions of the authors and editors and should not be construed to be the action of the American Bar Association Forum on Entertainment and Sports Industries or ABACLE unless adopted pursuant to the bylaws of the Association. Nothing contained in this book is to be considered as the rendering of legal advice for specific cases, and readers are responsible for obtaining such advice from their own legal counsel. This book and any forms and agreements herein are intended for educational and informational purposes only. © 2019 American Bar Association. All rights reserved. This publication accompanies the audio program entitled “The Benefits of Licensing & Understanding and Mitigating the Risks” broadcast on October 30, 2019 (event code: CE1909POL1).
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The Benefits of Licensing and
Understanding and Mitigating the Risks
Michael StoneCo-founder and Chairman, Beanstalk
October 30, 2019
Michael Stone
www.beanstalk.com
Michael Stone is the author of The Power
of Licensing: Harnessing Brand Equity.
Stone serves as Chairman and Co-
founder of Beanstalk, a leading global
brand extension licensing agency that is
a part of Omnicom Group.
For more insights from Michael Stone,
follow him on Forbes and LinkedIn.
Discussion Topics
• Brand licensing is not a one-size-fits-all strategy
• The seven benefits of licensing
• Using case studies featuring Baileys, Febreze, Energizer, WW (formerly Weight Watchers), Briggs & Stratton,
Westinghouse, and The Coca-Cola Company to understanding how brand licensing can help your clients achieve their
objectives
• Licensing always carries a certain degree of risk that can never be eliminated entirely, BUT risks can be mitigated
• The various risk types, with a focus on common risks such as licensed product failure, cannibalizing the core product,
consumer complaints, contractual non-performance, other contractual risks, counterfeits and infringements, non-
contractual promises, and reputational damage
• Case studies that will enable you to defend your advice to clients using the real-life examples of well-known companies
that have faced similar situations
When you purchase a…
…you are purchasing a licensed product
Licensing is a Legal Activity
Licensing – /ˈlīsnsiNG/ – verb
Licensing is where an owner of intellectual property (for example,
a brand owner) permits - or licenses - another company, typically a
manufacturer or service provider, to create, design, manufacture,
market and sell a clearly defined product or service that features
the IP for consideration (generally a royalty or a fee) for a
determined period of time within a defined geographic region.
Licensing is a Marketing and Communications ToolThe product delivers the message
1. Tells a brand story
2. Communicates the brand message
3. Connects and engages with consumers
4. Burnishes a brand’s reputation
5. Strengthens and builds brand meaning
To be successful….
• Licensing is not a one-size-fits-all strategy
• Licensing strategies must align with larger marketing objectives
• Understand the benefits of licensing
• Understand the risks of licensing and how to mitigate them
The Benefits of Licensing
Benefit: To enter or maintain a presence in businesses that have strategic value but fall outside of the company’s core businesses or financial thresholds
Baileys: Among the world’s best-selling liqueur
brands
Brand Marketing Objectives:
• Reframe the brand message
• Engage with the brand on more occasions
and different parts of the day
• Redefine Baileys as not just an alcoholic
drink, but more broadly as an impulse treat
Licensing Strategy:
Enter new categories that would engage consumers with the Baileys brand all year and at various times of the day
Benefit: To build brand awareness and reinforce brand values
Febreze: Leading air-refresher and fabric
refresher
Brand Marketing Objective:
Deliver the message that
Febreze eliminates unpleasant odors
and replaces them with light, fresh scents.
Licensing Strategy:
Enter into categories where odor elimination is important to consumers
13
Benefit: To reach existing and new consumers and educate them about the brand
Energizer: Leading battery brand sold in
over 140 countries
Brand Marketing Objective:
It is not just about batteries! Energizer is a
brand that delivers power and light.
Licensing Strategy:
Target close-to-core categories with room for future expansion that reach more consumers in different aisles of the store
15
Benefit: Strengthen the relationship with existing customers and Increase consumer touchpoints
WW: Dominant brand in the weight
management services category
Brand Marketing Objective:
Strengthen the relationship with existing
customers and interact with potential new
customers, driving them to the WW program
Licensing Strategy:
Offer products to existing and new customers allowing them to participate with the brand in new and different touchpoints
17
Benefit: To extend into new channels of distribution
Briggs & Stratton: Leading
manufacturer of small engines
primarily supplied to other companies
to power their branded products
Brand Marketing Objective:
Provide consumers with the
opportunity to choose and use the
brand, driving more brand awareness
and loyalty
Licensing Strategy:
Offer consumers Briggs & Stratton branded stand-alone products, inviting them to engage with the brand
Benefit: To generate new revenue streams with minimal upfront investment
Westinghouse: Once a leading brand in
electric, no longer makes any products
Brand Marketing Objective:
Maintain Westinghouse brand presence
in the marketplace without making and
selling any goods on its own
Licensing Strategy:
Use the trademark in as many categories as possible that will resonate with consumers in terms of the brand’s legacy in order to generate revenue
21
Benefit: To protect the brand via broad trademark registrations
Coca-Cola: Brand “Coca-Cola” has
been registered for a very long time in
Class 32, which covers beverages.
Unauthorized use of the brand in other
categories of goods can be stopped
based upon the fame of the brand.
Legal Objective:
Obtain the extra benefit and trademark
protections of registrations in other
classes of goods
Licensing Strategy:
Use licensing in a trademark capacity, not just decoration, in product categories in which the company wanted to effectuate trademark registrations
The Benefits of Licensing: The Seven Pearls
1. To enter or maintain a presence in businesses that have strategic value but
fall outside the company’s core businesses or financial thresholds
2. To build brand awareness and reinforce brand values
3. To strengthen the relationship with existing consumers and increase
consumer touchpoints
4. To reach existing and new consumers and educate them about the brand
5. To extend into new channels of distribution and new paths in the consumer
shopping journey
6. To generate new revenue streams with minimal upfront investment
7. To protect the brand via broad trademark registration
Understanding the Risks of Licensing
Licensing Comes With Risks
Three types of risks:
1. Internal - Issues that arise between the brand owner and the licensee outside
the purview of consumers. For example, contractual and relationship issues.
2. External hard - The consumer may be aware that something went wrong. For
example, the licensee sells an unapproved product with poor quality.
3. External soft - The consumer will become aware that something went wrong.
For example, a faulty product subject to a recall damages the brand’s reputation.
All risks lead to one - loss of control…but most risks can be mitigated if
not eliminated.
Licensed Product Failures
Driven by Market dynamics
• Wrong price/value relationship
• No shelf space
• Stiffer than anticipated competition
• Consumer perception of brand alignment
• Missed demographic target
• Perceived trend turns out to be a fad
Or just a bad idea
• Often driven by brand arrogance
Cannibalizing Sales of the Core Product
The closer the licensed product gets to the core
product, the greater this risk
• Multi-brand companies confront greater risks
• Direct and indirect cannibalization
• Core and licensed products directly
competitive
• Not directly competitive but fight each other
for shelf space
For example: Hotly debated in the restaurant category.
Consumer Complaints
• Dissatisfied consumers will turn to the
brand owner to complain
• Product doesn’t perform as intended
• Harmful products or recalls
Contractual Risks
Behind-the-scenes failure
• To make timely payments
• Market the products on time
• Follow the agreed business
plan
Marketplace failures
• Selling unapproved product
• Selling outside the Territory
• Using social media without
approval
• Selling in unapproved channels
Non-performance
Can result for many reasons, such as:
• Bad product idea
• Financial challenges
• Retail resistance
• Stiff competition
• Lack of consumer acceptance
Retailers Have the Power
Once in a retailer’s hands, control is lost
unless there is a contract with the retailer.
The retailer controls:
• Marketing
• On-floor (or page) merchandising and
display
• Pricing
Counterfeits and Infringements
• A licensing program encourages
counterfeiters and infringers
• Sometimes intentional and
sometimes innocent
• Absent licensing, fame alone can
drive unauthorized use
Promises by the Brand Owner:
Don’t Make Them if You Can’t Keep Them
• Brand owners tend to make
representations about support
that are not in the contract
• “Possibilities” construed as
“Promises”
• “It’s not what you say, it’s what
they hear”
Reputational Damage
May causes such as:
• Product failures, recalls, harmful
products, design flaws,
discounting
• Decisions that may damage the
brand’s equities or consumer
perceptions
The Risks of Licensing: The Nine Pearls
1. Licensed Product Failure
2. Cannibalizing Sales of the Core Product
3. Consumer Complaints
4. Contractual Risks
5. Non-performance
6. Retailers Have the Power
7. Counterfeits and Infringements
8. Promises by the Brand Owner That Can’t Be Kept
9. Reputational Damage
36
Mitigating the Risks
1. Develop the right strategy upfront
2. Understand the market dynamics of targeted categories
3. Understand where the brand can go
4. Understand the competition in the targeted category
5. Establish a clear channel strategy
6. Choose the right partners following due diligence
7. Be operationally ready to manage a licensing program
8. Communicate internally
9. Evaluate the impact success might have on the core product
37
Mitigating the Risks
10. Establish mechanisms for consumer complaints
11. Develop strong contract provisions
12. Review royalty reports; conduct audits
13. Establish comprehensive processes and procedures, explained upfront
14. Convert counterfeiters to licensees when possible
15. Don’t say things that might be construed as a commitment; be clear on
expectations
16. Maintain market IP relevance
17. Avoid decisions that will damage brand equity or consumer perception
18. Understand what is going wrong and make course corrections, if possible
Key Takeaways
1. The benefits of licensing generally outweigh the risks
2. Have a clear consensus among stakeholders on the
reasons to engage in licensing
3. Actively manage the relationship and the license
agreement to mitigate risks and maximize success
Michael Stone
Chairman & Co-founder of Beanstalk
212.303.xxxx
www.beanstalk.com/beantalk
Thank you!
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