Teaching note

The practice of brand extension through licensing: The SpaldingChallengeTeaching note and overview for use in class

Joe Cobbs *, Stephen McKelvey

University of Massachusetts, Amherst, United States

1. Introduction

This case study emphasizes the impact of licensing relationships on brand equity from a strategic and tactical perspectiveoften overlooked in the classroom. Placed in the situation of a marketing executive at western Massachusetts-basedSpalding, the reader is called upon to reevaluate the company’s licensing strategy in light of Spalding’s recent acquisition byRussell, shifting trends in the licensed product marketplace, and recent consumer research. The case is appropriate for anundergraduate or first-year graduate student environment. For the primary purposes of this case, Spalding serves as thelicensor and its relationships with various licensees are considered, but a key delineation is recognized early in the casebetween Spalding’s actions as a licensor and licensee. This is typically a point of confusion for students and is thereforeimportant to clarify before proceeding into the heart of the case. Spalding’s position as a licensee of the NBA is sometimeswell-recognized by students, yet the concept that a sporting goods company can serve as both a licensee AND licensor todifferent stakeholder groups is often foreign to them. Utilizing Fig. 1 in the case as a basis for composing lists of potentialaffiliations where Spalding acts as the licensee (NBA, WNBA, AFL, etc.) and conversely, as a licensor (product manufacturerssuch as those listed in Table 2 of the case) is an exercise that can assist in solidifying this concept in the classroom.

2. Theoretical classroom applications

The case is set up to offer the instructor several avenues of theoretical application, including brand equity, brandextensions and licensing strategy, and stakeholder analysis. Each of these avenues is explored below with suggested readingsand classroom applications.

Sport Management Review 12 (2009) 193–198

A R T I C L E I N F O

Keywords:

Licensing

Brand extension

Spalding

Sporting goods

Case study

Teaching notes

A B S T R A C T

This teaching note presents instructors with several avenues for incorporating the case

study, ‘‘The Practice of Brand Extension through Licensing: The Spalding Challenge,’’ into

their classrooms. By proposing classroom demonstrations and exercises based on the

authors’ experience as well as selected readings that correspond directly to the theoretical

applications of brand equity, brand extensions and licensing strategy, and stakeholder

analysis, the case note provides the foundation for achieving comprehensive learning

outcomes. In addition, the note concludes by outlining what steps Spalding actually took

to address the licensing dilemma presented in the case, thereby offering the instructor a

finishing tool with which to illustrate the practical application of the concepts presented.

Published by Elsevier Ltd on behalf of Sport Management Association of Australia and

New Zealand.

* Corresponding author.

E-mail address: jcobbs@sportmgt.umass.edu (J. Cobbs).

Contents lists available at ScienceDirect

Sport Management Review

journa l homepage: www.elsev ier .com/ locate /smr

1441-3523/$ – see front matter . Published by Elsevier Ltd on behalf of Sport Management Association of Australia and New Zealand.

doi:10.1016/j.smr.2009.04.003

2.1. Brand equity

For students to realize a maximum learning experience through completion of this case, it is important for them to befamiliar with the elements and management of brand equity. A quick exercise that brings brand equity to life in theclassroom is to find two articles of clothing that are practically identical except for a brand name or symbol. This can beaccomplished either with tangible objects the instructor brings to class or even with pictures of two objects in a slidepresentation. On prior occasions, the authors have used both golf shirts (one branded Nike and the other unbranded but thesame color and apparent quality) and visors (one branded with a Detroit Pistons logo and the other unbranded) in their ownclassrooms. Half of the class is told to focus on one of the objects and write down a price that the student would be willing topay for such an object (assumed to be of the appropriate size and perhaps team affiliation when using team licensedmerchandise). The other half of the class is instructed to focus on the opposite object and also write down a suitable price.The instructor calls on various students on each side of the classroom and writes their prices on the appropriate side of theboard. Inevitably, the branded product draws higher reference prices from the students and a rough calculation of the brandequity held by the chosen brand can be ascertained by subtracting the average unbranded product price from the averagebranded product price. Then to conclude the exercise and lead into a discussion of brand extension and licensing strategy, anappropriate question to pose to the students is why they were willing to pay more for the branded product than theseemingly identical unbranded product.

2.2. Brand extension and licensing strategy

The offered rationales for students’ assigned price premiums in the previous exercise usually fit well into the five specificdimensions of brand equity emphasized by Aaker (1991): brand loyalty, brand awareness, perceived quality, brandassociations, and other proprietary brand assets. The use of a licensing example in class that parallels Spalding’s plight oftenhelps to clarify how extending a brand through licensing takes advantage of each of these five dimensions.

An illustration the authors have found helpful in solidifying the advantages and disadvantages of licensing from a brandextension perspective is that of Everlast, a brand similar to Spalding in that Everlast has a traditional core focus in a singlesport (boxing) and as an equipment brand, Everlast acts as both a licensee (to USA Boxing) and licensor (with equipmentmanufacturers). By associating with Everlast’s brand equity through a licensing arrangement, licensees’ products act asextensions of the Everlast brand. However, overextension into product categories with a poor product-level or concept fitrelative to Everlast’s core image tends to dilute brand equity and chip away at the price premium consumers might be willingto absorb for an Everlast branded product. Park, Milberg, and Lawson’s diagram of the process of brand extension evaluations(1991; see Fig. 1) can be a useful visual tool when introducing the idea of ‘‘perceived fit’’ in the classroom. By using aclassroom example such as Everlast when introducing the theoretical foundations of licensing strategy, students are betterequipped to apply the general concepts to Spalding’s specific dilemma of brand dilution.

Beyond perceived fit, several other factors can also contribute to consumers’ evaluation of brand extensions in themarketplace, and it is important for students to understand that perceived fit does not act in isolation as the sole criteria oflicensing management. Before engaging in the Everlast licensing group exercise described later in this section, it is advisableto highlight other factors to consider when evaluating licensing situations. Apostolopoulou (2002) suggests several of thesepotential factors:

Fig. 1. Process of brand-extension evaluations.

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� Strength of the licensed brand� Quality of the extension product� Distribution strategy� Promotional support surrounding the extension� Management of the branded extension

Within the context of this case, it is particularly advantageous to emphasize that the quality of the extension product andthe distribution strategy as compared to the brand’s established products may play key roles in cultivating consistencybetween the licensed product extension and the brand concept. For example, a customer shopping in a Dick’s Sporting Goodsstore who encounters a Spalding basketball (a product manufactured directly by Spalding) associates a different level ofproduct quality with the Spalding brand than does a customer browsing at Wal-Mart who comes upon a foldable campingtable carrying the licensed Spalding name. In this licensed extension example, the retail outlets combine with divergentproduct attributes to portray an inconsistent brand concept. This inconsistency can be further exacerbated if the quality ofthe camping table is perceived by the consumer to be relatively low, while the quality of the Spalding basketball isconsidered to be high.

Without the overhead costs of product production and distribution, licensing programs offer the licensor an extremelycost-effective means of generating incremental profit and consumer awareness through brand extensions. So much so thatsome marketers term licensing as the ‘‘heroin of profitability’’ (Touhey, personal communication, January 10, 2007). Yet, ahealthy licensing strategy weighs the gains in profitability with the potential long-term brand effects.

In presenting the licensor’s perspective, Bass’ perceptual map of balancing brand fit against revenue gain in a licensingrelationship (2004) offers another supplemental visual teaching tool (see Fig. 2). After dividing students into small groups,presenting them with a list of potential products to be licensed with the Everlast brand (athletic training shoes, dry-fit shirtsand shorts, weight training equipment, summer leisure clothing line, duffle bags and backpacks, watches, and sandals) incombination with a choice of distribution channels (Wal-Mart, Target, Dick’s Sporting Goods, Footlocker, JCPenney, 24-hourFitness workout facilities, local specialty sporting goods store, Everlast.com, Eastbay.com, Amazon.com) can help students tofurther conceptualize the licensor’s decision before approaching the greater detail offered in Spalding’s case. In this shortclassroom exercise, an instructor can challenge the students to create examples fitting each of the quadrants of the Bassmodel by matching a potentially licensed product with a distribution channel. This exercise, in combination with the model,pushes students toward the realization that brand positioning can often be of superior concern to licensing revenue (Bass,2004). In certain cases, such as when the licensed product is of poor quality, high licensing revenues can even create adamaging situation because licensees are likely to continue selling high volumes of the inferior product carrying thelicensor’s brand name. In addition, loyal consumers may feel as though their beloved brand has lost its core values. Thisdownside to higher licensing revenues is sometimes counterintuitive to students and therefore a difficult notion to grasp.The debate between the gains in revenue and the brand implications of licensing is central to the Spalding case and thestudents’ responses to the dilemma presented by the case are likely to hinge on their stance concerning this conceptual issue.

2.3. Stakeholder analysis

A third theoretical framework appropriate for the presentation of this case is stakeholder identification and salience.Several stakeholder groups are active in Spalding’s licensing dilemma. The new ownership group represented by Russell’sexecutives, the outgoing ownership group of OakTree Capital, each of Spalding’s current licensees up for contract renewal (aslisted in Table 2 of the case), the distributors and retailers of Spalding products, Spalding’s consumers, and the employeemembers of Spalding’s marketing staff all compose potential stakeholder groups within this case.

Utilizing Mitchell, Agle, and Wood’s framework for stakeholder analysis (1997), the case presents an opportunity for theinstructor to encourage the students to approach the licensing situation from various perspectives. To facilitate this learningactivity in a classroom environment, instructors should first offer the students a definition of a stakeholder (see Mitchell

Fig. 2. Balancing brand fit against revenue gain.

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et al., 1997, p. 869 for one such definition) and then ask the class to identify all the stakeholders within the Spalding case.Once this is completed, small groups of students can be assigned to take on the perspective of one of the identifiedstakeholder groups. With an established perspective, the other stakeholders in the situation can be evaluated withinMitchell et al.’s framework as either possessing or not possessing each of the three construct criteria: power, legitimacy, andurgency as it relates to their assigned viewpoint. For example, the small group representing Russell executives may decidethat Dan and his staff at Spalding possess legitimacy, but limited power and urgency relative to Russell’s own position andpriorities. On the other hand, Spalding’s licensees with a pending contract renewal may be deemed as possessing urgency,legitimacy, and power contingent on the revenues and brand implications they represent. Since Dan and his staff manage therelationships with these licensees, the Spalding marketing staff may inherit a measure of the licensees’ urgency and power.With a determination of the attributes present for each stakeholder group, categorization of the stakeholders via thetypology offered by Mitchell et al. (1997, p. 874) becomes feasible, allowing students to analyze the licensing dilemmapresented in the case from various reference points.

Another approach to presenting stakeholder analysis beyond the role-primacy orientation is to emphasize priority-basedstakeholder segmentation. This avenue can be especially useful in the context of this case given the potentially conflictingpriorities of short-term revenues and rebuilding brand equity. Implementing the priority-based approach in a classroomsetting can take the same form as the exercise described previously in this section, but instead of legitimacy, power andurgency constructs, the situation’s potentially diverse priorities (long-term revenue, short-term revenue, rebuilding brandequity, brand extension into new markets, etc.) should be weighed against each other from each stakeholder group’s point ofview. Wolfe and Putler (2002) offer a framework and further details for this approach to stakeholder analysis.

3. The Spalding dilemma

The decision faced by the reader representing Spalding’s top marketing executive is how to address the fragmented brandmessage produced by the current array of licensing relationships in his presentation to the Russell executive board. Data onconsumer brand perceptions are presented which led the Spalding marketing staff to identify the brand’s strongest brandassets, a new brand vision, and a new positioning statement. From there, a framework for licensee categorization (Touhey,personal communication, November 30, 2006) is included to help the reader approach the licensee contract renewalsituation given at the conclusion of the case. Three categories are identified and examples of each category that could behighlighted in class include the following:

1. Core-product: inflatable balls, backboards, bats, baseball gloves, pads and other equipment essential to the actual playingof a sport.

2. Non-core product logical extensions: basketball sneakers, baseball cleats, jerseys, uniforms, or apparel designed forcompetition in a specific sport.

3. Non-core weaker extensions: casual sports apparel or products more recreational in use and less likely to be identified witha specific sport, such as water bottles, sports drinks, and recreational games.

Although the importance of the distribution channel is stressed in the case, students have a tendency to dismiss itspotential impact on the brand. Therefore, it may be helpful to further emphasize to students that the distribution channel inthis case can often be the determining factor in certain products’ categorization between non-core logical and non-coreweaker extensions. As mentioned in the case, weaker extensions are more likely to retail at discount super stores, while non-core logical products are primarily found in sporting goods specific retail stores.

Some further decision guidelines for the reader, as well as the presentation of the licensee contracts up for renewal (seeTable 2 of case study), conclude the case study. The following case questions may be helpful in facilitating a written assignment:

3.1. Spalding case potential exercises

1. Given the information presented in the case, outline an updated licensing strategy for the Spalding brand as you wouldpresent it to Russell executives. Include product category and retail distribution strategies as well as justifications for yourchoices.

2. Examining the data presented in Table 2 of the case, which licensee contracts would you seek to renew and why? How doyour decisions fit into the strategy you developed in the exercise above?

3. In presenting your strategy and licensing contract decisions to Russell’s executives, if you chose not to renew any or all ofthe contracts, how would you respond to their questions regarding the amount of licensing revenues cut and the specificlicensees responsible for that revenue?

4. What did Spalding do?

Given that almost any real world business situation could be addressed via multiple strategies with various contingentresults, it should be noted that there is no correct answer to the case. However, in utilizing this case in their own courses, theauthors have found that concluding the case study by critically examining Spalding’s subsequent actions enhances the

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students’ learning. To establish its new business and licensing strategy, Spalding chose to first leverage its core strength inbasketball:

� Expand in and ‘‘surround’’ basketball� Backboards� Accessories (pumps, needles, ball return devices, nets, etc.)� Leverage success in basketball into football, soccer, volleyball, baseball and softball� Initial product focus on inflatable balls� Initial channel focus on institutional/competitive play (served by a high school/college regional dealer) (Spalding, n.d.).

With its new product strategy developed, Spalding next identified its ideal target consumer as the following:

� Varsity competitors: serious competitors who live and breathe their sport. Male, 16–24 years old. They demand the bestfrom themselves and expect the same from their equipment� Pick-up players: Athletes to whom sports cannot be a primary focus, but the competitive fire still burns. Male, 20–28 years

old. They appreciate the best equipment (Spalding, n.d.)

Finally, in approaching its licensee arrangements, Spalding was willing to take a considerable short-term licensingrevenue decline to realign its brand with its core values. In doing so, Spalding basically prioritized product category anddistribution channel to emphasize core sports equipment as the ideal product category and sporting goods specific retailersas its distribution target. This strategy is reflected by Spalding’s data trend over three years for licensing’s contribution tooverall sales and the licensees’ changing distribution channel emphasis (see Table 1). While 2006 saw a slight uptick inlicensee product distribution via mass merchandisers as a function of the licensees purged in 2005, in the following year,Touhey was able to compensate for this aberration and continue Spalding’s declining presence in discount channels.

In approaching the licensing decisions presented in this case, Spalding chose to keep licensees that fit at least one of thesepriorities (see Table 2; note: licensee names have been changed to protect contractual obligations). The only notableexceptions were Prep Trainer footwear, which was kept purely for revenue reasons, and Drive Corp. (football) and Net, Inc.(backboards), neither of which was renewed on a decision to bring all football and backboard manufacturing back in-housefor greater control over quality and distribution channels for these core products. After Hours, Inc. (sleepwear andunderwear), Rapid (women and children’s apparel), and Scribble Corp. (stationary) offered products far from the core sportscategory Spalding had determined to be its brand position, and thus were not renewed as licensees. Nexus (socks), Beyond(men’s apparel), ActionReady Corp. (sunglasses and watches), Toss Games (lawn games), and Zone, Inc. (sports drinks)offered products closer to the sports category but not directly in line with Spalding’s core sports positioning. Each of theselicensees also distributed their products through a mass merchandise channel that was not aligned with Spalding’s desire to

Table 1

The short-term trend in Spalding licensee contribution to overall U.S. revenue and distribution outlets.

2005 2006 2007

Licensee contribution to overall U.S. sales (%) 11 6 3

Licensing revenue via the mass merchant/discount channel (%) 84 88 78

Source: Touhey, personal communication, June 17, 2008.

Table 2

2006 Spalding licensing synopsis.

Licenseea Product category Distribution channel 2006 revenue

Capers Baseball equipment Sporting goods $30,000

Clark, Inc. Men’s apparel Sporting goods $200,000

Prep Trainer Footwear Payless $750,000

Rapid Backpacks Sporting goods and mass merchandise $60,000

Toss Sports Baseball equipment Mass merchandise $100,000

Spalding brand licensing income $1,140,000

Everlastb Speed bags Sporting goods TBD

TaylorMadeb Boat fender Specialty TBD

2006 total licensing income $1,140,000

Source: Spalding (2006).a Note: Licensee names have been changed to protect contractual obligations.b New licensees in 2006; both Infusion technology licensees utilizing the patented technology, not the Spalding brand. Licensing revenue for these new

licensees was not yet available.

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emphasize sporting goods specific retailers as its target outlet. As a result, none of these five licensee contracts was renewed(see Table 3).

In conclusion, it should be noted that Spalding has undertaken a supplemental strategy to aggressively seek technologylicensees to begin replacing a portion of the licensing revenue lost since being acquired by Russell in 2003. Both Everlast andTaylorMade have become Infusion technology patent licensees, which do not carry the Spalding brand. As reflected inTable 2, Everlast utilizes the Infusion inflation technology in boxing speed bags and TaylorMade has incorporated thetechnology into boat and dock fenders.

References

Aaker, D. A. (1991). Managing brand equity. New York: The Free Press.Apostolopoulou, A. (2002). Brand extensions by US professional sport teams: Motivations and keys to success. Sport Marketing Quarterly, 11(4), 205–214.Bass, A. (2004). Licensed extensions—stretching to communicate. Brand Management, 12(1), 31–38.Mitchell, R. K., Agle, B. R., & Wood, D. J. (1997). Toward a theory of stakeholder identification and salience: Defining the principle of who and what really counts.

Academy of Management Review, 22(4), 853–886.Park, C. W., Milberg, S., & Lawson, R. (1991). Evaluation of brand extensions: The role of product feature similarity and brand concept consistency. The Journal of

Consumer Research, 18(2), 185–193.Spalding (n.d.). Branding for the 21st Century. Springfield, MA: Touhey, D.Spalding (2006). Licensing Outlook [electronic spreadsheet]. Springfield, MA: Touhey, D.Wolfe, R. A., & Putler, D. S. (2002). How tight are the ties that bind stakeholder groups? Organizational Science, 13(1), 64–80.

Table 3

Un-renewed Spalding licensees.

Licensee Product category Distribution channel 2001 revenue

ActionReady Corp. Sunglasses, watches Mass merchandise $50,000

After Hours, Inc. Sleepwear, underwear Mass merchandise $100,000

Beyond Men’s apparel Mass merchandise $500,000

Drive Corp. Football Sporting goods $75,000

Net, Inc. Backboards Sporting goods and mass merchandise $200,000

Nexus Socks Mass merchandise $25,000

Rapid Women’s apparel Mass merchandise $350,000

Rapid Children’s apparel Mass merchandise $100,000

Scribble Corp. Stationary Mass merchandise $50,000

Toss Games Lawn games Mass merchandise $250,000

Zone, Inc. Sports drinks Mass merchandise $25,000

Un-renewed licensing income $1,725,000

Source: Spalding (2006).

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