Hatching New Revenue Streams

How the maker of Marshmallow Peeps finally leveraged its intellectual property.

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Standing on the sidewalk watching the Macy's Thanksgiving Day Parade in 2003, Ross Born and David Shaffer, cousins and co-CEOs of Just Born--the maker of Marshmallow Peeps, Hot Tamales, and Mike and Ike candy--watched the crowd go wild as a giant yellow Peep balloon floated down Broadway. It was the perfect culmination to the Peep's yearlong 50th anniversary celebration, which had kicked off the previous January with a nationwide bus tour.

Since Born's grandfather, Sam Born, founded Just Born in 1923, the company, based in Bethlehem, Pennsylvania, had focused solely on churning out sugary treats, especially its classic yellow chick. When the occasional linen company or jeweler requested permission to use the iconic Peep image, the company simply requested a small share of the sales. During the previous few years, however, those requests had become increasingly common, which got Ross Born thinking about capitalizing on the Peeps brand with a more ambitious merchandising effort. The crowd's reaction to the Peep balloon cemented his decision. "It really opened our eyes to the power of Peeps," Born says. "We knew we sold a lot of Peeps, but we didn't realize the excitement that they generated."

Intellectual property--broadly defined as any idea, brand, knowledge, or technology with commercial value--has been a hot topic for the past decade. Indeed, such nonphysical assets are a key driver of the U.S. economy, now contributing almost 40 percent to private industry growth, according to a study by the Washington, D.C.-based consulting firm Economists Inc. Still, many private companies are so focused on expanding their core businesses that they're slow to capitalize on such intellectual assets, says Becky Christensen, an intellectual property attorney at O'Connor, Christensen & McLaughlin, a law firm based in Irvine, California.

Just Born, for example, waited decades. But it became increasingly apparent that the Marshmallow Peeps brand and the likeness of the fluffy chick were great vehicles to reinforce the emotional connection many consumers have with the candy, which has long been an Easter staple. Ideally, of course, any merchandise would help bolster the company's bottom line. Ross Born's main goal, however, was to use the increased brand recognition to jump-start the company's candy sales, which had been growing steadily, but slowly, for more than 80 years.

Born and Shaffer worried, however, that new product lines would distract them from the candy business. They had mastered the art of making sweets, but they didn't know the first thing about producing and selling clothes and toys. Instead of handling the task in-house, they wanted to farm out the bulk of the process to licensees that design, manufacture, and distribute the products. Of course, outsourcing the job meant they risked losing control over quality. To find top-notch licensees, the company hired Lisa Marks, a licensing agent and president of Lisa Marks & Associates, based in Port Chester, New York. Marks helped Born and Shaffer find 24 licensing partners with strong track records and established distribution networks. She also negotiated all of the licensing contracts in exchange for a cut of the sales.

Agree to have your name plastered on too many products and you run the risk of saturating the market and cheapening your brand.

The next challenge was determining what kinds of products to license. That's where many companies go wrong, says David Martin, North American president of Interbrand, a New York City-based brand consulting firm. Agree to have your name plastered on too many products and you run the risk of saturating the market and cheapening your brand. The classic example is Pierre Cardin, which Martin says was a relatively strong brand until it started licensing to a large number of apparel companies, some of which produced products that did not appeal to the designer's loyal audience of high-end shoppers.

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