Every business owner -- and every marketer -- incorporates a combination of advertising, public relations, and promotions in their marketing strategies. But how many employ licensing as a marketing and sales strategy?
Not nearly enough, especially since licensing is a $270 billion-plus industry that provides brands an additional stream of revenue -- in some cases serving as the primary income driver as well as a marketing staple. That's why licensing grew over 3 percent last year.
And that's why your business may want to consider licensing, either as a licensor or, more likely, a licensee. The trick is figuring out where to start, so I spoke with Steven Ekstract, the Brand Director for licensing tradeshow organizer UBM Global Licensing Group and the group publisher of the trade magazine License! Global.
So yeah: Steven knows a little about licensing.
I understand licensing in general terms, but I would not have thought of licensing as a marketing tool.
For a product manufacturer, licensing is obviously a way to gain more attention for your products, which makes it a part of a company's overall marketing strategy. And with consumer products -- which is what we specialize in -- putting a recognized brand name onto your products not only helps drive sales but overall product and business awareness.
Take Walt Disney. They're the largest licensor in the world; in 2017 they did $53 billion in retail sales of licensed merchandise.
So when you see Mickey Mouse on a watch face, Disney doesn't make the watch. Disney licenses to a best-in-class licensor who makes watches.
Mickey Mouse watches are an early example of entertainment licensing that extended the licensor's brand. See Mickey on a watch and you think of cartoons, movies, Disney in general... licensing is a marketing tool for Disney. And for the licensees, because their products get exposed to Disney fans.
Star Wars is a famous example of licensing savvy.
George Lucas was relatively unknown when he pitched Star Wars. Most studios turned him down until 20th Century Fox agreed to make the film.
Lucas believed the film would be merchandisable. So he pushed Fox to give him the rights so he could control the merchandise. In return he gave away the standard director's raise if there were sequels. Fox was happy to do so since they had no idea if anyone would even watch the movie.
In the end he made millions off the merchandising rights, and retaining those rights was in part responsible for him being able to sell the Star Wars IP to Disney in 2012 for around $4 billion.
That sounds like a lot of money, but Disney has already recouped that money on subsequent films and merchandise sales.
Let's say I own a business. Where do I start with licensing?
There are two different candidates for licensing: The Licensor, the entity licensing their brand, and then the licensee, the entity paying for the rights to a brand. As a small business owner you probably don't have intellectual property that you can "rent."
So we'll assume you're a licensee: You make a great product -- let's say you make kid's pajamas -- and you want to dramatically increase sales. Your pajamas fit great, they're well made, they have great technical features... but they seem a little generic. They don't have a "brand."
So where would you start? You could go to Disney and look at all their different properties. Or or Nickelodeon. Or other kids' entertainment companies.
Another possibility is video games -- video games are huge. For a child over, say, 12 years old, video game-themed pajamas probably won't work. But for a kid below that age? Absolutely.
The same is true with older kids. And even adults. T-shirts licensed from video game brands from the 80s and 90s sell extremely well. They're experiential. Maybe you grew up playing that game. Or your dad did.
Whatever the reason, that kind of licensing is a great way to get consumers into stores.
The key, of course, is to find the right fit between the brand and your product. It has to make sense.
That seems like the hard part, both in terms of strategy and also knowing what to pay in order to "rent" a well-known brand.
Smart licensees create an in-house licensing department. Or use consultants.
Consultants know the business. Most were in-house on the manufacturing side; now they consult with licenses to acquire licenses and, as you point out, help negotiate fees.
Negotiating is critical. There is no set royalty rate; it really depends on the property. Star Wars could command 20 percent royalty rates. That's probably as high as you can get.
But in general terms, the fee is based on wholesale sales. The average is around 8.1 percent on wholesale rates.
Aside from understanding going rates, understanding and negotiating upfront guarantees is also critical. Often a brand will want a guarantee of $X -- even if you don't sell enough product to justify that fee, you still have to give them a check for that guarantee up front.
What are some of the pitfalls on for the licensor?
The quality of the licensed product is obviously extremely important. If you have a great brand but it gets displayed on a poorly-made product, that hurts your brand.
The same is true if too much product ends up int he marketplace, doesn't sell through, and winds up in discount bins. That can also distress the brand.
That can often happen with fashion and apparel. A major clothing brand that licenses out some product categories must be very careful about not just managing inventory but also managing where that inventory can be placed.
Smart licensors don't give up control over any function or area that can damage their brand.
Years ago, licensing was frowned upon in some industries. Like music. Now...
Gene Simmons comes to the licensing expo ever year and walks the aisles. He loves merchandise.
If you think about what Kiss did, they weren't necessarily a great band but they were marketing geniuses.
Paul Stanley said, "We're a band, and we're a brand. And without one, the other suffers."
They embraced the commercial side of the music more than just about any other band. And they're very hands-on. They have a renowned licensing agent but still personally approve everything.
That's a perfect example of the power of licensing: The more places their name is out there, the more visibility... it's free advertising.
Which is what I'm basically doing right now since I'm wearing a t-shirt with the Under Armour logo prominently displayed.
What many people don't know is that Coca-Cola does around a billion dollars a year in retail sales of licensed merchandise. Coke is basically a sweet fizzy drink, but Coke created a brand story over their 120-plus year history -- they created a lifestyle story that represents something more than just a sweet fizzy drink.
So from a licensing point of view of licensing, when they do a fashion collaboration with a fashion house -- say for high-end t-shirts -- they are also getting paid to advertise their product. It's brilliant.
And people not only don't seem to mind, they often actively embrace those brand tie-ins.
We're a brand-centric society in the U.S. And that's also in emerging markets. Global brands are a status symbol in many countries. Licensing growth in China is huge; their middle class has exploded, and they're looking for brand names.
Kids are also brand-centric. Social influencers create their own merchandise, they promote brands... that has become totally acceptable. Many people want influencers to tell them about brands they love.
So if I'm a small business owner...
Take a page from Hollywood studios. Studios decided they didn't want to gamble by spending millions on a new film property. They needed sure things. That's really where the franchise film premise started.
Today the franchise films do the big business.
So if you're trying to get a business going, or grow your business, consider making a licensing agreement with an established brand. Get the right fit and it could be a great way to hedge your downside while dramatically increasing your upside.