A License to Sell

Leveraging the power of licensing to market products

In today’s climate of increasingly sophisticated marketing methods, many companies look to licensing to reinforce brand image, generate recognition and build brand equity. Licensing allows companies to tie their products to already-hot properties – and that can mean a built-in audience for a product that’s new to the market.

Why License?

Being granted a popular, sought-after license can help a new company establish itself within its industry sector, or it can help it acquire expanded distribution. For example, a company that previously may have had difficulty getting into a particular retailer’s distribution chain may find a welcome mat at a retailer’s door after receiving the rights to a popular licensed property. Winning a lucrative license also can positively affect a company's stock price or help stabilize its business through diversification.

“Licensing has long been important to the toy industry because it can provide a cost-effective way for a toy with a proven play pattern to be updated and refreshed using current popular characters,” said Anita Frazier, entertainment industry analyst for NPD Funworld. “In some cases, minimal R&D for these products allows for greater profits, which in turn can be used to fund R&D for new internal intellectual properties.”

The Power of Celebrity

“Celebrity licensing has spread to the home,” NPD Houseworld President Peter Greene. “The popularity of television cooking shows and home-related programming has helped turn celebrity chefs and other TV personalities into appliance and housewares franchises.”

One example of the power of celebrity licensing in the housewares industry is Emerilware stainless cookware, a line created through a licensing deal with celebrity chef Emeril Lagasse and cookware manufacturer All-Clad. Emerilware ranked among the top ten brands of range-top cookware lines sold in the 12 months ending May 2005. Outside the housewares realm, Emeril Lagasse licensed products extend to peripheral categories, such as kitchen textiles, cookbooks, food seasonings and apparel.

Developing positive associations with television personalities is also important to apparel marketers. NPD Chief Industry Analyst Marshal Cohen notes the “Mary Kate and Ashley” license is increasing in popularity among young fashion consumers. About half of mothers are aware of this property, and it was among the top ten licenses in children’s fashion in 2004 – moving up eight spots over two years to reach eighth in the rankings. Cohen said, “The steady rise of the Mary Kate and Ashley license is a bit of an anomaly in the market. Brand popularity within the children’s apparel category is generally very volatile from year to year. This is particularly true for licensed products, which come and go as their affiliates – a hot new movie, cartoon or celebrity – move in and out of the spotlight.”

Celebrity licensing is an increasingly important part of the beauty industry, as evidenced by the growth of both fashion designer and celebrity fragrances within the past five years. NPD reports celebrity fragrance brands generated $95 million in 2004, capturing six percent share of the fragrance market, up from only two percent in 2000. Designer brands captured 59 percent of the prestige fragrance market in 2004, a four percent increase over 2000.

Showing Character

Just as important to the licensing world as celebrities are characters designed to appeal to children. And just like celebrities, many of them come from today’s hottest television shows and movies.

“Characters for younger kids tend to work a lot like celebrities do for older people,” said Frazier. “The appeal of characters, like Elmo from ‘Sesame Street,’ is very strong among children – and always has been.  Aligning a product with the most desirable and sought-after characters can boost sales substantially.”

In the toy category, Star Wars is a strong example of licensing success. After nearly 30 years, the release of the latest movie and related toys boosted Star Wars toy property sales more than 150 percent year-to-date in 2005.

In the technology arena, while Apple and HP have attracted artists’ fan bases by licensing celebrity and rock star properties, Disney Electronics has reaped major market share gains with branded versions of commoditized products, such as DVD players, and particularly with small-screen tube televisions often purchased for kids’ bedrooms.

“Disney has offered multiple playful motifs for the consumer electronics (CE) market,” said Ross Rubin, director of industry analysis for NPD Techworld. “A TV styled after Mickey Mouse includes stereo speakers shaped like round black ears. Even the on-screen interfaces feature Disney characters.”

Rubin notes Disney is following up on its CE success by entering new consumer electronics categories and even the mobile telephone business. “Mickey can check in with Minnie via Disney Mobile, the mobile virtual network operator it is launching on Sprint's network,” he said.




Go, Team . . . Buy?

Professional sports leagues are also big players in the licensing game. This is particularly true when it comes to fashion, where consumers are eager to sport their favorite teams’ logos on everything from hats and shirts to coats and socks.

“Sports licenses have remained very popular over the years, due in no small part to the fact that star athletes are integrally connected with their teams’ apparel,” said Marshal Cohen. “Their appeal is further spread and enhanced by the same athletes’ endorsements of other products, including major food and beverage brands, credit cards and so on.”

The Licensed Apparel category is extremely lucrative for manufacturers and retailers: while Non-Sports Apparel and Sports/Active Apparel declined approximately seven percent each over 2004, Total Sports Licensed Apparel has swelled more than 10 percent in 2005.

Balancing Risk and Reward

Despite the great success many companies see when employing licensing as a marketing tool, licensing decisions still must be weighed carefully. Simply aligning a product with a licensed property does not necessarily mean that the two entities – product and property – actually complement each other from a branding or marketing perspective. For example, during Michael Jordan’s reign in the sports world, Palm Computing introduced a special edition of its popular PDA associated with the basketball legend. While the Jordan affiliation had been an incredible marketing success for the likes of Nike, it failed to translate into dramatically increased sales for the Palm product.

Likewise, a rising star who seems a natural fit for a full range of licensed products can quickly become yesterday’s news. It’s clear, though, that many companies have found the balance between risk and reward when it comes to licensing – and for those companies, licensing is one component of a winning marketing program.