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Whether it's Emerilware pots and pans by cookware manufacturer All-Clad, Glow by Jennifer Lopez perfume or Jeep-branded clothing, licensed products can be a boon to manufacturers and retailers in today's tough retail climate. We asked our Industry Experts to tell us about the impact of licensed products on sales in the industries they monitor. Here are their perspectives.
Leveraging Brand Equity
Licensors, those who own and sell the rights to licensed properties, look to licensing as a way of extending already-strong brand names without much up-front investment. The thought is, "That line of seasonings was successful, why not let someone create cookware under the name of the same celebrity chef?"
Quite frequently a manufacturer might license a brand name to companies in tangent categories which are applicable to the core brand equity but are not within the company's core strategic competencies or interest. The strategy is to milk the brand equity, with little financial risk.
Licensees, those who manufacture products featuring licensed properties, rely on licensing to expand business by trading on "borrowed equity." Surely that pop star's name and image will sell perfume, a savvy licensee may think.
"The primary benefit is that the licensor can launch a 'new' brand into the marketplace without having to build it from scratch. It's a long, expensive road to build a brand from the ground up, so in short order and at minimal cost, a company can launch a 'new' brand with already established equity," said Dennis Brown, president, NPD Fashionworld. "As a result, marketing costs and risks are reduced for manufacturers and retailers alike."
"As manufacturers continue to seek methods of growth, licensing has become more important than ever. Organic growth can only achieve so much. Inorganic growth, which often results from licensing, lets companies seeking sales volume growth reach beyond their existing structure to bring in additional revenue," said Marshal Cohen, senior industry analyst for the fashion industry.
Connecting With Consumers
For both licensors and licensees, creating and selling products featuring licensed properties is a way to connect with the consumer who wants to identify with an image or lifestyle projected by the licensed product. From the video games that capture teens' attention to the china that couples register for in department stores, licensed names and images have a place in nearly every industry and category The NPD Group monitors.
 The strategy Marshal Cohen calls "lifestyle branding" may be today's greatest source of licensing opportunity. Licensors that can create brands to appeal to very specific consumer lifestyles - whether it's travel and adventure, fashion-inspired design in tabletop products or branded food products that portray a particular image - may find themselves at the center of the latest "buzz" in the licensing community.
"When we talk about lifestyle branding, we mean brands that just shout what they are about. Jeep is an example of this - consumers seeking a rugged, outdoorsy, ready-for-anything image may choose Jeep products because of the lifestyle associated with Jeep's line of sports utility vehicles. The National Geographic Society is doing the same thing, in hopes consumers interested in a lifestyle of travel and adventure will buy National Geographic-branded products to build that adventurous image of themselves," Marshal said.
"What the property stands for is what the consumer identifies with. It used to be about imitation and aspiration. Logo jerseys with your favorite team's name showed your support for the team or your desire to be like your favorite player. Now, it's a culture unto itself, a lifestyle. Now you wear a certain product because it mirrors your emotions and is a means of self-expression - you want to endorse an artist or other property and what it stands for. Licenses are today's voice of the consumer," Marshal continued.
Where to Look for the Next Big Thing
Across the retail spectrum, most licensed properties seem to spring from four sources. The first case is a licensor's effort to attach a celebrity's name, likeness or lifestyle to specific products. This is where we see music and movie stars' names associated with fragrances, apparel lines and housewares products, whether or not there is a direct connection between the licensed product and the celebrity. Think boxer George Foreman's namesake grills. The next source for many successful licenses is established brands and trademarks. For example, auto makers' names like Jeep, Hummer and Land Rover making their way onto radios, hefty denim shirts and even baby strollers.
The third area where many licensed properties originate is the pool of well-known designers - fashion, architecture, or otherwise. Fashion designers Ralph Lauren and Vera Wang have both launched fine tabletop collections, and one trip to Target turns up gift wrapping products marketed under clothing designer Cynthia Rowley's name, housewares by architect Michael Graves and more.
 "Celebrities and clothing designers are the predominant sources for licensed properties in the beauty industry. Some of today's biggest licensed fragrance brands include Kenneth Cole, Vera Wang, Marc Jacobs and Michael Kors. The success of these brands is heavily dependent on who's hot in fashion at the moment. The same is true for celebrity-branded fragrances. Coty Beauty's recent success with the celebrity brand Glow by JLo (currently ranked in the top ten among fragrances) - and its Celine Dion fragrances are examples of how powerful celebrity image can be to sales of licensed products," said Timra Carlson, president, NPD Beauty.
And finally, the mass media is a significant source of licensing inspiration. Examples of licensed properties derived from media hits abound: " Star Wars" and "The Matrix: Reloaded" video games, Sesame Street and Barney kids' apparel and Nickelodeon and Disney characters on everything from children's pajamas to board games.
 This strategy - using media characters to market products, is important to the foodservice world. "In the restaurant industry, one way to change consumer behavior is by offering something new. Licensing is another way of introducing newness and excitement without altering the operation. A marketing tactic used by some food and beverage marketers is to tie-in with a hot movie, a cool cartoon character or this summer's popular action hero. The most visible practitioners of this licensing strategy in the food market are quick service restaurants. Restaurant chains that appeal to families know that a tie-in with a summer blockbuster movie can make a real difference in the year's sales performance," said Harry Balzer, NPD vice president, food. This summer’s quick service restaurant movie tie-ins include McDonald’s with “Finding Nemo” promotions, Burger King with “Rugrats Go Wild” toys and a Baskin-Robbins promotion tied to the movie “X2.” Wendy’s has also linked itself to a popular media-based property with its Pokémon Kids’ Meal promotions, based on the magical Pokémon movie, television and video game characters.
 Blockbuster movie tie-ins are big business in the video games industry, as well. "Movies such as 'Finding Nemo,''The Matrix: Reloaded,' 'T3: Rise of the Machines' and 'Lord of the Rings: The Return of the King' are expected to inspire strong sales for some of the most anticipated video games of 2003," said Richard Ow, NPD's senior industry analyst for the video games industry. "The same hype that drives moviegoers to theaters will drive gamers to buy the games, and vice versa," he said.
Crossing Industries, Building Business
The most sought-after licensed properties are those that have the potential to cross industries. A classic cross-over example is McDonald's "Beanie Babies" promotion of the late 1990s. The company offered toy company TY's small stuffed animals with the purchase of McDonald's Happy Meals. "Without substantial changes to McDonald's basic product offerings, the tie-in proved a boon to both McDonald's and TY and began a national fad that other food marketers are still trying to duplicate," Harry Balzer said.
McDonald's is the source of another example of cross-over licensing success: the restaurant chain licensed its name, characters like Ronald McDonald and Grimace and the famous "Golden Arches" logo to children's apparel marketers. This can be an effective way to reinforce the branding a parent company has invested in. By using the power of the characters kids associate with McDonald's, retailers like Kmart have been able to turn the power of the McDonald's brand into a property that kids identify with and parents associate with quality and brand confidence. The right product, the right target audience and the right standards of for merchandising, production and overall experience are essential to this strategy's success.
That kind of industry crossover is rampant in the housewares industry, where major fashion industry names like Vera Wang, Calvin Klein, Ralph Lauren and Kate Spade all claim their own tabletop lines, textiles or other home products. In the apparel industry, strong toy industry licenses like Sesame Street characters and Mattel's Barbie have long been used to market children's clothing.
Licensing Pitfalls: What to watch out for
 In the competitive and tightly-controlled world of licensing, hazards exist on both sides of the equation: for both licensors and licensees. First and most importantly, "a brand must be very careful about where, what and with whom it partners. The biggest problem for the licensor is extending a brand by licensing it to companies in categories that do not relate to the core brand identity. This not only will confuse consumers and potentially cause the licensed product to fail, but it also may erode brand equity," said Dennis Brown.
The second major concern for licensors is defining and monitoring quality specifications to ensure all products using a particular license meet or exceed consumer expectations associated with the core brand. "It only takes one poor licensed product to ruin a brand's reputation," Dennis explained.
Timra Carlson would add "when" to Dennis' "where, what and with whom" recommendations. "The key to success is licensing the right name at the right time and taking advantage of hot names that have potential for longevity," she said.
Another hazard the licensor should be aware of is the potential for licensee's communications and marketing to dilute or misrepresent the brand. "Licensors should carefully define their expectations and require licensees to adhere to strict marketing guidelines that include logo treatment, packaging, merchandising and even distribution channels. All of these factors say something about the brand and they should always be in concert with the master brand," Dennis said.
On the licensee side, the largest risk involves royalty payments. Normally, a percent of sales is used to calculate a royalty payment. For some of the hottest properties, a minimum is also established. If for some reason sales volume doesn't meet expectations, the cost to the licensee can be severe.
For more NPD Industry Expert insight on licensing, visit the "Viewpoint" section of the NPD World Web site for your industry.
Dennis Brown on housewares
Marshal Cohen on fashion
Richard Ow on video games
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