Beyond Short-Term Royalty Potential: Vetting Prospective Licensees for Long-Term Success


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Building a successful licensing program often means a brand licensor must have a licensing strategy that goes beyond royalty generation. This article for the April 2014 Licensing Industry Merchandisers' Association (LIMA) newsletter offers some strategic ideas to consider.

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Beyond Short-Term Royalty Potential: Vetting Prospective Licensees for Long-Term Success

  1. 1. LICENSING INFORMATION AND IDEAS TO BETTER YOUR BUSINESS LegalCorner: FocusonChanelsofDistribution Page 2 SpeakersNamedForLIMAUK LicensingEssentialsCourse Page 3 Nomineesfor LIMALicensingExcellence Awards Pages 4-5 WelcomeNewMembers Page 10 Calendarof UpcomingTradeEvents Page 7 2014 WHAT’S INSIDE A P R I L LicensingClinic: Beyond Short-Term Royalty Potential: Vetting Prospective Licensees for Long-Term Success ByDavidHarkins, AssociateDirector,RetailBusinessDevelopment BoyScoutsofAmerica Licensors often start their vetting process with a license application to learn about a prospective licensee’s proposed licensed product, the sales potential for the licensed product, and the basic financial health of the licensee. This may be sufficient if the primary goal for a licensor is rev- BallotForLIMALicensingExcellenceAwards Revealed,With118Nomineesin20Categories The ballot for the International Licensing Industry Merchandisers’ Association’s (LIMA) hotly-anticipat- ed 2014 International Licensing Excellence Awards competition is now set – and it features a record 118 nominees in 20 categories from across the licensing, retailing, promotion, and consumer products arenas. LIMA member companies can cast their online ballots via the LIMA website (www.licensing org) through May 14. Winners will be announced at the LIMA Opening Night Awards Ceremony on Tuesday, June 17, during Licensing International Expo 2014 in Las Vegas. This year’s awards program was the biggest ever, with a total of 360 entries -- a 36% increase from 2013. Nominations came in from 16 countries, including first-time nominees from India and Korea. The 2014 ballot introduces two new categories, Digital/New Media and Location-Based or Experiential Initia- tives, and makes Celebrity licensing a classification of its own, separate from Film and Television. The other categories in which awards will be presented are Char- Please turn to page 3 Please turn to page 6 AroundandAbout Page 9
  2. 2. w w w . l i c e n s i n g . o r g 6 LicensingClinicCONTINUED FROM PAGE 1 enue generation; however, if the licensing strategy goes beyond royalty generation, a licensor will need to consider other factors to help ensure all parties have greater op- portunity for success in the licensing rela- tionship. A licensor who seeks to increase aware- ness of its brand, expand into new catego- ries or markets, or develop new products to help serve its business goals, for example, may not consider short-term royalty poten- tial as the primary factor in evaluating new licensees. Depending on a licensor’s strategy, it might also incorporate factors into its re- view and vetting process to gain a broader view of a prospective licensee, its align- ment with a licensor’s mission and vision, and potential for long-term growth. In such situations, a licensor’s vetting process might include the following: • Organizational Fit -- A prospective li- censee and the new licensed prod- ucts it proposes must be a good fit with a licensor’s mission and vision. The proposed products, the manu- facturing and sourcing procedures, and the marketing and merchandis- ing strategies, must all be in align- ment with a licensor’s brand, im- age, and organizational direction. The prospective licensor’s business practices, executive leadership, management, and customer service staff will likely have impact on a licensor’s brand and these factors should be considered in the evalua- tion of alignment with the licensor’s organization. • Operational Stability -- Stability is es- sential and some licensors assess stability by the number of years a prospective licensee has been in operation, or the appearance of fi- nancial solvency; however, a deeper dive is always required. For example, a licensor will likely want to pull Dun & Bradstreet reports, ask for financial statements from non-public companies, check several references (other licensors, vendors, and manu- facturers), and evaluate the leader- ship biographies for experience. A licensor might also want to consider a prospective licensee’s operational structure and supply chain, paying special attention to ability to fulfill its marketing, sales, product delivery obligations in determining a pro- spective licensee’s stability. In some cases, a licensor might also want to conduct a site visit to confirm its findings before issuing a license. • Expertise -- Experience with the pro- posed licensed product and the spe- cific market for that product is best, although not always essential. If a prospective licensee has strength in a product category or market, a licensor will likely benefit from that expertise. Yet, there are times when a prospective licensee has expertise with similar products and markets, and is looking to expansion opportu- nities. In these situations, a licensor will need to consider if the expertise in existing markets or with similar product-lines will translate well into the proposed expansion plans. • True Opportunity -- Opportunity for expansion into new categories and markets always should be consid- ered, although carefully weighed against the risk to the brand. Pro- spective licensees rarely hit a home run with their first proposal to a li- censor because they do not have a thorough understanding of the brand or a licensor’s strategy. It is up to a licensor to look for the “true” op- portunity within the proposal, rather than details of the specific proposal. If a prospective licensee is open to exploring how to create a better fit with a licensor’s needs, values, and expectations, a true licensing part- nership might evolve to maximize the opportunity for both parties. Please turn to page 7 “Ifthelicensingstrategygoes beyondroyaltygeneration,a licensorwillneedtoconsider otherfactors[invetting potentiallicensees]tohelp ensureallpartieshavegreater opportunityforsuccess.”
  3. 3. w w w . l i c e n s i n g . o r g 7 • Innovation and Creativity -- Innovation and creativity may be the most criti- cal factor when considering a pro- spective licensee’s proposal. Most licensors need progressive licens- ees—those who desire to go beyond placing a logo on an existing prod- uct in prospective license’s current line. While there is a need in some categories for product with a “logo slap,” a prospective licensee who demonstrates commitment to de- veloping new products or merchan- dising approaches that align with a licensor’s strategy, mission, or vision demonstrates a level of innovation and creativity that can create a great licensing partnership. • Commitment to Brand -- Commitment to a licensor’s brand should be dem- onstrated through a prospective li- censee’s product development plan, marketing plan, and merchandising approach. A financial commitment should be readily evident, but a li- censor should also look for messag- ing alignment, documented product growth strategies, and of course, a passion for the brand. The Boy Scouts of America Licensing team uses this approach regularly to iden- tify and develop new opportunities. When revamping the licensing program in 2005, one of the key strategies became to recon- nect with alumni by raising brand visibility in unexpected places. Evaluating cultural change and potential market opportunities, it seemed licensed t- shirts might provide a good opportunity for the brand. Moreover, research had identi- fied a cultural shift from message-centered t-shirts to design-centered t-shirts, and given the growth in nostalgia at the time, the organization believed a new t-shirt line might help it achieve one of its goals: in- creasing visibility in unexpected places. When a prospective license’s proposal for branded t-shirts was received a few months later, this strategy was already top-of-mind. The prospective licensee’s proposal did not include the potential for significant revenue growth and offered initial design concepts somewhat misaligned with the organization’s brand. Yet, the company was stable, had a solid marketing program, strong sourcing capabilities, and broad dis- tribution opportunities. Unexpected places In fact, many of the distribution oppor- tunities were in those desired unexpected places—specialty retailers like Hot Topic, Fred Segal, Kitson, and others—and war- ranted a much closer look at the proposal and opened a detailed exploration of the organization’s thoughts on the true oppor- tunity. After several months of working together, the prospective licensee’s commitment to the brand and their creativity and innovation in design resulted in several solid concepts, which later became successful licensed products in those unexpected markets. The success of these licensed products proved the value of the Boy Scouts of America’s brand in the consumer marketplace and was instrumental in helping the organiza- tion re-launch its licensing program. Those six factors will not ensure a long- term success for a licensee. However, con- sidering those factors will help a licensor identify prospective licensees who are a better fit with the overall licensing strategy and may be in greater alignment with a li- censor’s mission and vision. Better partners Stable, innovative, and committed li- censees who have a passion for a licen- sor’s brand are likely to be better licensing partners and generate substantial revenue growth over time. While some licensors may choose to fo- cus primarily on new licensees who might generate higher royalty revenue for a short period, others would prefer the steady, long-term growth in royalty revenue that comes with a vetting process designed to create stronger alignment with a licensor’s mission and vision. UPCOMING TRADE EVENTS LIMAWestCoastSpringNetworking 5/6 Seasons52,10250SantaMonicaBlvd,LosAngeles NationalHardwareShow 5/6-8 LasVegasConventionCenter,LasVegas,NV Playcon 5/7-9 WestinKierlandResort&Spa,Scottsdale,AZ Sweets&SnacksExpo 5/20-22 McCormickPlace,Chicago,IL LIMANewYorkSpringFling 4/29 TheLiberty,29W35thSt.,NewYork Surtex 5/18-20 JacobK.JavitsConventionCenter,NweYork,NY LIMAUKLicensingEssentialsCourse/ SpringFling 5/22 TheKingsFundBuilding,London,UK LicensingExpo2014 6/17-19 MandalayBayConventionCenter,LasVegas,NV LicensingClinic CONTINUED FROM PAGE 6