BrainTrust Query: The Torrid Truth about Licensing’s Love Triangle
By Carol
Spieckerman, President, Newmarketbuilders
Through a special arrangement,
presented here for discussion is a summary of a current article from
Newmarketbuilders’ Blog.
Licensors are just as aware of rationalization as licensees are and they are
appropriately freaked out about it … but sometimes for the wrong reasons.
Direct-to-retail
licensing is on the rise as brand brokers like Iconix and even sourcing powerhouse
Li & Fung pursue direct deals with major retailers
such as Walmart, Target, and Kmart. However, the traditional model, a brand
owner/licensor granting the rights to a supplier/licensee to market products
to retailers under a brand, is still prevalent. We call this the licensing
triangle, and one thing’s for sure, it isn’t always a love triangle! As challenging
as it can be to keep the fires burning between suppliers and retailers, licensing
is inherently a riskier proposition … particularly when rationalization
comes calling.
Here’s where licensors can miss the connection: Most licensors
tell us that they are worried about brand rationalization. They see retailers
eliminating national brands in favor of private labels and know that it is
heading their way. However, they should be just as worried about supplier rationalization
because retailers are also looking for any excuse to reduce their supplier
base … and the suppliers on the chopping block may be their licensees.
In my
experience; however, licensors often leave the licensee out of the equation
when they lose ground with a retailer; instead they blame the retailer: "They
just don’t get our brand." "I knew that marketing guy was trouble." Retailers,
on the other hand, tell us that licensees can be a licensor’s weakest link
and when that is the case, you have to know that retailers place responsibility
squarely on the licensor. Bottom line: There are some terrific licensees out
there; ones that provide expertise and retail access that would otherwise prove
elusive. However, your brand at retail is only as strong as your weakest licensee.
So,
at a time of rampant rationalization, private label proliferation and retailer
AS brand, it’s time to reignite the flame by getting reengaged with your retailers
and your licensees as never before.
Here are a few tips on how to keep retailers
from getting the wandering eye:
1. Constantly assess, not only your own
portfolio of brands, but also those of your licensees. If their brand portfolios
aren’t important to the retailers that drive your business, your brand may
not be enough to make up for it.
2. Accompany your licensees to significant
meetings with retailers. When your brand is on the table, and on the line,
you owe it to yourself to be present.
3. Increase the frequency and intensity
of licensing summits and collaborative sessions. Your licensees will need to
have more than a stylebook in order to tell a story of alignment between your
brands and retailers’ brand visions.
4. Be more than a brand-centric cheerleader
(or dictator) for your licensees; be a partner to them by providing retail-relevant
resources and insights.
After all, licensees are more than middlemen; they
are a marketing arm for your brands.
Discussion Questions:
How has ongoing rationalization affected licensing? Is the traditional
model less attractive than in the past? What further steps can licensors
take to support their brands in the current climate?
I’m just a little confused about the terminology used here. If you’re referring to traditional licensing–where a company like Disney allows someone to market and sell items from a movie or cartoon, then rationalization has no impact. Hot products are just hot…and a retailer MUST carry them.
If you’re referring to companies like Ralph Lauren outsourcing production of its products, quality is the most critical concern. Brand damage could be considerable.
Overall I see rationalization as the pendulum swing from proliferation, and a return to normalcy. Too much rationalization is a bad thing (Walmart our latest example).
The poll question is a tricky one. Retailer-exclusive licensing deals may be just the thing to keep certain products on the shelves–allowing for store-brand-like commitment from the retailer with price and/or margin advantage. If you can only get a certain recognizable brand at Retailer M or T, it might provide some shoppers with an extra reason to visit.
But the classic licensing model probably is at risk from SKU rationalization. In the current era, it’s a rare brand indeed that can command a higher price point for equivalent merchandise. And items in the middle–between the category leader and the store brand–are certainly on the bubble in many categories.
So in addressing the challenge for licensees and licensors, the question comes down to, “In which product category?” and maybe even, “For which shopper segments?”
Where a licensed brand is clearly and reliably associated with a superior level of quality, there is ample room for success. Mediocrity is the enemy. For this reason, licensors must keep their thumbs on licensees at all times, to ensure product standards and proper representation to the retailer.
The Iconix model is a good example of how the traditional “licensing triangle” is changing. There are fewer national retailers, and they are interested in margin growth as well as development of exclusive brands. So it makes sense for these stores to go straight to the master licensee to lock up distribution rights and to do their own product development and sourcing. The result: One of the three sides of the traditional “triangle” is cut out of the picture, unless the retailer decides to source product from a prior license-holder.
All the more important, therefore, for licensees to reexamine their business model, to make sure they are relevant to the new breed of mega-retailer.
Paula touches on the main issue. As retailers seek to better leverage their inventory costs and margins in this soft environment, they are going to cut their least productive items from redundantly large assortments.
The key phrase here is “least productive.” In other words, the first challenge for the licensor is to have a licensee who produces a high quality product that best represents the value proposition of the brand and sells well in the channel that you have selected to do business in. Put even simpler, if you have a great product, it will sell and it will probably not be rationalized out. If you don’t, it probably will be.
The key, then, is what the end customer thinks. Everything else follows that.
Oh, man, don’t get me started! Too late, I’m started.
A few years ago my partners and I owned the supermarket licenses for Mrs. Fields, Otter Pops, Fog City Diner (for those familiar with San Francisco), and Odwalla. Our premier products were Mrs. Fields Frozen Cookie Dough (rave reviews) and the Red Bag shelf-stable Mrs. Fields Cookies now on shelves. When you get into licensing with small licensors, you get squeezed exactly as Carol Spieckerman illustrated in her triangle graphic. But there was no heart in the center of our triangle. More like a skull and crossbones.
We developed many excellent products. For us, the problems began with the outlandish and criminal slotting requirements from retailers. But then there were the inexperienced licensors. They typically have uninformed and unreasonable expectations. For instance, they want more control than they’re owed. Debbi Fields, for instance, was charming and engaging on one hand, and an absolute abusive tyrant on the other. You heard it here first. Yelling and screaming. Our biggest problem with her was that she wouldn’t allow preservatives in the shelf-stable cookies. Definitely not possible. Her years-long delay of approval for preservatives in the Red Bag product pretty much killed that license for us.
Carol raises some excellent points in her article, and her triangle is a great illustration of the challenges that can exist, or the beautiful relationship that can develop.
Here is the way that I look at the relationship. The owner of a hot property (licensor), a popular brand is like an owner of a beautiful mansion. The licensee is similar to a family that rents the mansion from the owner. It is in the best interest of the property owner to stop by once a month and make sure the house is being kept up, the grounds are neat, and the condition of the home remains at the highest level of quality. It is in the best interest of the licensee to maintain the home so they have a great place in which to live, and the better they maintain the home, the longer they can remain tenants.
The minute the property owners take their eye off the ball, and become less engaged is when the property starts to devalue.
Great subject, Carol.